Inside Deficit Reduction: What it Means for Medicare Karen Davis President The Commonwealth Fund Alliance for Health Reform October 11, 2011

2 Federal Revenues and Primary Spending, by Category, Under CBO’s Alternative Long-Term Budget Scenario Source: Congressional Budget Office, The Long-Term Budget Outlook, June 2010, revised August Note: This alternative fiscal scenario adheres closely to current law and follows CBO’s 10-year baseline budget projections through 2020 and extending the baseline concept through 2035; however this estimate incorporates a number of assumed exceptions to current law as of the August 2010 revision, including: (1) Medicare physician payment rates continue to grow at the Medicare economic index rather than following the SGR, (2) several policies to restrain spending after 2020 do not go into effect, i.e., IPAB recommendations do not go into effect, (3) health insurance premium subsidy cuts scheduled for 2020 do not take effect, and (4) the tax relief policies known as the “Bush tax cuts” are extended through 2020 after which individual income taxes are adjusted to keep total revenue constant as a share of GDP. Percent of GDP 3

3 Growth and Projected Growth in Per Capita Medicare Spending in Excess of Economic Growth Excess rate of spending growth (percentage points) Note: The excess rate of spending growth measures the amount by which health spending per person exceeds GDP per capita, with adjustment for demographic factors such as the aging of the population. Source: M. Chernew, D. Goldman, and S. Axeen, “How Much Savings Can We Wring From Medicare,” New England Journal of Medicine, published online September 21, 2011.

4 Rising Cost of Care is a Shared Concern: Public and Private Growth In Private Spending per Person Projected to Exceed Medicare, Spending per person Source: Commonwealth Fund analysis of CMS, Office of the Actuary, National Health Statistics Group, National Health Expenditures Projections , September 2010.

5 Percent of total Medicare population: Income <200% FPL ($21,780 in 2011) Cognitive/Mental Impairment Long-term Care Facility Resident 3+ Chronic Conditions Under-65 Disabled Fair/Poor Health Age ADL Limitations Characteristics of the Medicare Population NOTE: ADL is activity of daily living. SOURCE: Income data for 2009 from U.S. Census Bureau, Current Population Survey, 2010 Annual Social and Economic Supplement. All other data from Kaiser Family Foundation analysis of the Centers for Medicare & Medicaid Services Medicare Current Beneficiary 2008 Access to Care file.

6 Median Out-of-Pocket Health Spending for Medicare Beneficiaries is on the Rise SOURCE: Kaiser Family Foundation. “Skin-in-the-Game,” November OOP Spending as a Percentage of Income

7 Health Care Reform and the Federal Budget Deficit: What Are the Choices? Cut Benefits –Cover fewer people, fewer services, or pay for a smaller fraction of total spending for services (i.e. increased patient cost-sharing or premiums) –Restructure current patient out-of-pocket costs to shape better care choices (value-based insurance design) Trim Payment Rates –Across the board cuts –Selective cuts of over-priced services –Use purchasing leverage to get lower prices; include all-payer approaches to slow growth prices paid by private plans Ensure the Right Care and Pay Smarter –Reduce misuse, overuse, and underuse through payment and delivery system reforms, apply comparative-effectiveness research –Pay smarter: medical home; bundled payment for acute and post- acute episodes; global fee per person with quality bonuses Source: K. Davis and S. Guterman, Achieving Medicare and Medicaid Savings: Cutting Eligibility and Benefits, Trimming Payments, or Ensuring the Right Care?, (New York: The Commonwealth Fund, July 2011).

8 Panelists Tom Scully –Senior counsel at Alston & Bird, Washington, DC and former administrator of the Centers for Medicare & Medicaid Services Mark McClellan –Director of the Engelberg Center for Health Care Reform and former administrator of the Centers for Medicare & Medicaid Services Tricia Neuman –Vice president of the Kaiser Family Foundation and director of its Medicare Policy Project Marilyn Moon –Vice president and director of the health program at American Institutes for Research and former Medicare trustee Joe Antos –Wilson H. Taylor scholar in health care and retirement policy at the American Enterprise Institute