Bipartisan Policy Center's $560 Billion Plan to Lower Health Care Costs

A new report by the Bipartisan Policy Center’s (BPC) Health Care Cost Containment Initiative was released today containing roughly $560 billion in savings to federal health spending over the next decade. The report, "A Bipartisan Rx for Patient-Centered Care and System-wide Cost Containment," offers a detailed and integrated plan for reforming federal health programs and bending the health care cost curve.

The majority of the savings – nearly $300 billion – is derived from changes to the Medicare program.  Some of the most significant Medicare reforms include:

New "Medicare Networks." BPC’s plan recommends an approach to reforming Medicare that moves away from Medicare fee-for-service (FFS) with greater beneficiary and provider incentives for higher value service. Under their proposal, Medicare providers and beneficiaries would have three options. Traditional Medicare fee-for-service (FFS) would still exist and a new, reformed version of Accountable Care Organizations (ACOs) called “Medicare Networks” would be created. Medicare Advantage would be the third option and would be reformed to improve competition.

The new Medicare Networks would be comprised of a group of providers working together to deliver care and sharing in any savings or losses. A network would contract with CMS and have a unique spending target. Providers in this model would be paid through a mix of a fixed per beneficiary payment and a fee schedule. Providers would share in savings from improved efficiency and could benefit from other incentives such as payment for services not previously reimbursed by Medicare.

On the beneficiary side, those who enroll in a Medicare Network would receive a $60 annual discount on their Medicare premium for the first three years along with lower cost-sharing for in-network providers. If a network meets quality and savings targets, then beneficiaries in that network would receive 25 percent of the savings in the form of reduced monthly premiums.

Replace the SGR.  BPC recommends repealing the antiquated sustainable growth rate (SGR) formula and replacing it with a new method that provides higher payments for those providers in a Medicare Network and a freeze in payments for those in FFS.

Reform Medicare Advantage. As part of their approach, the plan calls for establishing a new standardized minimum Medicare Advantage (MA) benefit, including an out-of-pocket cap and lower cost-sharing for beneficiaries who choose high-value providers from tiered networks. It would also implement a competitive bidding system for certain MA plans. Some of the savings could be re-directed to reduce premiums and cost sharing for enrollees.

Other MA reforms include changes to the star rating system to lower bonus payments to plans until regional markets convert to the competitive bidding system, at which point the bonus payments would be eliminated.

Bundled Payments. BPC’s plan recommends extending bundled payments into the standard Medicare payment method for post-acute care providers, similar to the President’s proposal, which saves $8 billion over ten years.

Cost-Sharing Reforms. Similar to some of the cost-sharing reforms proposed in other deficit reduction plans, BPC proposes to replace the deductibles for Part A and B with a combined $500 deductible, a cost-sharing limit of $5,315, and new copayments recommended by MedPAC. Additionally, they would reform supplemental coverage (both Medigap plans and employer-provided plans, including Tricare-for-Life and the Federal Employees Health Benefits Program) by requiring that they include a $250 deductible, have an out-of-pocket maximum no lower than $2,500, and cover no more than half of an enrollee’s coinsurance/copayments. While most of these cost-sharing reforms would yield savings, BPC does recommend increasing spending by $75 billion to expand cost-sharing assistance for beneficiaries below 150 percent of poverty.

Raise income-related premiums for wealthier beneficiaries. BPC recommends expanding income-related premiums for Medicare beneficiaries with higher incomes by lowering income thresholds until 17 percent of beneficiaries pay income-related premiums, up from about 5 percent now. This proposal would alone save over $66 billion through 2023.

Graduate Medical Education (GME). BPC’s overall GME proposal is budget neutral. It proposes a reduction in Indirect Medical Education (IME) add-on payments from 5.5 percent to 3.5 percent to better align with actual costs. However, it uses the savings to pay for incentive payments to high-performing institutions and additional residency slots.

Per-beneficiary spending cap. In order to ensure savings in the long term, the authors recommend that no earlier than 2020 policymakers implement a fallback spending limit on annual per-beneficiary spending growth to a target of nominal GDP per-capita growth + 0.5 percentage points (using a five-year rolling average). This would apply differently to fee-for-service, Medicare Networks, and Medicare Advantage, as elaborated on below.

In addition to these reforms, the report includes numerous more recommendations such as expanding competitive bidding to more durable medical equipment (DME) and equalizing payment differences across delivery sites to the rate of the lowest cost setting. Another sizable policy proposed is eliminating copayments for low-income beneficiaries using generic and low-cost drugs, saving $44 billion over the next decade due to the lower cost of generic drugs.

The remaining savings in BPC's proposal come from new revenues from reforms to health-related tax provisions. BPC proposes replacing the tax on high cost health plans (the “Cadillac tax”) from the Affordable Care Act with a limit on the tax exclusion for employer-provided health insurance at the dollar amount equal to the 80th percentile of premiums of such insurance, and indexed to GDP per-capita growth through 2023, and to GDP per-capita growth + 0.5 percent thereafter. This is estimated to raise $262 billion, mostly from the tax on contributions to plans with high premiums, but also from the shift in employee compensation from untaxed health benefits to taxable wages.

The plan also calls for replacing the current health insurance plan tax from the Affordable Care Act with a paid-claims tax on a revenue-neutral basis. The paid-claims tax would apply a tax on health insurance claims, both to commercially insured plans and self-insured. The authors argue this could also help to drive plans toward alternatives to Medicare FFS that are based on a capitated payment model (since those payments would not be based on claims).

As the graph above shows, BPC's plan would help to lower the trajectory of Medicare spending over the course of the next decade.  By 2023, these reforms would lead Medicare spending to be slightly less than one-half of a percentage point of GDP less than they would be under current policy. BPC also estimates that over the next 20 years, their proposal would save Medicare $1.25 trillion. Overall, the recommendations in BPC's report are a great addition to the growing number of options lawmakers can consider as part of a comprehensive effort to address the budget's largest driver of future deficits: rising health care spending.