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Brookings Institution’s Dr. Henry Aaron on where the Medicare cuts are coming from

Monday, November 30, 2009

HH: Keeping with my theme, as I will all month on the health care reform bill pending before the Senate, I’m pleased to welcome Dr. Henry J. Aaron of the Brookings Institution. He is the Bruce & Virginia MacLaury senior fellow there. He’s been an economist for many years. Dr. Aaron, welcome, good to have you on the program.

HA: Thank you, glad to be with you.

HH: Now earlier in November, you and about a dozen and a half other economists sent a letter to the President urging the passage of health care reform. Did you have the version the Senate has in front of it in mind when you sent that letter, Dr. Aaron?

HA: We actually were suggesting that there were certain key elements that we thought were important to include in the bill, many of which were aimed at strengthening the capacity of health reform to control the growth of spending, which is really out of control in the United States.

HH: And do you think the Senate version does it, that which has been laid on the floor in the Senate?

HA: I think it has many admirable features. I think there are ways in which it could be strengthened.

HH: How would you have it strengthened?

HA: Well, one of the things that the bill calls for is a commission of independent analysts and experts to make recommendations regarding the organization and delivery of care under Medicare, but only under certain circumstances, and only after considerable delay. I think the bill could be strengthened significantly if the powers of that commission were increased, and if it was authorized to make recommendations to Congress sooner than the draft bill does. That said, I think the bill contains an admirable provision, namely a tax that would discourage excessively generous health insurance plans, which contribute more to boosting the growth of spending than they do to the well-being of those who have those insurance policies.

HH: Now Dr. Aaron, you’re an expert on Medicare. In fact, one of your publications includes Reforming Medicare: Options, Trade-offs and Opportunities. It’s co-authored with Jeanne Lambrew. The proposal in the Senate calls for between $450 and $550 billion dollars in cuts over the next decade in Medicare. Where do you expect those cuts will come?

HA: Well, a significant part of them would come from leveling down currently excessive payments to Medicare Advantage plans. Those are the, basically, in simplified terms, the HMOs. And they’re now paid more under current legislation to cover Medicare enrollees than it costs to cover Medicare enrollees through the admittedly not terribly efficient fee for service delivery system that characterizes most of health care in the United States. So a sizeable piece of that, the savings, would come from paying Medicare Advantage plans the same amount on average, per capita, that it costs to cover people through the fee for service system.

HH: Now if you’re an enrollee in a Medicare Advantage HMO right now, what impact will those reductions have on your life?

HA: It’s quite possible that the Medicare Advantage plan now covers many more services than Medicare normally would pay for, because they’re receiving so much more than the average cost outside of those plans. So it’s possible that those Medicare Advantage plans might provide somewhat fewer services in addition to the ones that Medicare routinely provides.

HH: Do we know what sort of services those would be, Dr. Aaron, what kind of…

HA: Well, sometimes, they’ll provide drug benefits with no co-payments, they’ll provide certain screening services that are not normally covered under Medicare. One device that Medicare Advantage plans sometimes use in order to attract healthier enrollees, leaving the sick people to be covered by the fee for service system, is to offer things like sports medicine services. So you get the active elderly enrolling in those plans.

HH: And when we come back from break, I want to stay on this a little bit and make sure that my audience understands completely, accurately, what it is that is on the table in the Senate bill to be cut, about $450-550 billion dollars in Medicare services.

– – – –

HH: Dr., in going back to the Medicare thing, if you’re a current Medicare patient, or about to get into it, do you have to be honestly worried about cut-backs in what you’ve been getting after this version of health care passes?

HA: I think you should be concerned if this version of health care doesn’t pass, because the simple fact is that Medicare right now is on a path that can’t be sustained with the revenues that are currently flowing into the system. So down the road somewhere, the trust fund out of which benefits are paid for hospital bills, and not very far in the distant future, it’s projected to run out of money. Something’s got to be done to trim back either, either to trim back the growth of Medicare spending, or to raise the revenues flowing into that system. This isn’t a matter of current health care reform legislation. It’s a problem that we as a nation have. So what this bill does is achieve some savings in the Medicare program that would have to be realized, if not now then later, and it applies them, those savings, to help extend health insurance coverage to currently uninsured Americans.

HH: I get that. I think our audiences does as well, Dr. Aaron. But what I’ve been trying to figure out is what does it actually mean in real life to a real senior citizen, who’s in a real Medicare Advantage plan right now. What would their life be like after this plan passes?

HA: It means that they’re going to have coverage comparable to all Medicare beneficiaries under the system. But it may be better coverage than the rest of Americans have to the extent that the Medicare Advantage plan can operate more efficiently than it does, the fee for service system does.

HH: Will it be less than they’re getting now?

HA: It may be…

HH: Because I think we should be really honest…

HA: It may well be. Oh, I quite agree. Since 2003, Medicare Advantage enrollees have been getting extra benefits beyond those available to people enrolled in other plans. And one purpose of the bill is to establish parity, equity, between those enrolled in Medicare Advantage and those who receive services through traditional Medicare.

HH: How many are enrolled in Medicare Advantage?

HA: About 20% of all Medicare enrollees are in Medicare Advantage. It’s going up, because of these very, very, because of overpayments to Medicare Advantage plans.

HH: And so what, in terms of millions of people, how many does that work out to?

HA: Well, I don’t have the exact number, but 20%, there are about 35 million Medicare enrollees, so 20% is probably in the vicinity of seven, eight million, but heading up.

HH: Okay, so between seven and eight million Americans are going to get less services after this passes than they are used to?

HA: They’re going to get the same services that the rest of Medicare enrollees receive.

HH: I understand that part, Dr. Aaron. But for clarity’s purposes, those seven million are going to get less than they’ve been getting before.

HA: That may well be the case. I don’t know.

HH: And what…

HA: It’s going to vary from plan to plan, depending on exactly what the fee structure is, how efficiently they operate, and what services they’ve been providing.

HH: Has anyone studied, are you aware of any study of the impact on the quality of life of those seven million people?

HA: No, I’m not.

HH: Okay, that’s fine. That’s fair. I don’t think anyone has, actually. So I…

HA: The story is that if one is going to extend coverage as the Senate plan would do to 25 to 35 million, or currently uninsured Americans, they’re going to consume some more health care services. And the money to pay for that needs to come from somewhere. Most of the money would come from projected growth in productivity of health care delivery under Medicare. And some of it from taxing excessively generous, or very expensive health insurance plans for the non-elderly, and some of it from other revenue sources, that those sources are different in the House and the Senate bill. But there’s no free lunch. If 25-35 million more people are going to be receiving health care that they don’t currently receive, the President has sworn that he won’t sign a bill that increases the federal budget deficit, so you’ve got to pay for it.

HH: Now will doctors see their reimbursement rates fall?

HA: Not under this bill, no. Doctors, there’s a separate issue completely independent from the health care reform legislation that dates back a number of years. Congress passed a provision to limit the growth of physician fees under Medicare. It was a very meat axe approach. Congress has not had the nerve to enforce it. And now, if they were to start enforcing it, it would require large reductions in fees for physicians. Congress is not going to enforce it. So some way is going to have to be found to change that legislation. But that problem predates health care reform.

HH: But isn’t the deficit neutrality of the Senate version of health care reform premised on those cuts happening?

HA: No, it is not. The bill is completely, except for an increase in premiums for one year outside of this previously ill-crafted legislation, there’s nothing in the Senate bill about that.

HH: So doctors have nothing to worry about in terms of…

HA: Oh, they do, but not because of this bill. They do have reason for concern, because Congress did a bad job back, it was from 1997, and that, under that legislation, there are proposed cuts in fees for physicians. I don’t think in practice, doctors really do have to worry about it, because Congress has clearly demonstrated it doesn’t have the stomach to enforce those limits.

– – – –

HH: Dr. Aaron, we only have about three minutes, so I want to go back over this. You know, doctors told Investor’s Business Daily that up to 45% of them would retire or change their practice if this passed. Are you saying that that’s panicky on their part?

HA: Very much so. I think doctors are going to be so busy under this legislation that they’re going to be working much harder. Some may want to come out of retirement.

HH: Working much harder for the same amount of money?

HA: No, the…total fees to physicians under this health care reform legislation would actually increase. I think the statement to which you’re referring probably is right, but it applies to what their reactions would be if the limits that were legislated in 1997 were actually enforced. But as I say, Congress has repeatedly shown that it is not, does not have the stomach to enforce those limits. Every year, it skips them.

HH: And so I just want to be clear, I want to be clear I understand this. So you’re saying that the deficit neutrality of the Senate version of Obamacare is not in any way premised on doctor reimbursement rates of the sort envisioned by that 1997 legislation?

HA: That is correct.

HH: All right, last question, Dr., is there any rationing in the Senate version of the health care reform bill?

HA: No, there is not. Rationing means denying care to somebody who has the financial means to buy a product. This bill would extend the ability of many Americans who are currently uninsured to buy health care. But in no way does it contain restrictions on the quantities of care that they would be able to have access to.

HH: But Medicare won’t be paying for that, or Medicare Advantage won’t be paying for that which they previously had paid for, so they’re going to have to pay for it themselves?

HA: There…under Medicare Advantage, there could be some cutbacks in services by Medicare Advantage organizations.

HH: And do you have any kind of specificity on what that would mean in terms of people not being able because of their fixed incomes to acquire what they previously had acquired?

HA: There are a lot of people under Medicare with fixed incomes. People under Medicare Advantage, since 2003, been getting additional services beyond what those with fixed incomes who were receiving Medicare services outside Medicare Advantage were receiving. This legislation would move in the direction of putting them on the same footing.

HH: We got that, and perhaps we can chat again in the future. We’re out of time today. I appreciate your time, Dr. Aaron.

HA: Okay.

HH: Because what I’m trying to get to is the world is changing dramatically for the people on Medicare Advantage and others. I’m just trying to let them know what’s coming towards them.

HA: There are lots of people in this world.

HH: Yeah, but am I wrong that the world is changing dramatically for them?

HA: I don’t think it’s going to change dramatically, no. I think there would be modest changes, yes.

HH: All right, another topic for a future day. Thank you Dr. Aaron from Brookings.

End of interview.

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