Medicare is an extraordinarily complex program, consisting of four parts that provide payments to health care providers to reimburse them for health care services or to health insurance companies to offset the cost of these services. There are numerous options to achieve savings in Medicare[1]. The plan assumes four reforms to bring more transparency and competition to the current program and a modest increase in Part B premiums for higher income beneficiaries, which combined would produce savings of nearly $200 billion
over ten years.
The first reform applies to the Medicare Advantage program (MA). The Centers for Medicare and Medicaid Services (CMS) currently make payments to Medicare Advantage (MA) plans to provide health care coverage for Medicare beneficiaries that opt to participate in the program. Currently, those payments include an adjustment for risk factors based on the population the relevant plan serves. Research has indicated that these payments overcompensate for these risks. Currently, CMS makes a 5.9% reduction to reflect these overpayments. The Medicare Payment Advisory Commission (MEDPAC), a non-partisan agency that conducts analysis of the program for Congress, estimates that CMS is still making payments in excess of the actual risk. We favor a recent CBO proposal[2], which would reduce those
payments by 8%.
The second assumed reform would bring more competition to the provision of drugs via Medicare’s Part B program. Medicare spent $37 billion in 2019 for Part B drugs with this spending concentrated on a limited number of drugs. Currently, there is a lack of competition among drugs and little incentive for providers to prescribe lower priced drugs. We commend a proposal by the Committee for a Responsible Federal Budget[3], which would reform the way providers are reimbursed for Medicare Part B drugs to strengthen incentives to select lower-cost drugs.
The third reform would permanently repeal a Medicare rule governing drug rebates and discounts. Medicare currently provides coverage for prescription drugs through its Part D program. Currently, drug manufacturers negotiate drug prices with health care plans and pharmacy benefit managers that include a rebate to lower the prices paid for those drugs. In 2019, the Department of Health and Human Services (HHS) proposed to modify rules governing drug rebates and discounts. The CBO concluded the rule would increase federal spending. The Inflation Reduction Act (IRA) suspended this rule through 2031, reducing Medicare spending on drugs by $122 billion for FY 2022-2031. This reform would permanently cancel this rule, producing Medicare savings beginning in 2032.
The fourth change would apply to premiums beneficiaries pay for Medicare Parts B (physician services) and D (prescription drugs) coverage. When the program was created in 1965, beneficiaries were charged premiums equal to 50% of the program’s costs. Congress reduced those premiums and today they stand at 25% for Part B and 25.5% for Part D. Congress recently reformed these two programs to charge higher premiums for those beneficiaries with higher incomes. The income brackets to determine these increased premiums are adjusted annually for inflation. This assumption would freeze that adjustment for ten years, leading to a small increase in premiums for higher income beneficiaries.