The Baucus Plan by the Numbers
The Congressional Budget Office on Tuesday released a preliminary analysis of the chairman’s mark of America’s Healthy Future Act of 2009, which was released earlier that day by Senate Finance Committee Chairman Max Baucus.
The good news is that, according to the CBO, the Baucus plan would reduce the federal deficit by $49 billion dollars during the 10-year period ending in 2019. In 2019 alone, the plan achieves $16 billion in deficit reduction. Moreover, in contrast to the bill produced by the House committees, in which net outlays increased in the out years, the CBO expects the Baucus plan to further reduce the federal budget deficit after 2019, “as added revenues and cost savings are projected to grow more rapidly than the cost of the coverage expansion.”
Most of the savings are generated from two sources: 1) transitioning Medicare Advantage plans to a competitive bidding system, thereby reducing the federal subsidies that are paid to private plans; and 2) reducing annual Medicare market basket updates (annual increases in Medicare payments to providers to compensate for higher office expenses and other input costs). Cuts to the Medicare Advantage program were fully expected, as private plans on average currently receive significantly more than the costs in fee-for-service Medicare, and the reductions in the market basket updates are not overly severe, even though their cumulative impact is significant.
Of more concern, however, is a provision relating to payment for physicians’ services under Medicare Part B. Starting in 1998, as a way of controlling overall spending growth in Medicare, Congress implemented the sustainable growth rate (SGR) formula for the annual adjustment in fees paid to physicians in Medicare. Adhering to this formula, however, would have resulted in cuts to the fees paid to physicians, so Congress repeatedly has overridden the formula since 2003 to allow payment increases. But the formula was never repealed, so if Congress does nothing to override it each year, payments to physicians would automatically be cut by the cumulative difference between current payment rates and payments under the original formula. The Baucus plan once again overrides the SGR for 2010, allowing another increase in payments to physicians, but does nothing to repeal the SGR, meaning that cuts—estimated by the CBO to be approximately 25%—would begin in 2011. Because the cuts are not a change in current law, they are not scored as savings by the CBO. The issue, however, is whether it is realistic to expect that Congress would allow a drastic cut of 25% to stand. Certainly physicians will not stand by and allow these cuts to be implemented. Without these cuts, however, the deficit reductions promised by the Baucus plan would likely prove to be illusory.
So far, at least, critics of the Baucus plan have focused on other issues. In particular, many Democrats object to the exclusion of a public plan option in the insurance exchanges. Republicans, on the other hand, are objecting to including in the exchanges non-profit health insurance cooperatives, saying, in the words of Senate Minority Leader Mitch McConnell, that they are “just another name for a government plan.” From the CBO’s perspective, however, the cooperatives are a non-issue. “The proposed co-ops had very little effect on the estimates of total enrollment in the exchanges or federal costs because…they seem unlikely to establish a significant market presence in many areas of the country or to noticeably affect federal subsidy payments,” according to CBO Director Douglas Elmendorf.
But it is only a matter of time before attention gets focused on the issue of cuts to physicians’ payments, and I assume Senator Baucus knows this. Perhaps, his real plan is to use the threat of drastic cuts as a stick to force physicians to move away from a reliance on fee-for-service payments and toward adoption of alternative payment mechanisms, such as bundled payments, or the capitated payments that may come with participation in an accountable care organization. In the end, it may require the stick of payment cuts to force providers to consider the potential carrots they may receive through alternatives to fee-for-service Medicare.
The good news is that, according to the CBO, the Baucus plan would reduce the federal deficit by $49 billion dollars during the 10-year period ending in 2019. In 2019 alone, the plan achieves $16 billion in deficit reduction. Moreover, in contrast to the bill produced by the House committees, in which net outlays increased in the out years, the CBO expects the Baucus plan to further reduce the federal budget deficit after 2019, “as added revenues and cost savings are projected to grow more rapidly than the cost of the coverage expansion.”
Most of the savings are generated from two sources: 1) transitioning Medicare Advantage plans to a competitive bidding system, thereby reducing the federal subsidies that are paid to private plans; and 2) reducing annual Medicare market basket updates (annual increases in Medicare payments to providers to compensate for higher office expenses and other input costs). Cuts to the Medicare Advantage program were fully expected, as private plans on average currently receive significantly more than the costs in fee-for-service Medicare, and the reductions in the market basket updates are not overly severe, even though their cumulative impact is significant.
Of more concern, however, is a provision relating to payment for physicians’ services under Medicare Part B. Starting in 1998, as a way of controlling overall spending growth in Medicare, Congress implemented the sustainable growth rate (SGR) formula for the annual adjustment in fees paid to physicians in Medicare. Adhering to this formula, however, would have resulted in cuts to the fees paid to physicians, so Congress repeatedly has overridden the formula since 2003 to allow payment increases. But the formula was never repealed, so if Congress does nothing to override it each year, payments to physicians would automatically be cut by the cumulative difference between current payment rates and payments under the original formula. The Baucus plan once again overrides the SGR for 2010, allowing another increase in payments to physicians, but does nothing to repeal the SGR, meaning that cuts—estimated by the CBO to be approximately 25%—would begin in 2011. Because the cuts are not a change in current law, they are not scored as savings by the CBO. The issue, however, is whether it is realistic to expect that Congress would allow a drastic cut of 25% to stand. Certainly physicians will not stand by and allow these cuts to be implemented. Without these cuts, however, the deficit reductions promised by the Baucus plan would likely prove to be illusory.
So far, at least, critics of the Baucus plan have focused on other issues. In particular, many Democrats object to the exclusion of a public plan option in the insurance exchanges. Republicans, on the other hand, are objecting to including in the exchanges non-profit health insurance cooperatives, saying, in the words of Senate Minority Leader Mitch McConnell, that they are “just another name for a government plan.” From the CBO’s perspective, however, the cooperatives are a non-issue. “The proposed co-ops had very little effect on the estimates of total enrollment in the exchanges or federal costs because…they seem unlikely to establish a significant market presence in many areas of the country or to noticeably affect federal subsidy payments,” according to CBO Director Douglas Elmendorf.
But it is only a matter of time before attention gets focused on the issue of cuts to physicians’ payments, and I assume Senator Baucus knows this. Perhaps, his real plan is to use the threat of drastic cuts as a stick to force physicians to move away from a reliance on fee-for-service payments and toward adoption of alternative payment mechanisms, such as bundled payments, or the capitated payments that may come with participation in an accountable care organization. In the end, it may require the stick of payment cuts to force providers to consider the potential carrots they may receive through alternatives to fee-for-service Medicare.
posted by MSA Partners at
12:16 PM
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