Paying for the Medicare “Doc Fix”

doctor-xray-2The Medicare Sustainable Growth Rate (SGR) formula was passed as part of the Balanced Budget Act of 1997 to reduce the growth in Medicare spending. The so-called SGR was designed to collectively penalize physicians for exceeding the benchmark expenditures established by Congress. The SGR automatically reduces physician payments under Medicare by a proportion that will lower spending back to the designated growth rate. However, the SGR has not reduced spending primarily because Congress has continually postponed the cuts year after year rather than reform Medicare in sustainable ways. Since 2003 Congress has postponed the cuts 17 times. Beginning in April, physician fees will be cut by 21.2 percent if Congress does not kick this can down the road an 18th time. Congress has not repealed the SGR mostly because it would cost $140 billion over 10 years and require offsets.

The SGR clearly isn’t working; the reason Congress won’t allow the cuts to take place is because too many seniors would lose access to physicians willing to treat them. What is needed is fundamental reform. But a good first step down that road would be to repeal the SGR and pay for it with several costly offsets. Two good ideas that President Obama has supported in the past include: 1) reducing the percentage of Medicaid provider taxes that states are allowed to use to qualify for a federal match; and 2) eliminating some of the Medigap Supplemental Plans that everyone agrees leads wasteful spending.

Currently states are required to provide some of their own funds in order to qualify for federal matching funds to fund their Medicaid programs. Federal matching funds average about 56 percent. In other words, the federal government pays $0.56 cents of every dollar of state spending, while states only contribute $0.44 cents. To effectively boost the federal match above what it would otherwise be, most states tax their health care providers to raise state revenue for matching purposes and then gives it back to providers. This effectively boosts the amount of funds the federal government pays towards state Medicaid programs. Although this is technically illegal, the federal government allows states to impose a provider tax up to 6.0% of net revenues to use toward Medicaid. In the past, President Obama supported reducing this limit to 3.5 percent; eliminating this loophole entirely would save taxpayers approximately $52.32 billion from 2015 to 2023.

Various studies, including one for the Medicare Payment Advisory Commission have found that overly-generous Medigap policies lead seniors to spend more than similar seniors who lack supplemental coverage. Seniors with generous Medigap coverage spends up to one-third more than seniors without these supplemental plans. An estimate by the Congressional Budget Office for reducing first-dollar coverage by Medigap and increasing cost-sharing would save $58 billion over 10 years.

This is just the low-hanging fruit. These simple fixes should accompany fundamental reform.


Comments (7)

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  1. Devon Herrick says:

    Basically states tax hospitals on revenue, and then give it back as a reward for treating indigent / Medicaid patients. The amount given back is recorded as Medicaid spending for the purposes of federal matching funds.

    One problem with cracking down on abusive Medicaid schemes is that they are tacitly encouraged by the feds at HHS and supporters in Congress. The PPACA was premised on expanding Medicaid by paying 90% of the expansion costs (after 2016). If there is insufficient political will in Congress to oppose that cash-grab how can we expect Congress to tighten regulations that disallow abusive practices that further HHS’ goals?

    This is an example of why Medicaid needs to be delivered as a block grant based on a measure of poverty. For instance if New York wants to provide Medicaid benefits above the average, New York taxpayers need to bear the marginal cost. If Texas wants to use federal funds to subsidize 3-Share mini-med plans for the poor, that should be Texas’ prerogative.

    • What I find unfortunate is that President Obama wanted to dial back the ability of the hospitals to do this in a previous budget, and Congress did not seize the opportunity.

    • Jerome Bigge says:

      We could also have the federal government “take over” Medicaid 100% (like Medicare) and make it a truly “federal” program (like Medicare). This would eliminate the issue where some states are covering people to the 138% of the federal minimum wage for Obamacare while others don’t.

      I’m sure that an “adjustment” could be made so that this would be for all practical purposes “tax neutral”. The added cost to the federal government would be balanced out by removing an equal amount of “federal assistance” to the states. Making them responsible for example for highway maintenance instead of having “Uncle Sam” pay for it.

      We could also reduce the overall cost of US health care by elimination of the legal monopoly that doctors now enjoy over access to medical drugs through repeal of prescription laws. This also solves the problem of a supposed “shortage” of primary care physicians. In truth the “shortage” exists because require unnecessary office visit for patients who have chronic conditions that are “treatable”, but not curable. Mainly because this sort of thing is “easy money” for the medical profession and requires little if any “real work” for the MD in question. However once prescription laws are “history”, doctors will have considerable more time to treat patients who actually do “need” their services. Additionally, without constantly “full” waiting rooms, doctors will start behaving like businessmen who actually have to compete for “customers”… Not like the people at the Post Office or the DMV where people have little if any choice when it comes to being there.

  2. Dennis Byron says:

    “Seniors with generous Medigap coverage spends (sic) up to one-third more than seniors without these supplemental plans.”

    Based on common sense, does MedPAC really believe that the predominantly upper and high income people whd pay $1800-$2400 a year for a first-dollar-coverage Medigap policy will go to the doctor less because of a $200-one-time-a-year co-pay. Seniors with these plans spend more than those on Medicaid and public Part C Medicare Advantage because they are relatively wealthier, not because of their Medigap policies. (Did the study include people on private retiree insurance who I would think would spend the most given their Cadillac plans.)

    Philosophically, doesn’t it bother those of you who object to making people under 65 buy health insurance they don’t that you are in favor of not letting people over 65 buy health insurance they do want?

    • The problem is not that they are buying health insurance that they want, but that they are buying health insurance that increases the taxpayers’ costs.

      And it is not belief. It is observed behavior.

  3. Barry Carol says:

    I would like to see the so-called doc fix issue resolved permanently even if most of the cost is not paid for with offsets scored by the Congressional Budget Office (CBO). The reason is that the AMA’s top priority when the ACA was being debated was the doc fix and it remains its top priority today. If the issue gets resolved, perhaps it can turn its attention to sensible tort reform which at least as the potential to reduce healthcare costs by reducing defensive medicine. Any lobby only has so much political capital and the AMA spent its capital on the doc fix for the last several years at least. It’s time to turn the page in my opinion.