The Imperative DEFICIT REDUCTION AND ENTITLEMENT REFORM. Our Growing Deficit. AHLA INSTITUTE ON MEDICARE AND MEDICAID PAYMENT ISSUES March 20-22, 2013

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1 DEFICIT REDUCTION AND ENTITLEMENT REFORM AHLA INSTITUTE ON MEDICARE AND MEDICAID PAYMENT ISSUES March 20-22, 2013 Eric Zimmerman McDermott Will & Emery Washington, DC The Imperative Our Growing Deficit Federal spending is nearly 23% of GDP. Tax revenues are 16% of GDP. The gap between spending and revenue the budget deficit is about 5% of GDP Total Revenues and Outlays as a Percent of GDP Source: Congressional Budget Office (Feb. 2013) 1

2 The Imperative Our Growing Deficit Total Deficits/Surpluses as a Percent of GDP 2013 deficit projected to be $845B, the first time since 2008 that the shortfall will be less than $1T Deficits between were the largest as a percent of GDP since World War II Source: Congressional Budget Office (Feb. 2013) The Imperative Our Growing Deficit Federal debt held by the public will be 76% of GDP in 2013 The largest ratio since 1950 Source: Congressional Budget Office (Feb. 2013) 2

3 The Imperative The Role of Entitlement Spending Entitlement programs account for 53% of federal spending Medicare and Medicaid account for 23% of federal spending Federal Budget Outlays Defense $593B Entitlements Non-defense Discretionary $577B $223B $1,949B Interest Source: Congressional Budget Office (Feb. 2013) The Imperative The Role of Entitlement Spending Changing allocation of government resources Percent of GDP Source: Congressional Budget Office (Feb. 2013) 3

4 The Imperative The Coming Baby Boomer Wave The first US Baby Boomers turned 65 in 2011 The population >65 yrs in 2030 is expected to be double that in 2000, growing from 35M to 72M Americans Overall population growth is expected to be 18%, but older American population growth is expected to be 78%, meaning older Americans will account for more than 20% of the total population Source: US Census Bureau; 65+ in the United States (Dec. 2005) The Imperative Panels recommend cuts Domenici-Rivlin, $5.9T Simpson-Bowles, $3.9T Ryan, $5.8T President, $4T 4

5 Fits and Starts: Attempts at Deficit Reduction Catalyst: Debt Limit Federal law limits a president s borrowing authority to a specified amount. In summer 2011, the government required an increase to the federal debt ceiling. Congress withheld that authorization until August 2, 2011, when Congress enacted the Budget Control Act. Fits and Starts: Attempts at Deficit Reduction Increased borrowing authority by ~$1B Cut spending $900B Scheduled another $1.2T spending reduction by sequestration January

6 Fits and Starts: Attempts at Deficit Reduction Extended payroll tax reductions, unemployment insurance benefits, and numerous Medicare and Medicaid payment provisions Allowed some programs to expire Reduced Bad Debt reimbursements and Clinical Lab payments Fiscal Cliff: Confluence of 4 Events Doc Fix/SGR Sequester 2013 Taxes Debt Ceiling 6

7 Fits and Starts: Attempts at Deficit Reduction Extended some Medicare and Medicaid payment provisions Allowed other programs to expire Reduced Bad Debt reimbursements and Clinical Lab payments Grand Bargain Factors contributing to a grand bargain Deficit/Debt at historic highs Causing economic drag Entitlement programs swallowing our budgets Outlook for entitlement programs is overwhelming Despite fits and starts, only modest deficit reduction has been achieved 7

8 Grand Bargain Factors hindering a grand bargain Grand Bargain Possible changes affecting beneficiaries Raise eligibility age from 65 to 67 Require beneficiaries to pay more copays, e.g., clinical labs and home health Increase Part B deductibles Limit Medigap plans Increase beneficiary premiums Shift from a defined benefit model to a defined contribution model, i.e., premium support 8

9 Grand Bargain Possible changes affecting hospitals Cap certain hospital payments at physician office payments Bad debts reduce to 25% CAHs eligibility grandfather protection reduce reimbursement to 100% of reasonable costs MDHs discontinue IPAB reduce trigger threshold GME Convert to grant program Limit DGME to 120% of national average resident salary Lower IME from 5.5% to 2.2% Market Basket reduce by 1% Medicare Reform Possible changes affecting suppliers Reduce clinical lab payments Rebase skilled nursing and home health payments Lower reimbursement for Part B drugs Repeal SGR 9

10 Medicare Reform Possible changes affecting Medicare Advantage Lower plan benchmarks Revise the risk adjustment methodology Reduce quality bonuses Medicare Reform Possible changes affecting Part D Plans Require rebates for LIS beneficiaries Allow price negotiation 10