“While controlling discretionary spending is important for fiscal responsibility, for reducing government waste, and for negotiating the proper size and scope of federal activities, the current shutdown debate is largely symbolic. America’s biggest fiscal challenge lies in the unchecked growth of federal health care and old-age entitlement programs. Repeated shutdown fights and a slew of temporary continuing resolutions have gotten us no closer to reforming Social Security and Medicare.”
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“The longer Washington waits to fix autopilot spending, the more damage they’ll do. The Congressional Budget Office’s latest long-term budget outlook projects that U.S government spending will consume nearly 30 percent of the economy by 2053—almost 40 percent higher than the historical average. Congress is expected to rack up more than $100 trillion in additional deficits over those 30 years—more than four times what the U.S. government has borrowed over its entire history. Who will lend the U.S. government such vast sums?
The main drivers of this increase are heightened interest costs and the growth in health care and Social Security spending. With Medicare and Social Security responsible for 95 percent of long-term unfunded obligations, according to the Treasury Financial Report, there’s simply no way any serious fiscal reform effort can leave these programs untouched. Every other part of the budget will either stay steady or decline slightly. Other so-called mandatory programs, including various welfare programs, retirement benefits for federal employees, and some veterans’ benefits, are projected to decline as a share of the economy. Discretionary spending depends on what Congress decides to spend each year; if historical trends hold, this part of the budget will decline by one-sixth. And yet this is the part of the budget that all this shutdown fuss is about.”
“Until 2003, Medicare covered most hospital and doctor visits for the elderly, but it did not cover the ever-growing costs of prescription medications. Former President George W. Bush changed that when he signed a law adding prescription drug coverage to Medicare.
But there was a catch.
At drug companies’ behest, the Republican-controlled Congress banned Medicare from using its market power to drive down drug prices. The prohibition was controversial at the time — Nancy Pelosi, then the House Minority Leader, called it “unconscionable.” Critics saw the prohibition as the government’s abandonment of the single most effective tool for restraining drug costs.
In the years since, the prices for brand-name prescription drugs have skyrocketed, and the prohibition on negotiation has become even more controversial. Higher prices mean larger co-payments for drugs for some seniors, many of whom live on fixed incomes. It’s also a major budgetary problem: From 2018 to 2021, Medicare spending on the 10 top-selling drugs jumped from $22 billion to $48 billion, far outpacing the program’s overall cost growth over the same period.
That’s why, in last year’s Inflation Reduction Act, President Joe Biden and congressional Democrats partly undid the prohibition. Under the law, Medicare will pay a much-reduced price for drugs that consume a disproportionate share of Medicare spending, ultimately saving an estimated $100 billion over the next ten years.”
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“Although the Inflation Reduction Act marks the most substantial change in how we pay for drugs in two decades, it doesn’t change the fact that drug companies will still be rewarded for bringing a drug to market and selling as much of it as they can — whether or not the drug works very well.
Medicare could pave the way toward smarter drug development by paying more for more effective drugs and less for drugs that are less effective. That would send the right signals about where drug companies should target their research investments. The Inflation Reduction Act isn’t that law. We’ll spend less on prescription drugs because of it, and that’s all to the good, but we won’t be spending any smarter.”
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“Some drugs are (literally) worth their weight in gold. Think of Sovaldi and Harvoni, which were approved a decade ago and can cure Hepatitis C, a deadly viral disease that once afflicted between 3 and 5 million Americans. Paying a lot for cures encourages drug companies to invest in developing drugs with curative potential.
But most drugs aren’t cures. Drug companies generally earn more, in fact, on drugs that patients take over an extended period. That helps explain why fully one quarter of all drug approvals are for cancer drugs. They’re really profitable, even though they often don’t work very well.”
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“How we pay for drugs, in short, sends the wrong signals to the market about the kind of innovation we value. The good news is we can fix that. As law professor Rachel Sachs has argued, Medicare and Medicaid (and to some extent private insurers as well) are required by law to cover all FDA-approved drugs, whatever their value to human health. That linkage can be severed. We could give CMS the authority not only to drive down the prices of the most expensive drugs, as the IRA does, but also give it the power to pay less for, or even exclude coverage for, drugs of marginal efficacy.
Connecting payment to value would be complicated, and there’s no perfect way to do it. It would also be controversial: Paying less for some novel therapies would likely restrict access to therapies that some patients desperately want. But we’d send much smarter signals to drug manufacturers about where to target their investment dollars. And the benefits of better-targeted innovation would accumulate over time, vastly improving human health in the long run.
The IRA was meant to save the taxpayers’ money, not to improve their health. That was worth doing. But the next reform to payment policy ought to aim higher.”
“Later this year, the federal government is supposed to start a serious attempt to rein in drug prices: For the first time, Medicare will negotiate with pharmaceutical companies over the prices it’s willing to pay for a short list of drugs. It’s a long-awaited change that is supposed to save the government and patients billions of dollars over time.
But the drug industry is now launching a legal fight aimed at stopping Medicare’s negotiations over prescription drug prices before they begin. The stakes are higher than just a drug price reform: The case could set an important precedent for the government’s authority to try to constrain health care prices.”
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“The Merck lawsuit focuses on the Constitution’s takings (or compensation) clause in the Fifth Amendment, which protects private owners from having property taken without “just compensation” by the government. It also raises First Amendment claims centered on the law’s requirements that drugmakers not disclose information they receive from the government as part of the negotiations. The Chamber of Commerce’s case rests on a constitutional right to due process, arguing that, because the Medicare negotiations are exempt from review by the courts under the IRA, drugmakers are being denied due process.
Taken together, the lawsuits give any judges predisposed to side with private industry over the federal government a few options for a legal foundation upon which to base a decision in pharma’s favor.
A number of legal experts say they are skeptical of these arguments. Merck’s takings clause case turns on defining a patent — an issuance from the government — as private property subject to the just compensation clause, said Robin Feldman, a law professor at UCSF, a difficult assertion. She also said the premise present in both cases — that the federal government as a health care purchaser through Medicare can’t say no to the companies it purchases drugs from and can’t dictate prices as the consumer — is “problematic.”
“It can’t be that the government as a buyer has to pay whatever a seller wants to charge,” she said. “That the government could be forced to spend itself into bankruptcy.”
Regarding the chamber’s due process claim, several legal experts have pointed out that Medicare’s various contracts with health care providers are already often generally exempted from judicial review. It is understood that this is necessary to allow the program to function; the government, as the administrator of the program, needs that authority without each of its decisions being subject to litigation.”
“To pretend that Social Security and Medicare shouldn’t be touched is nothing short of political malpractice. Over the next 30 years, the two programs will run a $116 trillion shortfall. This number accounts for the significant amount of interest payments on the debt the government will ring up in the process. While we might be able to stumble along indefinitely, all that borrowing will slow—perhaps even halt—our economic growth, making funding the programs that much more difficult.”
“Almost half of people on Medicare, 31 million Americans, are now enrolled in a Medicare Advantage plan, nearly double the share of 10 years ago. It is widely assumed that Medicare Advantage will cover a majority of the program’s beneficiaries within the next few years.”
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“Medicare Advantage allows private insurers to offer their own plans that provide Medicare benefits as well as some additional perks not available in the original program. The secret to the program’s success is simplicity. Traditional Medicare is a fragmented program; Part A covers hospital care and Part B covers outpatient services. Patients must enroll in a separate Part D plan for prescription drug coverage that is administered by private insurers. Most people also purchase supplemental coverage, extra insurance that helps reduce their out-of-pocket costs.
Medicare Advantage, also known as Part C, combines those benefits into one insurance plan that also includes an annual limit on out-of-pocket costs, something that does not technically exists in regular Medicare.
But the benefits to patients seem to come at a cost to taxpayers. Though the health insurance industry disputes these findings, MedPAC, the independent committee tasked with overseeing Medicare on Congress’s behalf, found Medicare Advantage plans cost the federal government more money per patient than the original program would have if those same people had stuck with the traditional benefits.
Private companies are also making healthy margins on their Medicare business.”
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“Medicare Advantage enrollees are more likely to report trouble affording health care than people on traditional Medicare. Some of the behavior by Medicare Advantage plans, such as using AI to decide when to stop covering services for their enrollees, may be becoming more common in the private sector but is still unheard of for public programs.
The trade-off the United States seems to be making is accepting more administrative bloat and more stringent provision of benefits in exchange for a more navigable Medicare plan. The trade-off is one other countries have made as they designed universal health care programs. (A similar trend is underway in Medicaid.)
But as concern grows about Medicare facing a potential financial cliff, and evidence mounts about the costs of Medicare Advantage, the risks of the trade-off are becoming clearer. Medicare is no longer what it used to be: Once the epitome of government-run health insurance, its benefits are on the verge of being primarily funneled through private companies. Any attempts to change the program will have to wrestle with that reality.”
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“In traditional Medicare, for example, patients can go to any doctor or hospital that accepts Medicare; Medicare Advantage has more limited provider networks, and patients can be on the hook for higher costs if they are treated at an out-of-network doctor or hospital.
The federal government pays Medicare Advantage plans a flat rate for the expected cost of covering their particular customers and the insurers are required to adhere to certain rules about benefits and costs. But companies still have flexibility about how to run their plans and have a financial incentive to limit expenses. The less money they spend, the more they get to keep for themselves.
Still, customers will vote with their feet and, after slower-than-expected initial uptake, Medicare Advantage is now growing so quickly that it will soon be the dominant form of Medicare.”
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“The premiums people pay for a Medicare Advantage plan can be significantly lower than the combined cost of supplemental coverage and a Part D plan — less than $50 compared to more than $200 on average, per Terry and Muhlestein — with the added benefit of having only a single insurance card. According to a 2022 Commonwealth Fund survey, the additional benefits offered by Medicare Advantage plans (such as dental or vision) and the limits on out-of-pocket costs were the most common reasons seniors gave for choosing the alternative over the original program.”
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“Medicare Advantage patients are less likely to receive medical care at the highest-rated facilities for their particular needs, compared to people with traditional Medicare, a reflection of more restrictive provider networks.”
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“A report from federal investigators published in April 2022 found that tens of thousands of Medicare Advantage customers were denied coverage for services they should have been entitled to. A significant number of prior authorization denials (13 percent) and payment denials (19 percent) reviewed by the investigators were for services that should have been covered by the program but were not.”
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“According to MedPac, since 2004, Medicare has always paid more to Medicare Advantage plans for the cost of covering their customers than the program would have spent if the same beneficiaries had instead been enrolled in traditional Medicare. Some years, the private plans were receiving a nearly 20 percent markup compared to the original benefit structure.”
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“The growth of Medicare Advantage is contributing to the financial crunch. Those plans receive funding based on the type of service provided to their customer, which means money for hospital care comes from Part A. Annual Part A payments to Medicare Advantage plans are expected to increase from about $176 billion in 2022 to $336 billion by 2030.
With revived concerns over Medicare’s solvency and evidence of excess spending in Medicare Advantage, policymakers are starting to look at making changes to the program. But that won’t be easy.”
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“States have outsourced much of the administration of Medicaid to managed care plans. Countries like the Netherlands have set up health systems that use private insurers, operating under strict government oversight, to provide insurance benefits to their citizens. Giving people more choice and a more streamlined experience can have its benefits, as evidenced by the popularity of Medicare Advantage in the US.
But asking private actors, with profit motivations, to administer government benefits to which people are supposed to be entitled brings risks. People are more likely to have trouble affording health care and their claims are more likely to be denied; that is true in places like the Netherlands, compared to other countries with more direct government administration, and that is true of Medicare Advantage when compared to the traditional Medicare program.”
“It is true that, as of right now, Medicare is projected to be unable to pay all of its bills as early as 2028. Without congressional action, a stronger economy, or more likely, both, the government could end up without enough money to cover everything it promises enrollees within five years.
That would be unprecedented and would likely provoke a political crisis. But it is not quite the same thing as Medicare going bankrupt and ceasing to exist entirely. Alarm bells have sounded about Medicare’s trust fund for decades, with the exact date of when it would run out of money moving forward and back. But, eventually, Congress will need to act.
To understand the program’s financial situation, start with how Medicare is structured. Medicare is broken down into several different parts. Part A covers hospital care, stays at skilled-nursing facilities, and home health care. Part B pays for outpatient physician care. Part D is the prescription drug benefit, which is administered by private insurance plans. Most Medicare beneficiaries — anyone over age 65 — get their insurance directly through the government. But almost half are now insured through Medicare Advantage (also known as Part C) in which patients sign up for a private plan, paid for largely by the federal government, which provides a comprehensive suite of benefits. (Those plans are also more expensive to the government and their growing enrollment is contributing to the solvency problem”
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“Different parts of Medicare are funded in different ways, but when we’re talking about a Medicare funding crisis, we’re talking about the benefits paid by Part A: hospital services. Hospital bills for Medicare enrollees are funded almost entirely through the program’s dedicated payroll taxes. If those benefits cost more than the government receives in Medicare payroll taxes in a given year, as can happen in an economic downturn, the difference comes out of a trust fund earmarked specifically for Part A. The Medicare trustees, who issue annual reports on the program’s finances, project that Medicare spending will begin outpacing revenue again in 2024, requiring the program to dip into the trust fund. The trust fund is projected to be fully depleted by 2028 without further policy changes.”
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“Part B and Part D, however, are not facing the same financial crunch. They are funded primarily by general tax revenue, instead of an earmarked payroll tax, and premiums paid by beneficiaries. Their trust funds are projected to be sufficient for the foreseeable future.”
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“Medicare Advantage plans receive funding based on the type of service provided to their customer, which means money for hospital care comes from Part A. Annual Part A payments to Medicare Advantage plans is expected to increase from about $176 billion in 2022 to $336 billion by 2030.
Separate from the new budget proposal, the White House is attempting to rein in the payments to Medicare Advantage plans (from an 8 percent increase last year to a proposed 1 percent increase in the coming year). Republicans and the health insurance industry have slammed that proposal as a cut to Medicare, an example of how it can be politically difficult to get Medicare spending under control.
Biden’s budget will likely jumpstart a new debate about Medicare solvency. But it’s only a beginning.
Congress has passed provisions to reduce Medicare spending in recent years, such as the Inflation Reduction Act’s plan for the program to negotiate some prescription drug prices. But lawmakers have also acted to avert any cuts to how much the program pays doctors, hospitals, and other medical providers.
Both tax increases and any spending reductions can be a tough sell in Congress. So can increasing the eligibility age, an oft-floated idea that still amounts to cutting benefits for seniors.
Biden is going with tax hikes in his budget plan. But it’s not yet clear if lawmakers are really willing to act on his or any proposal to improve Medicare’s finances.
They still have five years before the Part A trust fund will run out, according to the latest available projections. The Medicare trustees urged Congress to act soon to avert the crisis, in order to minimize the risks for patients and providers. But unfortunately, lawmakers have a habit of waiting until the last minute to act.”
“Florida Republican Sen. Rick Scott’s plan to “rescue America””
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“Scott’s proposal would radically overhaul how the federal government operates, forcing Congress to re-pass every federal law or else let them lapse — a move that, in Democrats’ telling, would endanger much of what the government does, including beloved federal programs like Medicare and Social Security.
It’s a short proposal, with little detail to flesh it out. But on its face, its meaning is plain: Every five years, every federal law would need to be passed anew in order to stay on the books.”
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““Instead of making the wealthy pay their fair share, some Republicans want Medicare and Social Security to sunset,” Biden said in his State of the Union address. “It is being proposed by individuals. I’m politely not naming them, but it’s being proposed by some of you.”
It was a new twist on a familiar trope: Republican proposes cutting government benefits, Democrat attacks him for it. And it seems to have left a mark: After more than a week of uproar since the State of the Union, Scott formally revised his 12-point “rescue America” plan to specify that its provision requiring every federal law to be re-passed every five years would not, in fact, apply to Social Security and Medicare. And so, at least officially, the senator has papered over the main political weakness of his plan.”
“Democrats have a multi-pronged strategy for addressing drug prices in the Build Back Better Act. First, they would allow Medicare to negotiate with pharmaceutical manufacturers on the prices of a certain number of prescription drugs, something they have been promising to do for years. But Democrats also want to limit drug companies’ ability to hike the prices of their medications for everyone — regardless of what kind of health insurance they have — in the future.
To do that, Congress has proposed requiring drugmakers to pay rebates for any price increases, in either the Medicare health program or the commercial health plans that cover 180 million Americans.
But, as Politico reported this week, the plan to apply the inflation-indexed rebates to the commercial market could be in trouble.
Senate Republicans — at the urging of the drug industry — plan to challenge whether the rebates for commercial health plans are permissible in a bill passed through the budget reconciliation process.”
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“the Byrd Rule requires that all the provisions in a budget reconciliation bill directly change federal spending or revenue.
Republicans will argue that the purpose of the provision is to control drug prices for the private plans, full stop, and that does not have anything to do with federal spending or revenue — at least not directly.
The Democratic counterargument would be that applying these rebates to commercial plans would have a serious, more than incidental, effect on the federal budget. The federal government subsidizes almost all private insurance plans in one way or another, and so lower or higher costs for those plans could have major implications and lower costs for private health plans could also mean higher wages for workers, who would then pay more in taxes.
Who wins is likely ultimately a decision for the Senate parliamentarian.”
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“what would happen if the parliamentarian determines rebates covering commercial plans cannot be allowed under the Byrd Rule?
The big fear, voiced by advocates of the Democrats’ plan, is that drug companies would extract higher prices from the commercial market in order to make up for the revenue they would lose from Medicare once that program’s new price controls take effect.
According to several experts, that appears unlikely. Loren Adler, associate director of the USC-Brookings Schaeffer Initiative for Health Policy, covered why in a lengthy analysis published in September.
“Fundamentally, for this to occur, it would have to be the case that drug companies are benevolently choosing not to profit-maximize at present,” Adler told me this week, “which I find rather difficult to believe.””
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“Under the current plan, drugmakers would pay a rebate based on their sales volume in both the Medicare and commercial markets. In that scenario, there would be little reason to raise list prices faster than inflation, because you are paying the penalty based on the entire market.
But if those rebates can’t include the commercial market, the penalty will be based on the Medicare market only — making it a smaller price to pay if a company does decide to hike the list price of a drug at a rate higher than inflation.”