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The Medicare
Modernization Act of 2003 (MMA), best known for creating the Medicare
Prescription Drug program, or Part D, included a little-discussed provision that
could dramatically alter the entire Medicare program. Referred to colloquially
as "the 45% Trigger," the provision declares that if the Medicare Trustees'
find, for two years in a row, that Medicare spending from general revenues (as
contrasted with payroll taxes and premiums) is projected to exceed 45% of total
Medicare spending for the current or following six years, it shall be treated as
a "funding warning." Such a finding triggers a statutory requirement that the
President must submit legislation to Congress to address the funding
situation.
The conditions
established by the law have now occurred, and the President has sent proposed
legislation to Congress. The law dictates elaborate special procedures for
Congressional consideration of such legislation. Under the procedures, the
President's proposal, or an alternative proposed by a member of Congress to
address the same issues, is likely to be considered with a very short
turnaround.
As anticipated, the
President's proposals weaken benefits and other beneficiary protections. The
proposals are on top of the President's Fiscal Year 2009 budget proposals
that include $183 billion in cuts from Medicare over a five-year period. Specifically, proposals offered by the President would:
- Introduce principles of "value-based purchasing" of health care into the
Medicare program (see
http://www.medicareadvocacy.org/QualOfCare_07_02.08.PayForPerformance.htm;
- Increase the use of income-based premiums for Medicare Part D (as already
mandated for Medicare Part B by the MMA)(see our Weekly Alert of February 8,
2008 at
http://www.medicareadvocacy.org/PartD_08_02.08.IncomeRelatedPremium.htm.
- Restrict patient access to courts to bring medical malpractice claims;
A future Weekly
Alert will examine the President's legislative proposals in more detail.
The MMA's 45% Trigger is entirely arbitrary, and no such limit exists for any
other governmental activity. It forces Medicare to rely primarily
on payroll taxes and premiums rather than on the income taxes that produce
general revenues, placing a greater burden on lower-income individuals than on
middle- and upper-income individuals. Spending from general revenues for
Medicare is no different from similar spending for education, housing, defense,
or veterans' programs. All of these areas are 100% financed with general
revenues. The real issues concerning Medicare's future are how much
health care costs increase and how the Medicare program is designed. The latter issue will
be largely determined by the political will of Congress and the American people:
in other words, whether health insurance for older people and people with
disabilities through Medicare is viewed as a priority by Americans, and, if so,
how it should be delivered.
We have reached the 45% Trigger in large part because the prescription
drug benefit was funded only by general revenues (except for premiums for Part D
plans). That means that the billions of dollars in new expenses that fund
Medicare Part D are applied toward the 45% limit. Generally, payroll taxes that
go into a trust fund pay for Part A Medicare services, such as hospitalization
and skilled nursing care. With respect to physician visits, medical equipment,
and prescription drugs provided under Parts B and D, premiums pay for about 25%
of the costs while general revenues pay for about 75%.[1]
Over time, Congress has shifted Medicare usage from Part A services to services under
Parts B and D. For example, hospital and skilled nursing facility services,
paid for mostly from the Medicare Trust Fund dollars, accounted for 53% of
Medicare costs in 1993, 45% of costs in 2003 and 34% of costs in 2006.[2]
Prescription drug costs, not shown as a separate category in either 1993 or
2003, accounted for a full 12% of all Medicare spending in 2006, the first year
of prescription drug coverage under Part D.[3]
Another reason we have reached the 45% Trigger is that Medicare costs, like
private health care costs, have risen in recent years at a rate that is
significantly higher than the consumer price index. Wages do not rise as
quickly as health care costs, so that payroll tax revenues, which fund the Part
A Trust Fund, do not rise as much as overall program costs. The Medicare
payroll tax has not been increased in over 15 years, and thus far
any ideas to do so have been ruled "off the table".
The President's proposed legislation does nothing to address one dramatic cost
of the Medicare program: payments to private "Medicare Advantage" plans which exceed
those for a similar beneficiary in traditional Medicare by an average of 13%,
and as much as 19%, and which cost every Medicare beneficiary an extra $2/month
in Part B premiums. The overpayments are estimated to cost $150 billion over 10
years[4].
This puts an undue burden on both trust fund and general revenue spending.
The issue of Medicare costs needs to be addressed by Congress and the President
in ways that recognize that Medicare operates in the context of a larger health
care system throughout which spending is rising as a percentage of Gross
Domestic Product. Some Medicare experts believe that part of the solution will
involve increased taxes to generate needed revenues. The 45% Trigger, however,
dictates that needed revenues cannot come from the federal income tax that
distributes the tax burden more fairly between rich and poor than other kinds of
taxes. Instead, the Trigger requires that Medicare revenues come from increased
payroll taxes or premiums - both of which place a greater burden on lower income
people - from increased beneficiary cost-sharing, or from reductions or other
savings in payments to providers. The 45% Trigger creates a significant
obstacle to consideration of a wider array of options to improve and stabilize
Medicare.
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