Simpson-Bowles on Medicare

The President mentioned being open to Medicare reforms of similar cost magnitude to those proposed by the Simpson-Bowles report in the State of the Union.

Here is a post from April, 2011 on the health policy proposals of the Simpson-Bowles report. Big picture, the most important thing to understand about Simpson-Bowles and health policy is that it assumed the implementation of the Affordable Care Act (including the Medicaid expansion). Here are a few highlights of their Medicare proposals (see pp. 37-40)

  • Change the SGR (do away with the doc fix) and pay for it. They note this as saving money ($22 Billion), but that is compared to the assumption that the SGR is not allowed to take place which is a good assumption, and the alternative of freezing physician pay for a period while a new system is worked out. The offset needed to “pay for ending the SGR is $267 Billion over 10 years, or over $100 Billion more than CBO now says it is. It is insane not to do away with SGR and move toward a new system now.
  • Repeal CLASS. This has been done, but Simpson-Bowles said this would save $76 Billion, while CBO said the cost to offset was $0.
  • They then note $400 Billion in cuts (to partly pay for getting rid of the SGR above) with others to address deficit reduction. The most consequential of these are: (1) simplifying the cost share rules across the parts of Medicare (save $110 Billion over 10). (2) reforming Medigap to not allow a first dollar option (save $38 Billion over 10); (3) expanded waste, fraud and abuse ($9 Billion over 10); (4) Reduce Medicare payment for Graduate Medical Education, or training of physicians ($60 Billion over 10); (5) End Medicare bad debt payments for Medicare beneficiaries who do not pay co-pays and deductibles ($23 Billion over 10).
  • Note that these are all “savings” to the Medicare program. Many of these simply shift costs to other payers. For example, to hospitals in the form of increased bad debt collection, or a teaching hospital in the form of lower subsidies for residency training. These sorts of Medicare savings that shift costs to hospitals will be heightened in a State that does not undertake the Medicaid expansion (like North Carolina).
  • Note that the numbers above on savings were from 2010, and the Medicare baseline has improved quite a bit since then. So, these would need to be re-scored. If we did away with SGR and moved toward some sane physician reimbursement model (not saying I know how) and modified and unified the deductible structure across the parts of the Medicare program, and had more aggressive means-testing of Medicare (maybe the imposition of a Part A premium) that would be a reasonable poke at some next steps beyond the ACA on Medicare. I am not going to try and give a cost estimate.

I want to reiterate that the underlying starting point of the Simpson-Bowles health reform policies were that they assumed the implementation of the Affordable Care Act, including the Medicaid expansion.

[Cross-posted at The Reality-based Community]

Don Taylor

Don Taylor is an associate professor of public policy at Duke University, where his teaching and research focuses on health policy.