The highest profile item is rolling back Medicare Part B premiums, which were due to jump by about half next year for almost one third of Medicare beneficiaries. This year, the standard Part B monthly premium is $104.90. Without the budget agreement, the premium for about 30 percent of beneficiaries would have jumped up to $159.30. Although this prospect understandably discomforted politicians who have falsely promised that Medicare costs are under control, the premium hike was a consequence of a provision that protects taxpayers.
The premium hike to $159.30 is politically intolerable. The pressure to roll it back without paying for it at all (like Congress did with the so-called Medicare “doc fix” last April) must have been immense. Congress and the President should be congratulated for agreeing to pay for a reduction in the premium to $120 next year (and, perhaps, 2017) by adding $3 to monthly premiums in future years. The “fix” is approximately budget neutral over 10 years.
However, this assumes 2016 (and, perhaps 2017) will be idiosyncratic, and future Social Security COLA increases will prevent a repeat. That depends on general price inflation increasing from zero, which largely depends on the Fed, not health policy. If COLA remains at zero for a few years, we could see this premium adjustment recur again and again – just another case of Congress kicking the can down the road.
A very important reform invisible to most Americans will be how Medicare pays certain hospital-owned outpatient facilities. Many services cost significantly less when provided in an outpatient setting than in a hospital. However, hospitals which own outpatient facilities are expert at claiming higher hospital-based charges for services delivered in off-campus outpatient settings. Closing this loophole for new facilities will save $9.3 billion over ten years. Far more could be done to adopt more generally “site neutral” payments. President Obama has proposed reforms that would save $29.5 billion over ten years, and we should hope that this will be just the first of many bipartisan successes in reducing unnecessarily expensive hospital charges.
The item that will likely have significant unintended negative consequences is the arbitrary rule that manufacturers of generic drugs must pay rebates to Medicaid if their prices increase greater than the rate of inflation. This is estimated to save a very small amount of $1 billion over ten years. However, inflation these days is zero. Price increases of generic drugs are caused by a number of challenges, such as slow regulatory approvals and problems in the supply chain of chemical ingredients. Simply imposing price controls without addressing the real issues will lead to more shortages, not savings.
Overall, the health care piece of the budget deal should be characterized as a moderate success.
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