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Categorized | Legislation

President Obama’s Deficit Reduction Commission Recommendations

As we await the release of a deficit reduction plan from the Senate – either the Gang of Six or Sen. Kent Conrad (D-ND), it is worth reviewing the recommendations made by the President’s National Commission on Fiscal Responsibility and Reform.

On November 10, the co-chairs of President Obama’s Commission on Fiscal Responsibility and Reform released draft recommendations for deficit reduction. The Commission’s report to Congress is due by December 1; however, any recommendations must be approved by 14 of the 18 Commissioners. The draft presentation includes significant changes to reduce Medicare and health care costs, as well as Social Security and tax policies. While it is unclear whether the Commission can muster the votes needed to approve recommendations, these proposals could be considered in the Congressional debate on spending offsets and deficit reduction.

Among the guiding principles outlined in the draft document, co-chairmen Erskine Bowles and Alan Simpson urged:  (1) instituting cuts gradually and beginning in Fiscal Year (FY) 2012 so as not to disrupt the economy; (2) considering all budget items for possible cuts; (3) protecting the disadvantaged by focusing benefits on those truly in need and ensuring an affordable and sustainable safety net; and (4) reducing the long-term growth of health care costs.  The co-chairmen made five overarching draft recommendations:

1.   Enact tough discretionary spending caps and provide $200 billion in illustrative domestic and defense savings in 2015.

2.   Pass tax reform that dramatically reduces rates, simplifies the code, broadens the base, and reduces the deficit.

3.   Address the “Doc Fix” not through deficit spending but through savings from payment reforms, cost-sharing, and malpractice reform, and long-term measures to control health care cost growth.

4.   Achieve mandatory savings from farm subsidies, military and civil service retirement.

5.   Ensure Social Security solvency for the next 75 years while reducing poverty among seniors.

The draft proposal acknowledges the need to address the Sustainable Growth Rate (SGR) problem and proposes that the physician fee fix be fully offset “by asking doctors and other health providers, lawyers, and individuals to take responsibility for slowing health care cost growth.” The proposal calls for SGR cuts through 2015 with modest reductions while directing the Centers for Medicare and Medicaid Services (CMS) to establish a new payment system, beginning in 2015, to reduce costs and improve quality.  The co-chairmen explain that potential offsets and savings could include the following: (1) paying doctors and other providers less, improving efficiency, and rewarding quality by speeding up payment reforms and increasing drug rebates; (2) paying lawyers less and reducing the cost of defensive medicine by adopting comprehensive tort reform; (3) expanding cost-sharing in Medicare to promote informed consumer health choices and spending; (4) expanding successful cost containment demonstrations; and (5) strengthening the Independent Payment Advisory Board (IPAB).

The proposal also makes reference to additional ways to reduce health spending, such as:(1) placing dual-eligible beneficiaries in Medicaid managed care; (2) cutting Medicare payments for bad debt; (3) expanding ACOs, payment bundling, and other payment reform; (4) cutting federal spending on graduate and indirect medical education; (5) reducing federal spending on Medicaid administrative costs; (6) increasing nominal Medicaid copayments; (7) accelerating the phase-in of DSH payment cuts, Medicare Advantage (MA) cuts, and home health cuts included in the Affordable Care Act (ACA); (8) reforming Tricare to increase cost sharing for military retirees; (9) reforming Federal Employees Health Benefits (FEHB) retiree plans to increase cost sharing for federal civilian retirees; (10) establishing national standards for regulating and administering health insurance; and (11) converting the federal share of Medicaid payments for long-term care into a capped allotment.

In the long-term, the co-chairmen call for containing the total health care spending to gross domestic product (GDP) + 1 percent after 2020 by establishing a process by which to regularly evaluate cost growth and institute a means by which additional savings could be derived if projected savings are not realized. The draft proposal suggests evaluating a “robust public option and/or all-payer system in the exchange,” overhauling the fee-for-service system, and expanding the authority of the IPAB if health care costs grow faster than targets.