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News September 2017

Washington Watch

Follow the Money: Budget Negotiations Could Mean Major Changes for Medicare and Social Security

By Alan M. Schlein

The House Budget Committee's plan doesn't end with raising the eligibility ages and premium support. It goes further, making a series of "modernization" ideas, including a cap on hospitalization out-of-pocket costs, streamlined deductible structure and limits on the richest Medigap supplemental plans. It would also expand means testing of Part B (outpatient services) and Part D (prescription drugs) premiums for high-income seniors.

If you thought the bitter partisan fight over the "repeal and replace" of President Obama's health care law was ugly, ratchet up the intensity – the next fight over Trump's budget, including sweeping changes to Medicare, is about to start,  just as Congress faces a fiscal crisis. These Medicare changes would raise the eligibility age and convert the program to a voucher program affecting all 55.5 million seniors currently using the program and millions more about to become Medicare eligible.

President Donald Trump wants Congress's next move to be reforming the tax code. But lawmakers returned this fall facing two daunting deadlines. Congress must raise the debt ceiling by Sept. 29 and then they must pass a budget before the fiscal year ends the very next day, Sept. 30. Lawmakers actually have only 12 legislative days scheduled when both the House and Senate are in session before those deadlines.

Without raising the debt ceiling, the government will run out of money to pay bills it owes. Without passing a budget, the federal government would be forced to shut down as it would have no money to function.

During his campaign for president, Trump vowed repeatedly that he "wouldn't touch" Medicare or Social Security. Guess someone didn't tell House Republicans, who are moving ahead with their own agenda that targets Medicare for sweeping changes.

The 2018 budget resolution, which was approved by the House Budget Committee recently, calls for major Medicare reforms along with some changes to Social Security disability payments. Among the reforms detailed in the budget are limiting Medicare benefits for wealthy seniors and allowing more private insurers to compete for coverage. The House budget assumes Medicare will reduce spending by $487 million from 2018 to 2027.

Under the House Budget Committee's plan, Congress would raise Medicare's eligibility age and shifts the program to a flat premium-support payment, or voucher, which beneficiaries could use to help buy either private health insurance or a form of traditional Medicare.

Under the proposal, those individuals would not become eligible for full Social Security benefits or Medicare until the age of 67, an increase by two years. The Congressional Budget Office has estimated that would reduce Medicare spending by 2 percent once everyone in the program is covered by the later eligibility age. The proposal includes a requirement that affluent seniors pay higher premiums, and that people with incomes of $1 million or more pay the full cost of Medicare premiums without any federal subsidy.

For many years conservative policy experts, led by House Speaker Paul Ryan, R-Wis., have argued that increasing the age to 67 will help protect Medicare's solvency going forward. Democrats complained that traditional Medicare would cost 25% more than it does now if vouchers come into play.

But critics suggest that higher eligibility ages would hit some people harder than others in terms of lost years of Medicare coverage. While recent longevity gains are not spread evenly across the U.S. population, the big unanswered question is where will these people get health insurance from while they live longer?

Employers might cover some that work to an older age. Medicaid might help lower-income retirees – if Republican efforts to change that program don't succeed. Still other folks could buy private policies on the Obamacare insurance exchanges – if those survive efforts to kill that program. For most of these folks, their costs would be much higher than under Medicare.

Under Ryan's "premium support" vision, Medicare's defined set of promised benefits would be replaced with an annual voucher that enrollees would use to buy health insurance. Beginning in 2024, Medicare enrollees would buy health insurance from among various competing plans, which could include both traditional Medicare and plans offered by commercial insurance companies. The federal government would pay part of the cost of the coverage through an annual payment or voucher.

Ryan and House Republicans are gambling that injecting more private health insurance competition will solve the biggest health care problems. But that could be a risky experiment conducted in real-time with real seniors, who have the most intensive health care needs to face the potential consequences.

Right now, most Medicare enrollees pay no premium for Part A (hospitalization), which is funded through payroll tax contributions. Medicare's trustees reported earlier last month that Part A will have the resources to meet 100 percent of its obligations through 2029. Reforms contained in Obamacare had extended that date by 11 years. But if that law is repealed or scaled back, those additional years would disappear, putting the program at jeopardy quicker.

One potential way to close the projected funding gap could be with a modest increase in the payroll tax, raising it from the current 2.9 percent up to 3.6 percent, experts suggest. But the House Budget Committee's plan doesn't end with raising the eligibility ages and premium support. It goes further, making a series of "modernization" ideas, including a cap on hospitalization out-of-pocket costs, streamlined deductible structure and limits on the richest Medigap supplemental plans. It would also expand means testing of Part B (outpatient services) and Part D (prescription drugs) premiums for high-income seniors.

 

Proposed Social Security Changes

On Social Security, the House budget plan echoes a White House proposal to move more people off disability and back into the workforce. The House bill also took many of the same Medicaid cuts and restructuring that was contained in the failed Affordable Care Act (ACA) repeal bill and makes further cuts to those programs. The Congressional Budget Office estimated the House-passed bill to repeal Obamacare would cost 23 million people their health coverage by 2026 most of whom get Medicaid, which provides health care to low income seniors, people with disabilities, and children.

Over the next 10 years, House Republicans propose cutting $2.9 trillion from federal services that benefit people of low and moderate income. If they are enacted, those cuts would grow over time until, in 2027, 36 percent of the resources for those programs would be completely eliminated. These are much more severe cuts than other non-defense programs, which would be cut by 14 percent that year.

The House Republican spending outline also assumes the government will do better at recouping or avoiding improper payments. The House Budget Committee plan said that there was $59.7 billion in improper Medicare payments in in the last fiscal year, and $36.3 billion in improper Medicaid payments. The outline assumes future improper payments will be 50% lower than today's levels.

According to the General Accounting Office, Medicare has spent $117 million on audits but so far has recouped just $14 million of these payments – less than 10 percent of the amount that could potentially be recovered and far less than what the House Budget Committee is assuming.

Senate Republicans, also starting to move on their own version of the budget, are taking a very different approach to their House counterparts. Both parties want a budget deal to increase spending but serious negotiations between top Congressional leaders and the administration have yet to start in earnest. That won't happen until they bump up against those Oct. 1 fiscal deadlines. An expected stopgap funding measure is all but certain to be needed to avoid a government shutdown.

Normally, the House and Senate are meant to pass budget resolutions in April, paving the way for appropriators to write, amend and pass 12 spending bills for the new fiscal year on Oct 1. Traditionally those deadlines are delayed when a new administration comes to power. But this year, the budget process has gone way off the rails.

In addition to the Medicare fight over the budget and the battle to keep the government from a shutdown, lawmakers also have the unenviable task of raising the debt ceiling. What makes debt ceiling votes so difficult is that neither the Democrats nor the Republicans want to be perceived by voters as accommodating runaway government spending. But no one wants to be responsible for a government shutdown. This all adds up to some critical moments that will set the stage for the 2018 mid-term elections.

 

[Also contributing were: Reuters, CNN, Politico, AP, Wash Post; Atlantic and the Fiscal Times.]

Alan Schlein runs DeadlineOnline.com, an internet training and consulting firm. He is the author of the bestselling “Find It Online” books.

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