Overview of Policy Options to Sustain Medicare for the Future

1. Overview of Policy Options to Sustain Medicare for the Future Juliette Cubanski, Ph.D. Associate Director, Program on Medicare Policy Kaiser Family Foundation NCCS Cancer Policy Roundtable Washington, D.C. March 8, 2013

2. Why Medicare Proposals Are Under Discussion • Medicare is now 15% of the federal budget, growing to 18% by 2020 • Medicare was 3.6% of the economy in 2010, growing to 3.9% by 2020 and 5.2% by 2030 • Over the long term, total Medicare spending is projected to grow faster than the economy, due to retirement of baby boomers and rising health care costs (affecting all payers) SOURCE: Congressional Budget Office, An Update to the Budget and Economic Outlook: Fiscal Years 2012 to 2022; August 2012. 22% 19% 15% 17% 13% 6% 8% Projected Total Federal Spending, FY2012: $3.6 Trillion

3. NOTE: *Assumes no reduction in physician fees under Medicare between 2012 and 2021. SOURCE: Kaiser Family Foundation analysis of data from Medicare Boards of Trustees, Bureau of Economic Analysis, Congressional Budget Office, Centers for Medicare & Medicaid Services, U.S. Census Bureau. Historical and Projected Average Annual Growth Rate in Medicare Spending Per Capita and Other Measures Projected (2012-2021) Actual (2000-2011)

4. Medicare Enrollment Growth and Medicare Spending as a Share of Gross Domestic Product, 2000-2040 Medicare Spending as a Share of GDP (under CBO’s alternative fiscal scenario) SOURCE: Medicare Boards of Trustees 2012 Annual Report; Congressional Budget Office Long-Term Budget Outlook. Medicare Enrollment (in millions)

5. Projected Change in Medicare Enrollment, 2000-2050 Medicare Enrollment (in millions) Average Annual Growth in Enrollment SOURCE: Medicare Boards of Trustees 2012 Annual Report.

6. Medicare Part A Trust Fund Balance, 2011-2024 Trust Fund Balance at beginning of year, as a percentage of annual expenditures: SOURCE: Medicare Boards of Trustees 2012 Annual Report.

7. Challenges Facing Medicare • A mismatch between projected revenues and spending that is projected to result in insufficient funds to support services that are paid for by the Hospital Insurance trust fund beginning in 2024 • An outdated benefit design, with relatively high deductibles and cost-sharing requirements, no limit on out-of-pocket spending, and benefit gaps, that encourages beneficiaries to seek supplemental insurance and contributes to relatively high out-of-pocket spending • Several provider payment systems that reward volume, rather than value or patient outcomes, without adequate incentives to encourage providers to coordinate and manage patient care, particularly for high-need, high-cost beneficiaries • A flawed physician payment formula that aims to constrain the growth in expenditures associated with physician services, but has led to frequent Congressional intervention to avoid sudden and severe reductions in doctors’ fees • An ongoing struggle to constrain the growth in health care spending, while providing fair payments to providers and plans and high-quality, affordable medical care for beneficiaries

8. Possible Pathways for Medicare Reform • Leave the current program structure largely intact but modify features of it; e.g., adjust existing payment rules for providers and plans, raise beneficiary cost sharing • Leverage Medicare’s role in the health system to create stronger incentives to promote “value” over volume; e.g., accelerate delivery system reforms through CMMI • Change the fundamental structure of Medicare from defined benefit program to one that provides entitlement to a government payment for the purchase of insurance coverage

9. Kaiser Family Foundation Compilation of Medicare Savings Options • 150 Medicare savings options divided into five main groups • Process involved expert interviews, literature/research review, review of various Medicare and deficit-reduction proposals • Cost estimates (where available) from official and publicly available government sources, including CBO, HHS Office of Inspector General, MedPAC, and OMB • Do not make policy recommendations or suggest a specific savings target

10. Categories of Medicare Savings Options • Medicare eligibility, beneficiary costs/premiums, and program financing/revenues • Medicare payments to plans and providers, including Medicare Advantage, prescription drugs, provider payments, and malpractice • Delivery system reform, care for high-need beneficiaries, and patient engagement • Medicare program structure, including benefit redesign and premium support • Medicare program administration, including spending caps, coverage policy, governance, and program integrity

11. Majority of the public expresses opposition to most deficit-reducing changes to Medicare I’m going to read you some changes to the Medicare program that have been discussed as ways to reduce the federal budget deficit. Please tell me whether you would generally favor or oppose each one. Strongly favor Somewhat favor Somewhat oppose Strongly oppose Requiring drug companies to give the federal government a better deal on medications for low-income people on Medicare Requiring only high income seniors to pay higher Medicare premiums Gradually raising the age of eligibility for Medicare from 65 to 67 for future retirees Reducing payments to hospitals and other health care providers for treating people covered by Medicare Increasing the payroll taxes workers and employers pay to help fund Medicare Requiring all seniors to pay higher Medicare premiums 50% NOTE: Don’t know/Refused answers not shown. SOURCE: Kaiser Family Foundation/Robert Wood Johnson Foundation/Harvard School of Public Health, The Public’s Health Care Agenda for the 113th Congress (conducted January 3-9, 2013)

12. Key Questions in the Debate about Medicare’s Future • How much can Medicare absorb in additional savings, and over what period of time, without negatively affecting patient care? • How should efforts to sustain Medicare be distributed among providers, plans, beneficiaries, and taxpayers? • What are the most promising strategies for reducing inefficiencies and promoting high-quality care: accelerated delivery system reforms; greater competition among plans and providers; value-based purchasing strategies; stronger financial incentives to encourage care management? • Should Medicare’s basic entitlement be changed from a program that guarantees a defined set of benefits to one that provides a defined contribution for the purchase of insurance? • Should reform efforts focus specifically on Medicare or be broadened to address the growth in health care spending across all payers?