What Rockefeller’s Medicare Payment Reform Means

This post originally appeared on The Finance Buff.

Yesterday, President Obama met with senators to urge quick action on health reform and to reinforce some of his preferences for the shape it takes. In particular, as reported in the NY Times and by Johnathan Cohn (of The New Republic), Obama indicated his support for Senator Rockefeller’s proposed modification to parts of the Social Security Act to give the Medicare Payment Advisory Commission (MedPAC) authority to set Medicare payment rates. Robert Pear (NY Times) writes,

“Senator John D. Rockefeller IV, Democrat of West Virginia, recently introduced a bill that would expand the role of the panel, the Medicare Payment Advisory Commission, and give its recommendations the force of law. Senators said Mr. Obama and his aides had expressed general support for such a change, which would establish the panel as an independent rate-setting body in the executive branch.”

This is a big deal. Here’s why: MedPAC has been recommending for years that payments to Medicare Advantage (MA) plans be set at 100% of local fee for service (FFS) Medicare costs. In recent years MA payments have been well above FFS costs, which explains their increasing availability and more generous benefits. In effect, beneficiaries not enrolled in MA plans and other taxpayers have been funding (subsidizing) extra MA benefits and insurance company profits.

If MedPAC were given the authority to set MA payment rates we can accurately predict what will happen. Medicare would save a bundle of money (according to CBO, about $150 billion over 2009-2017) while many beneficiaries would lose access to plans and benefits. (I don’t have an official estimate at my finger tips but based on my own work and the history of the MA program I think it is reasonable to expect a drop in MA enrollment on the order of 50%, from the ~10 million today to closer to 5 million).

Later: Today President Obama submitted a letter to Senators Kennedy and Baucus (text here) in which he indicated support for a slightly different role for MedPAC, one in which the Commission’s recommendations would be put to a straight up-or-down vote by Congress. Obama wrote,

“To identify and achieve additional savings, I am also open to your ideas about giving special consideration to the recommendations of the Medicare Payment Advisory Commission (MedPAC), a commission created by a Republican Congress. Under this approach, MedPAC’s recommendations on cost reductions would be adopted unless opposed by a joint resolution of the Congress. This is similar to a process that has been used effectively by a commission charged with closing military bases, and could be a valuable tool to help achieve health care reform in a fiscally responsible way.”

Later Still: A well-done post on this topic by Maggie Mahar has appeared on The Health Care Blog. The implications for payments to physicians, hospitals, and for pharmaceutical studies are explored. Since the post includes “Part 1” in the title, there is promise of more reporting by Mahar in this area. I’ll be on the lookout for it.

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