Medicare/Medicaid: the biggest budget battle of all

From the September 1995 ACP Observer, copyright © 1995 by the American College of Physicians.

By Howard B. Shapiro, PhD

ACP has declared its adamant opposition to Medicare/Medicaid budget cuts totaling $450 billion called for in the congressional budget resolution. Consider these facts:

• Despite claims about "saving" the Medicare Trust Fund, many of the proposed reductions have nothing to do with the trust fund. The trust fund refers to the Part A Hospital Insurance program only. No money derived from increased out-of-pocket charges to beneficiaries and changes in physician reimbursement (which are projected to total $100 billion) will extend the solvency of the fund.

• Predictions of trust fund solvency vary widely, depending on assumptions about economic growth, medical spending and demographic data. In their latest report, the trustees of the Hospital Insurance Fund predict solvency for the next six years using pessimistic assumptions, but for 11 years using optimistic assumptions. Predictions have varied this way for 25 years, and Congress has routinely made adjustments to shore up the fund.

• The median household income of the over-65 population is only $17,751 (1993 Census data). Only 7% have incomes over $60,000. A recent Rand Corp. study indicates that the typical family in pre-retirement years (ages 51 to 61) has acquired only $17,300 in liquid financial assets. For African-American and Hispanic households, the figure is under $500.

• Beneficiaries already pay an astonishing 21% of their incomes for health care. Proposed increases in out-of- pocket costs totaling hundreds of dollars annually would raise that to more than 25%.

• The cost shift that occurs when public spending is cut may reach $90 billion or more, according to a Lewin/VHI study. That shift is as much a new tax on the private sector as any other tax increase and hits lowest wage earners the hardest. The same study predicts that 500,000 people would lose insurance in 2002 as a result of this cost shift.

• By 2002, states would lose a third of their federal Medicaid funds under block grant proposals limiting growth rates to 4%, resulting in 7 million people, most of them children, losing coverage.

• Physicians have absorbed 32% of recent budget reductions, while they account for only 23% of Medicare spending. Medicare payments are a third less than private payments; Medicaid payments are less than half.

Position statement outlines ACP opposition

Considering these numbers, ACP's Board of Regents approved a position statement in July declaring the College's opposition to congressional budget cutting. In an August letter to some 12,000 ACP members in key congressional districts and states, ACP President Gerald E. Thomson, FACP, asked internists to oppose these proposals throughout the debate, which may well last until Christmas.

Budget cuts of this magnitude have little to do with health care spending and everything to do with the politics of tax cuts and budget deficits. Setting arbitrary targets in the budget resolution and then enacting program changes in a "reconciliation" bill to meet those targets increases the risk of harm to patients and health care professionals and institutions.

We may be asked, "If you don't support these proposals, what alternative do you offer?" Our answer--not politically popular in some quarters--is this: ACP will not buy into proposals that may produce temporary savings to government, but in reality shift costs to patients, employers and health care providers and do nothing to change the growth curve. Offering an alternative package of short-term reductions in this environment, wrote Dr. Thomson in his letter to members, "legitimizes what the budget cutters are trying to do, and the discussion becomes one of simply negotiating the numbers." If we go down that road, we have lost the game.

Recommendations for long-term reform In its position statement, the ACP outlines recommendations that may not be quantifiable by the Congressional Budget Office for short-term deficit reduction, but that hold the promise of ensuring the long-term solvency and viability of Medicare and Medicaid to provide coverage for the populations they serve. The crucial theme is that true reduction in costs can be achieved only by reducing excess capacity and utilization of services. Long-term reforms in Medicare and Medicaid to achieve this goal must be consistent with, and indeed may lead the way to, health system changes. ACP's recommendations include the following:

• Careful transition to increased use of managed care for Medicare and Medicaid patients. Comprehensive, coordinated health plans hold the potential to improve access and quality for beneficiaries. While standards of quality, physician availability, solvency and so on are essential, they must be flexible enough to encourage development of a range of health plans, including physician-sponsored plans.

• Fostering the availability of multiple health care delivery options. This tactic may increase competition that squeezes inefficiencies out of the system and expands available benefits, such as preventive care. An administrative mechanism, such as those operated by federal and state employee benefit plans or some health insurance purchasing cooperatives, is necessary to help beneficiaries navigate through such a system.

• Assessing priorities for health resources. A national debate should be undertaken on the difficult issue of prioritizing health care services for all populations, not simply the elderly or poor. Society must reach a consensus on how to decide when care becomes futile, at any age, and when other care options should be chosen to preserve individual dignity and comfort.

• Administrative waste. The administrative cost of

America's health care system remains huge and must be reduced. We have not begun to tap the savings potential of steps ranging from uniform claim forms, to pattern profiling rather than case-by-case review, to eliminating the gamesmanship of insurers in denying claims.

• Prudent purchasing by government. Private sector innovations may be applicable to Medicare and Medicaid: quality indicators and service performance standards so that government can become a prudent purchaser, increased use of centers of excellence and specialized services contracting, and case management for high-cost services.

These types of reforms require a process of consensus- building, which cannot occur as long as Congress focuses on the quick fix. The ACP position statement concludes with a call to Congress and the administration to create private-public mechanisms that can plan for long-term reforms in public insurance programs.

Speak out now

Dr. Thomson's call to action was sent to randomly selected ACP members in the 19 states and almost 60 congressional districts whose senators and representatives sit on the committees with jurisdiction over Medicare and Medicaid: the House Commerce and Ways and Means Committees and the Senate Finance Committee. If you have not received the letter and know that your senator or representative is on one of these committees, your voice is critical. Even if your members of Congress are not on the authorizing committees, you should take part in this campaign, because all members will vote on these issues once legislation moves to the House and Senate floor, and those votes may be very close.

ACP urges you to take a first step by writing to your representative and senators, indicating your opposition to budget cuts. Write about your patients and your community. If you can, follow up with phone calls to their Washington offices, asking to speak to the health legislative aide. If possible, you should also request a meeting when the member is in his or her district office.

There are other effective steps as well: writing letters to the editor or op-eds in local papers, speaking out at congressional town meetings, participating in press conferences with others in the community.

Finally, while one letter would be great, we urge you to follow the debate and speak out repeatedly as issues arise, through additional letters and calls. Only a sustained groundswell of opposition may thwart the destructive course set by the congressional budget resolution.

We have not faced a budget battle of this magnitude before. The ACP urges you to act now. If we can help in any way, please call the ACP Public Policy Office, at 800-633-9400.

Howard B. Shapiro is Director of Public Policy and the ACP Washington, D.C., office.

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