Feb 16, 2023 - Health

Health industry could be playing defense on Medicare

Illustration: Aïda Amer/Axios

After years of trying to squash the expansion of government-funded health care and preserve business from private payers, the health care industry is suddenly facing new threats to the revenue it receives from the Medicare.

Why it matters: Behind all of the political posturing around sustaining the program is a cold, hard fact — the program's trust fund is expected to go bankrupt as soon as 2028. To prevent that from happening, lawmakers have three options: raise taxes, cut benefits, or cut payments to the health care industry.

State of play: House Republicans' statements on Medicare have been carefully worded, and notably don't say that the program shouldn't be touched.

  • After warning that Medicare is "on the pathway to insolvency," House Energy and Commerce Committee Chair Cathy McMorris Rodgers said in a statement last week that "Republicans stand ready to strengthen and preserve these programs, without cutting benefits to seniors."

The big picture: Republicans are shining a spotlight on the program's long-term finances as they call for federal spending reductions. But the GOP has ruled out tax increases as a solution and is acutely aware that it will be hammered by Democrats if it proposes benefit reductions for seniors.

  • That leaves payment reductions as the most politically tolerable solution, if they put forward any policy solutions at all.
  • But any significant cuts to insurers, drug companies or hospitals would be strenuously opposed — a dynamic already playing out over Medicare Advantage proposals made by President Biden.

Driving the news: Amid all of the debt ceiling and spending drama, the Biden administration has proposed two Medicare Advantage payment rules that threaten insurers' profits.

  • The first claws back billions of dollars in overpayments made to insurers for administering private Medicare plans over the last few years. The second, which was proposed earlier this month and has not been finalized, would decrease payments to Medicare Advantage plans by more than 2% next year, insurers say.
  • The payment update could translate into a a $540 decrease in benefits per member per year, according to an Avalere analysis funded by the Better Medicare Alliance and released yesterday.
  • Democrats have already reduced what Medicare will pay pharmaceutical companies in the future through the Inflation Reduction Act, which allows the program to negotiate the cost of certain drugs and imposes financial penalties to companies whose price increases outpace inflation.

What they're saying: Some Republicans are leaning into the opportunity to accuse Biden of hypocrisy.

  • "Joe Biden is trying to gut Medicare benefits. Seniors can't trust Democrats to protect Medicare," said National Republican Senatorial Committee spokesman Philip Letsou in a statement highlighting the analysis.
  • But decreasing federal payments to Medicare Advantage plans ranks as one of the most effective ways to cut program spending.

The intrigue: The Medicare solvency discussion is particularly tricky for providers, who absent further action would see drastic payment cuts if the trust fund runs out.

  • But popular spending reduction proposals target them too, and hospitals argue that now is not the time to talk about cutting their pay.
  • "I hope that there will be action beforehand. We wont get to that cliff," said Chip Kahn, president and CEO of the Federation of American Hospitals. "But I don't think right now — coming off of COVID, and all the changes and effects of it ... I don't think this year is a good year to do it."
  • "We've got to be very careful," he added. "It probably means at some point in time there will be a solution that includes many of the items and effects many of the players."

The bottom line: Picking a fight with the health care industry may be a more attractive option than cutting seniors' benefits, but that's a very low bar. And yet when it comes to addressing Medicare's financial future, neither party has very many options.

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