At least one thing is certain in this congressional budget season: disagreement will be the order of the day. The president and Congressional leaders have already failed to avert billions in across-the-board spending cuts under sequestration, setting the stage for more fighting over how to shrink the deficit. 

When it comes to Medicare reform, most experts say that they expect to see the same plans that lawmakers laid on the table last year and they don’t expect that the feuding parties will reconcile their considerable differences. 

GOP congressional members have already pulled out old ideas, blown off the dust and called them by different names. Since the election, Republicans have reintroduced premium support proposals under the new moniker “competitive bidding.” Rep. Paul Ryan (R-Wis.) and the House Republicans are poised to be the first out of the gate with another premium support proposal. 

Meanwhile, Senate Democrats have emphasized rewriting the tax code as a way to shrink the deficit. Policy experts predict that Democrats will maintain their antipremium support (or anticompetitive bidding) stance; they have previously condemned the GOP proposal as policy that would “end Medicare as we know it.” 

Raising the Medicare eligibility age and expanding means-testing—reform ideas that lawmakers have recently mulled over in the scramble to avoid the fiscal cliff—may also factor into the budget battle. 

The White House dismissed raising the eligibility age as an option during sequestration negotiations, but the provision has been part of previous House Republican budgets and could come up in the next one. As for means-testing, President Obama included the concept in his 2013 budget plan and could propose it again. 

Overall, experts say it seems like there’s little hope that Congress and the president will be able to overcome partisan bickering and agree on a proposal, especially considering their views on Medicare. 

“I find it hard to see any type of compromise happening, at least in a vacuum for Medicare,” said Stacy Sanders, federal policy director at the Medicare Rights Center. “In the absence of a larger package that includes other types of spending cuts, that includes taxes…. I think it will be difficult to see any kind of bipartisan Medicare reforms happen. It’s hard to say whether or not there will be an appetite for moving forward a large package like that.” 

No Budget Since 2009 

U.S. lawmakers haven’t agreed on and approved a budget bill since April 2009, and it’s uncertain whether this year’s attempt will break their no-budget streak. 

The annual budget battle is off to a rough start. With the tumult of fiscal cliff negotiations starting off his second term, Obama missed the Feb. 4 deadline for releasing his 2014 budget blueprint. In the midst of the squabble over deficit reduction, Democrats and Republicans also have yet to release their plans for the nation’s fiscal future.

On March 1, the two parties and Obama failed to reach a deficit reduction agreement and sequestration kicked in, which means a 2 percent pay cut for Medicare providers starting April 1.

Cato Institute Senior Fellow and entitlement reform expert Jagadeesh Gokhale said it’s unclear how the automatic across-the-board spending cuts will impact the budget proposals.

“I think everyone’s in a holding pattern to see if and by how much the spending sequester harms the economy or the public mood,” said Gokhale, who also specializes in U.S. fiscal policy. “The effort seems to be to try to rearrange the across-the-board spending cuts into ‘something more sensible.’ But I don’t think anyone wants to be out on a limb by proposing new budget measures beyond that.”

Center for Medicare Advocacy policy attorney David Lipschutz said that the cuts going into effect will have an influence on budget plans. He said that Congress will probably address some of the spending reductions in the continuing resolution that lawmakers must pass in order to avoid a government shutdown on March 27.

“It certainly colors the overall negotiations and atmosphere going into budget talks,” he said. “I’m hearing rumblings that, for example, Republicans might be seeking to include a fill-in for defense cuts. I think that’s probably the place we’ll most likely see the sequester addressed.”

In line with Lipschutz’s predictions, House appropriations released a continuing resolution on Monday, March 4 that will give military programs more freedom to move around the funds they receive; the resolution would not, however, protect them from sequestration cuts, according to Roll Call.

The president’s budget proposal will probably include a plan to replace sequestration with other spending measures, just like his previous budget, said Paul Van de Water, a senior fellow specializing in Medicare at the Center on Budget and Policy Priorities. He said he can’t say at this point how the sequestration cuts might impact Republican budget plans.

Sanders and other policy specialists say it seems likely that Obama’s proposal will be virtually identical to his 2013 budget, preserving the fundamental Medicare structure and relying on payment system reforms, pay for performance and reducing fraud and waste to contain costs.

Meanwhile, the Los Angeles Times has reported that Ryan and House Republicans will once again push for a premium support system. Although they have vowed to come up with a proposal this year that will balance the budget within a decade, that won’t necessarily mean a notable shift in their Medicare strategy, Van de Water said.

“It’s quite possible that the same policies that were in last year’s budget will come very close to producing a balanced budget in this year’s version,” he said. “It’s not clear that House Republicans will have to propose a whole lot more Medicare cuts than they did last year.”

In terms of what these changes would mean for beneficiaries, advocates like Sanders and Lipschutz say that any premium support system would be bad news because it would make seniors pay more for coverage. However, they aren’t throwing their full support behind Obama’s potential reforms, either, holding that provisions such as expanded means-testing and Medigap surcharges increase costs for beneficiaries. Medigap is a Medicare supplement insurance policy that beneficiaries can purchase to fill "gaps" in Traditional Medicare coverage, which is Part A and Part B.

“Making people pay more for their Medicare is not a great idea,” Lipschutz said. “It shifts costs onto beneficiaries without addressing the underlying causes of health care expenditures and rising health care costs.”

The White House Budget: What Will Obama Suggest to Contain Medicare Costs?

It’s unclear when the White House will present its 2014 budget. In response to an inquiry from Ryan, who is the House Budget Committee chairman, acting White House budget director Jeffrey Zients issued a letter on January 11 stating that the “considerable uncertainty” created by the fiscal cliff negotiations delayed fiscal year 2014 budget preparations. Therefore, the White House missed its Feb. 4 deadline for submitting a budget proposal.

This delay drew criticism from Ryan, who took to Twitter to chastise the president: “A small step toward fiscal sanity? Propose a budget and do so on time.”

Obama’s plan to avoid sequestration cuts hints at Medicare cuts he’s willing to make.

During negotiations to avoid the automatic spending cuts that kicked in March 1, the president suggested reducing overall health care spending by a total of $400 billion.

He planned to reduce payments to drug companies ( for $140 billion in savings); reduce hospital payments for patients who don’t pay ($30 billion); encourage efficient care after hospital stays ($50 billion); and encourage the use of high value care and ask wealthier patients to pay more for their care ($35 billion).

Another $25 billion in savings would come from Medicaid, pay-for-delay, program integrity and the Independent Payment Advisory Board (IPAB), a panel created under the Affordable Care Act (ACA) to keep Medicare cost growth under control.     

When Obama issues a budget proposal, Sanders, Lipschutz and Van de Water agree that he will probably stick to the same Medicare spending provisions outlined in his 2013 budget.

Gokhale also said he doesn’t expect major changes in the president’s Medicare reform approach and predicts a focus on tax adjustments rather than on new spending reductions, considering recent health care cost projections. The Congressional Budget Office’s new budget outlook report, released earlier this month, decreased its 2020 Medicare spending estimate by $126 billion, taking into account slower-than-anticipated health care cost growth in recent years.

“I think [White House officials] are going to say that Medicare cost growth has been slower recently. It’s been only 2.9 or 3 percent a year since 2010 and therefore we need not take such strong measures on Medicare as might once have been thought to be necessary when the Medicare cost growth was in the range of 7 or 8 percent a year,” Gokhale said. “My guess is they will emphasize tax hike solutions. The obvious proposal they might have is to increase the Medicare payroll tax rate.”

Obama’s State of the Union address on Feb. 12 also seemed to indicate that he will be sticking to the same Medicare reform proposals. He called for “modest reforms” for Medicare and said he is in favor of reducing taxpayer subsidies to prescription drug companies, more cost-sharing for wealthy seniors (or expanded means-testing) and moving toward a pay-for-performance reimbursement strategy in order to reduce costs.

His 2013 budget proposal put these same ideas on the table. Opposing any form of premium support system, the president’s fiscal plan for 2013 focused on reforming the Medicare payment system and reducing fraud and waste while maintaining the Traditional Medicare structure.

The White House Office of Management and Budget estimated his suggested changes to Medicare, Medicaid and other health programs would save $364 billion over the next decade.

“The goal of these reforms is to make these critical programs more effective and efficient, and help make sure our health care system rewards high-quality medicine,” Obama wrote in his introduction to the budget.  “What it does not do—and what I will not support—are efforts to turn Medicare into a voucher or Medicaid into a block grant. Doing so would weaken both programs and break the promise that we have made to American seniors, people with disabilities, and low-income families—a promise I am committed to keeping.”

In order to achieve that goal, the president proposed better aligning payments for graduate medical education and rural providers with actual patient costs, as well as reducing payments to providers for bad debts resulting from beneficiaries’ failure to pay deductibles or copayments.

He also suggested aligning Medicare drug payment policies with Medicaid policies for low-income beneficiaries, promoting efficient postacute care and increasing income-related premiums for Part B and Part D.

The president additionally planned to increase the Part B deductible by $25 for new beneficiaries in 2017, 2019 and 2021; to introduce home health copayments for new beneficiaries; to introduce a Part B premium surcharge for new beneficiaries who decide to purchase Medigap policies with low cost-sharing requirements; and to strengthen IPAB.

Last year’s budget called for a solution to the flawed Sustainable Growth Rate (SGR) formula, which lawmakers have overriden for years to prevent steep cuts to physician payments. The president additionally called for containment of costs stemming from chronic illnesses via expanded coverage for preventive services under the ACA.

Another major savings source for Medicare emphasized in the president’s 2013 budget is reducing fraud, waste and abuse. The proposal suggests that the government should authorize civil monetary penalties or other immediate sanctions on providers who don’t update enrollment records or exclude from the program providers affiliated with entities already sanctioned for fraud or other prohibited practices.

The president also called on lawmakers to affirm that Medicaid should be a last resort payer when other entities are legally liable for beneficiary claims and that Medicaid should rescreen 1.5 million home health agencies, medical equipment suppliers, doctors, hospitals and other providers for potential fraud.

The House Republican Budget: Another Push for Premium Support?

This year, House Republicans have said they will draft a resolution to balance the budget within 10 years. Ryan will once again draft the GOP budget plan, and it will advocate for turning Medicare into a premium support, or competitive bidding system, according to the Los Angeles Times. This matches prior expert predictions that he would advocate for a premium support system, as he has in previous proposals.

Gokhale said it seems like Ryan won’t change the basic thrust of his Medicare policy, although there could be some adjustments in the implementation timeline (such as transitioning to premium support sooner) to balance the budget within a decade.

Lipschutz also predicted a possible shift in timing.

“Given the general [GOP] stance against raising new revenue, that means significant cuts would likely happen to Medicare, Medicaid and Social Security,” Lipschutz said. “Whether or not that means it would impose premium support, if it is in there, earlier, I don’t know. But one would almost think that would have to occur if they were to achieve a balanced budget in 10 years.”

Van de Water, however, said the GOP won’t necessarily have to make drastic changes to reach their goal if the recent Congressional Budget Office budget projections and the American Taxpayer Relief Act of 2012, passed in January 2013 and which will raise an estimated $600 billion in tax revenues over the next decade, are taken into account.

“They may need to add a few additional cuts and I can’t say that they won’t need to add any, but it may turn out that last year’s policies will come very close to where they’re saying they want to go,” Van de Water said. “The bottom line of that: It’s not clear that House Republicans will have to propose a whole lot more Medicare cuts than they did last year.”

Ryan’s fiscal year 2013 budget—“The Path to Prosperity: A Blueprint for American Renewal”—aims to make the Medicare program sustainable by implementing a premium support system beginning in 2023, which would particularly impact workers under the age of 55 at the time the proposal was issued.

Starting in 2023, beneficiaries would receive a “defined contribution,” or a payment from the government with which to purchase health insurance. They could choose to buy Traditional Medicare coverage or to opt for one of a variety of private plans that would compete alongside the traditional option.

In Ryan’s system, all of the plans would participate in an annual competitive bidding process to determine the federal contribution beneficiaries would receive to purchase coverage. The government would require private plans to provide coverage that is at least equivalent to what Traditional Medicare offers.

The second least expensive private plan or Traditional Medicare (whichever costs less) would establish the benchmark for premium support payments. If beneficiaries decide to enroll in plans that cost more than their payment from the government, they would have to make up for the difference out-of-pocket. If they choose plans that cost less than their subsidy, they would get paid the difference through rebates.

The 2013 GOP budget aims to control Medicare spending by “harnessing the power of choice and competition to control costs” through this system. As a backup, the proposal also suggests capping per capita Medicare cost growth at nominal gross domestic product growth plus 0.5 percent.    

Ryan also proposed increasing the eligibility age for Medicare from 65 to 67 by 2034.

Furthermore, the GOP budget specified that low-income seniors would receive assistance in the form of a guaranteed ability to choose between Traditional Medicare or a private plan with a “fully-funded account” for premiums, co-payments and other out-of-pocket expenses.

High-income enrollees would pay an increased share of their premiums, according to the same thresholds used in the means-tested Part B and Part D portions of the current program.

Another provision of the 2013 GOP resolution called for repealing IPAB, which Ryan’s budget described as “the unaccountable panel of 15 unelected bureaucrats empowered by the president’s health care law to cut Medicare in ways that would lead to denied care for seniors.”

Ryan’s budget also calls for a stop to “the raid on the Medicare trust fund,” or the $716 billion in Medicare spending reduction provisions in the ACA.

The House Democrats: Will They Mirror the President’s Proposal?

House Democrats have not yet indicated what they will put forth in their 2014 budget resolution. It’s still too soon to tell what they will propose for Medicare, Lipschutz said. Still, he did offer some predictions.

“I think, like the president, there’s probably more support among House Democrats for prescription drug rebates as a means of achieving savings to Medicare than there is among Senate Democrats,” he said.

Like the House Republicans and the White House, the House Democrats will probably stick to the same reforms they endorsed in their 2013 resolution, Sanders said.

“I expect that House Democrats will continue to be strong advocates for maintaining the Medicare program as it is in opposition to privatization or premium support proposals,” she said. “I also expect them to be strong advocates for some of the cost saving proposals like the Medicare drug rebates that really would put Medicare on a better, sustainable path.”

Van de Water said he expects that the Democrats will focus on many of the same proposals included in the president’s budget.

The fiscal year 2013 resolution from the Democrats emphasized “preserving the Medicare guarantee” and rejected what the proposal described as the Republican budget’s attempt to end that guarantee. The Democrats criticized the GOP budget as policy that would shift costs onto beneficiaries.

The Democratic fiscal plan also stated that Medicare per-beneficiary spending had grown at a slower rate than in the private insurance system over the past 40 years and that rising health care costs are not unique to Medicare or Medicaid.

“If we are going to slow the rising costs in Medicare and Medicaid without rationing care, we must slow the rising costs of health care throughout the health care system,” the House Democrats’ 2013 resolution states. “That is exactly what the Affordable Care Act (ACA) signed by President Obama two years ago will do when fully implemented.”

The Democrats proposed building on the reform provisions already included in the ACA, advocating for incentivizing high-quality, coordinated and efficient care as well as closing the Part D prescription drug coverage gap, or the “donut hole.” The proposal also praises coverage of preventive care services under the ACA.

The Senate: Likely Medicare Details Still Unclear

During a January appearance on NBC’s “Meet the Press,” Sen. Charles Schumer (D-NY) said Senate Democrats will draft a budget resolution for the first time in four years.

Concerning why these lawmakers are putting together a proposal this year, The New York Times reported that Schumer said the 2011 Budget Control Act placed caps on spending only through fiscal year 2013, and a new budget is needed to set a course for spending in the future.

The House and Senate also passed the No Budget No Pay Act of 2013 in January, which requires both chambers to adopt 2014 budget resolutions by April 15. If they don’t pass budgets, their paychecks will be put in an escrow account starting on April 16 and supposedly lasting until they adopt a resolution. However, their pay would be released at the end of the current Congress even if they never pass a budget. 

Schumer said the Senate budget’s focus will be fast-tracking an overhaul and simplification of the tax code.

Senate Budget Committee Chairman Patty Murray (D-Wash.) released a statement on Jan. 23 saying that Democrats are eager to come up with a “pro-growth, pro-middle class” budget, as opposed to Ryan’s plan to “end Medicare as we know it.”

Neither Murray nor Schumer mentioned any specific Medicare proposals, however, and it’s still unclear what senators on either side of the aisle will propose regarding the health program.  

Sanders said there is little indication that there will be much in the way of mandatory spending cuts.

“They seem very focused on the tax side and the revenue side,” she said. “The immediate sort of deadline facing the Senate is looking at how to deal with sequestration, and because sequestration is so heavily focused on the side of spending cuts, I think that emphasis on taxes is very important.”

Van de Water expects that Senate Democrats will include some of the same Medicare reform elements put forth in Obama’s budget, such as prescription drug rebates. The president’s provisions reducing payments to postacute care providers and lessening coverage of bad debts could get some serious consideration, he said.

“The full administration proposal is unlikely to be adopted, but it’s quite likely that some portion of that will be adopted,” he said.

Reconciling the Budget: A Seemingly Remote Possibility

If Obama and both parties in Congress stick to the same budget ideas as last year, it’s going to be difficult for lawmakers to reconcile their differing resolutions, Van de Water said.

“The general expectation is that the House and Senate will each pass their own separate budget resolutions, but they won’t be able to produce an agreement between the two bodies unless there’s a high-level agreement that involves the president, the House Republicans and the Senate Democrats,” he said. “We can’t be sure. That’s the common assessment at this point.”

Lipschutz expressed a similar opinion on reconciliation.

“Unless things change dramatically on both sides of the aisle from where current discussion and rhetoric is, I’d say it looks like it’s unlikely,” he said.

Gokhale, however, said it’s still too early to make predictions about the likelihood of an agreement.

“It’s very difficult to speculate what the potential for a compromise is unless you see a proposal from the Democrats,” he said. “I think the Republicans have basically made their position clear, and the Democrats have not yet. We just have to wait for that. It’s hard to say what the potential for a compromise might be at this point.”

What It All Means for Medicare Beneficiaries: Advocates Express Concerns About Cost Shifting

Speaking for his organization (a nonprofit and nonpartisan provider of education, advocacy and legal assistance for Medicare beneficiaries), Lipschutz said they support prescription drug rebates.

The Medicare Rights Center, a national nonprofit consumer service organization, also supports Obama’s proposal to bring Medicaid-level drug rebates to Medicare for dual eligible and low-income beneficiaries, Sanders said. Dual eligible beneficiaries receive both Medicare and Medicaid.

“We think it’s a reform that really does allow the federal government to eliminate some wasteful spending on Medicare drugs,” she said. “It’s a true cost saver, as opposed to something that just shifts costs to beneficiaries.”

However, other elements of the president’s 2013 budget and potential provisions in the 2014 resolution are cause for concern, Lipschutz said. The Center for Medicare Advocacy doesn’t approve of reforms that would increase out-of-pocket costs for beneficiaries, such as expanded means-testing for Part D and Part B premiums, the Medigap surcharge and home health copayments.

These policies simply shift costs onto people who already spend huge chunks of their income on health care, Lipschutz said.

As of 2012, about 50 percent of Medicare beneficiaries had incomes below $22,500 and 25 percent had incomes below $14,000, according to the Kaiser Family Foundation. Health expenses accounted for nearly 15 percent of Medicare household budgets in 2010, three times what non-Medicare households spend on health care.

“This flies in the face of kind of a pervasive myth that seniors are generally wealthy or they’re greedy geezers getting a free ride from these social safety net programs,” Lipschutz said. “Really, the opposite is true.”

Similarly, Sanders said her organization is concerned about provisions of the White House budget that would lead to beneficiaries paying more, particularly expanded means-testing.

“We expect that middle-income beneficiaries would be affected by that proposal,” she said. “It’s certainly a lower income population. It’s very difficult to secure savings from higher premiums without really going down far on that income spectrum and affecting those who have middle incomes as opposed to those who have high incomes who are already paying higher premiums in the Medicare program.”

Sanders said her organization is also worried that other cost-shifting provisions, such as the Medigap surcharge, home health copayments and increases in Part B premiums, will place a financial strain on the Medicare population.

The Center for Medicare Advocacy additionally opposes privatization, or premium support, predicting that payments from the government wouldn’t be enough for beneficiaries as health care costs rise, leading to Medicare enrollees paying more out-of-pocket.

Sanders’s organization looks at the reform proposal from the same perspective. Competing against private plans would significantly weaken Traditional Medicare, she said. The traditional option would also likely retain beneficiaries with the lowest incomes and the worst health while younger and healthier individuals enrolled in private plans, making it impossible for Traditional Medicare to compete and keep its costs down, she said.

“We generally view premium support as a cost shifter and we don’t feel that’s really the right approach to achieving cost savings,” she said. “We’re much more interested in preserving Medicare as we know it and preserving the integrity of the Medicare program, ensuring that [Traditional] Medicare remains an option for beneficiaries and that it remains a strong option.”

The White House took raising the eligibility age off the table during negotiations to avoid sequestration. Still, Sanders said this reform measure may come up again in the House Republican budget. She describes it as a “draconian” cost-shifting policy.

“It doesn’t simply shift costs to beneficiaries,” she said. “Those who are aged 65 and 66 and would need to seek coverage elsewhere; it’s also a cost shift to employers and to other insurers outside of the public market. The thing that’s completely backwards about raising the age is that it does absolutely nothing to control health care costs and many analyses have demonstrated that it actually increases health care costs across the system, which from our perspective is really sort of a backwards way to approach the problem.”

Overall, Lipschutz said policymakers should be careful when crafting legislation that includes Medicare spending and cuts.

“It would be hard to undo the damage of one of these proposals once it’s in law,” he said. “Given that Medicare’s rate of growth has been slower than people had thought and given that there are a number of pilots and demonstrations that are ongoing that could potentially be found to yield considerable savings, there’s a danger that we might lock in some benefit cuts that turn out not to have been necessary.”

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