Real Help for Medicare and the Deficit

Once again some lawmakers are proposing to change Medicare into fragmented private plans, ore even a limited, private voucher system. Their proposals would have severe repercussions for Medicare beneficiaries and their families.[1] Sound solutions that would preserve Medicare coverage while reducing costs are still not being seriously addressed.

The Center for Medicare Advocacy's recommendations do not shift costs to beneficiaries or completely restructure the Medicare program. They are good for beneficiaries and for the economy. They promote choice and competition while shoring up the solvency of Medicare. Adopting these recommendations would be a responsible step towards reducing our deficit the right way.

1.       Bring Down the Costs of Prescription Drugs

  • Extend Medicaid Drug Rebates to Low-Income Medicare Beneficiaries

As has been proposed in the past, Medicare should benefit from the same discounts for prescription drugs as Medicaid. Low-income dually eligible people (people eligible for both Medicare and Medicaid) comprise one-fourth of all Medicare drug users, and are among the most costly beneficiaries. Because Medicare, rather than Medicaid, covers most of their drugs and because Medicare cannot negotiate drug prices, these drugs are not eligible for the same rebates as they were, and would be, under the Medicaid program. Extending Medicaid rebates for dually eligibles and other low-income people would save more than $135 billion over ten years.[4]  Extending drug rebates to all Medicare beneficiaries would yield even more savings.

  • Negotiate Drug Prices with Pharmaceutical Companies

The Medicare prescription drug law, passed in 2003, prohibits the Secretary of Health and Human Services from negotiating prices with pharmaceutical companies.  These companies gained 50 million potential customers when Medicare began covering prescription drugs, but they did not have to adjust their prices in return.  Requiring the Secretary to negotiate drug prices for Medicare could produce considerable savings for taxpayers, according to some estimates.[2] Taxpayers currently pay nearly 70% more for drugs in the Medicare program than through the Veteran's Administration, which has direct negotiating power.[3] Savings realized from reducing Medicare drug cuts could be used to improve benefits for beneficiaries and reduce the deficit.

  • Include a Drug Benefit in Traditional Medicare

Offering a drug benefit in traditional Medicare would give beneficiaries a choice they do not have now, encourage people to stay in traditional Medicare, and save money for taxpayers.  It would also provide an alternative to private Part D and MA-PD plans that leave many with unexpected high out-of-pocket costs. A drug benefit in traditional Medicare would protect beneficiaries against expensive and sometimes inappropriate marketing practices.  Further, traditional Medicare's lower administrative costs could free up money for quality care, would result in lower drug prices for beneficiaries, and save taxpayers over $20 billion a year.[5]

2.       Stop Paying Private Medicare Plans Anything More Than Traditional Medicare

According to the Medicare Payment Advisory Commission (MedPAC), Medicare pays, on average, 10% more for beneficiaries enrolled in private insurance (Medicare Advantage or MA plans) than for comparable beneficiaries enrolled in traditional Medicare.[6] Despite these extra payments, beneficiaries in private plans who are in poor health, or who have chronic conditions, often have more limitations on coverage than they would under traditional Medicare.[7]

A large portion of the overpayments made to private plans actually goes to insurers rather than to benefit Medicare beneficiaries.[8] Although the Affordable Care Act (ACA) changed the payment formula for Medicare Advantage plans, some plans will continue to be paid as much as 115% of the average traditional Medicare payment rate for their county when the new rates are fully implemented. MedPAC estimates that by 2017 Medicare Advantage payment benchmarks will average 101% of traditional Medicare.  ACA also provides additional payments for plans that receive high quality ratings, increasing the likelihood that some MA plans will continue to be paid more than under traditional Medicare.

Reducing private MA payments to 100% of traditional Medicare, as MedPAC proposed before the enactment of ACA, will increase the solvency of the Medicare program and curb costs for taxpayers.  Private plans should not be paid any more than traditional Medicare.

3.  Lower, Don’t Raise, the Age of Medicare Eligibility

Some deficit proposals would increase the age of eligibility for Medicare from 65 to 67. This would "save money" for the federal government by shifting costs to beneficiaries, employers and states.  It would also eventually increase health care and Medicare costs, as older people go without insurance, go without needed care, and come into Medicare with more health care needs.

In fact, a common sense approach to insurance argues for lowering the age of Medicare eligibility, thereby decreasing the needs and costs of those in the Medicare risk pool, increasing revenues paid into the program, and reducing overall Medicare costs.

4.  Let the Affordable Care Act Do Its Job

The Affordable Care Act includes many measures to control costs as well as models for reform that will increase the solvency of the Medicare program and lower the deficit while protecting Medicare's guaranteed benefits. The Congressional Budget Office estimates that repealing or defunding ACA would add $230 billion to the deficit while ignoring the real issue of rising overall health care costs, which contribute heavily to the growing national debt. ACA includes strong measures to allow CMS to combat fraud, waste, and abuse that will bring down costs, as well as a variety of pilot and demonstration projects that aim to bring better care and quality to beneficiaries.[9] The bipartisan Bowles-Simpson Deficit Commission recommended that these projects be implemented as quickly as possible.[10] Allowing ACA to do its job will improve care and hold down costs for taxpayers.

5.  Other Concerns

  • Medigap Insurance Should Provide Adequate Coverage or People Will Forego Needed Care

While we constantly hear the refrain that having insurance leads people to get care they don’t need, this is not true.  As we saw with Part D, adding a gap in coverage – the infamous “Donut Hole” – means people forego needed health treatments.  Health care reform is closing the misguided coverage gap in Part D.  Proposals to add a gap in coverage for all Medicare beneficiaries with Medigap insurance would repeat a costly mistake. Restricting so-called “first-dollar coverage” will lead people to go without necessary care if they can’t afford to pay more out-of-pocket for Part B or Medigap.

  • Combining Part A and Part B Will Shift Costs to Older and Disabled People

Combining Part A and Part B sounds like a good idea as it simplifies the system, but it would result in higher out-of-pocket costs for people who rely on Medicare.  Medicare beneficiaries already pay more out-of-pocket than others who have insurance. The average annual income of people with Medicare is $22,000; many have far less. This proposal will add to the financial burden of older and disabled people and lead them to forego needed care.

  • Capping Medicare Home Health Payments or Adding  a Co-pay for Patients with Long-Term or Chronic Conditions Will Harm Beneficiaries and Cost More [11]

Proposals to cap annual payments for home health care or add a co-pay for patients who do not have a prior hospitalization will hurt people with long-term and chronic conditions.  Further, it will be more expensive in the long run.  For example, our client, Mrs. B, is 82 years old and lives with Multiple Sclerosis.  She is bedbound and is able to remain at home only because she receives Medicare covered home health care: a few PT visits a month and daily home health aides.  This home care helps her avoid hospitalizations.  Ironically, the lack of hospitalization will cause her annual out-of-pocket costs (OOP) to increase when she is already barely managing financially.  If she cannot meet these costs, Mrs. B will be forced into a nursing home – at far greater expense to Medicare and Medicaid – as she is unable to remain at home without home care. 


"Protecting Medicare" by shifting costs from the federal government to beneficiaries and their families – whether through a voucher program, spending caps, new co-payments, or other draconian measures  – distorts Medicare's original intent: to protect older people and their families from illness and financial ruin due to health care costs.  The Center for Medicare Advocacy's recommendations promote the fiscal welfare of Medicare and the country, and the health and economic security of older and disabled people.  We can keep Medicare's promise for current and future generations.  There is a way if there is the will.


[1] See previous Alerts from the Center, "Why Medicaid Matters to Medicare Beneficiaries and Their Families", "What Happens to Current Nursing Home Residents if House Budget Resolution Becomes Law?"
[2] See, e.g., Center for Economic and Policy Research (February, 2013), which projects savings to the government and beneficiaries if Medicare were to pay the same amount for prescription drugs as in other countries. Available at:
[3] Center for Economic and Policy Research (February, 2013).  Available at:
[4] Congressional Budget Office, Letter to Honorable Charles Rangel, available at
[5] Senator Dick Durbin, available at
[6] MedPAC, Report to the Congress, March 2011, Chapter 12 (March 2011), available at
[7] Neuman P. Medicare Advantage: Key Issues and Implications for Beneficiaries. Testimony before the House Committee on the Budget, United States House of Representatives, June 28, 2007, available at,
[8] Medicare Payment Advisory Commission. March 2009 Report to Congress, Chapter 3: The Medicare Advantage Program. P. 251-253, available at
[9] See previous Alert from the Center, "Combating Fraud, Waste, and Abuse in Health Care."
[10] The National Commission on Fiscal Responsibility and Reform, "The Moment of Truth," December 2010.

Sacha Evans