Fiscal commission unveils laundry list of unpopular solutions to save Medicare

President Obama's fiscal commission proposes to get the government's healthcare spending under control with a laundry list of oft-debated solutions that neither party has been able to enact because of entrenched ideological and industry opposition.

The co-chairmen's mark, unveiled Wednesday, suggests "asking doctors and other health providers, lawyers and individuals to take responsibility for slowing healthcare cost growth." The proposals include tort reform, drug rebates and Medicare payment cuts, all of which have been lobbied to a halt in the past.

The proposal also recommends mandatory premium increases and payment cuts after 2020 if federal healthcare costs continue to grow faster than the rate of growth of GDP plus 1 percent. And it rekindles the debate over taxing health benefits and instituting a public option.

The commission's proposal starts with preventing a scheduled 30 percent cut called for by the physician payment formula, known as the Sustainable Growth Rate (SGR). The "doc fix" pay freeze would cost $276 billion over 10 years, which would be paid for "not through deficit spending but through savings from payment reforms, cost-sharing and malpractice reform, and long-term measures to control healthcare cost growth."

The proposed offsets include: 

• Paying doctors and other providers less, improving efficiency and rewarding quality by speeding up payment reforms and increasing drug rebates. The proposal would replace the SGR with "modest reductions" through 2015 and then establish a new payment system (saves $24 billion); the proposal would also require manufacturers to offer rebates on brand-name drugs as a condition for participating in the Medicare prescription drug program (saves $59 billion);

• Reducing the cost of defensive medicine by adopting comprehensive tort reform (capping non-economic and punitive damages and making other changes in tort law would save $64 billion);

• Expanding cost-sharing in Medicare to promote informed consumer health choices and spending (eliminating first-dollar coverage in Medigap plans would save $50 billion; replacing existing cost-sharing rules with universal deductible, single coinsurance rate and a catastrophic cap for Medicare Part A and Part B would save another $85 billion);

• Expanding successful cost-containment demonstrations;

• Strengthening the healthcare reform law's Independent Payment Advisory Board (IPAB); and

• Recommending additional health savings.

During the healthcare reform debate, early calls for tort reform and drug rebates were quickly squashed after heavy lobbying by lawyers and drugmakers. As for the IPAB, rather than strengthening it, a number of Republicans have called for its repeal.

But the fiscal commission thinks the appointed board has promise if it can get some teeth after being watered down considerably during the reform debate. The 15-member board would make recommendations for cuts in Medicare payments to providers if federal health expenditures grow faster than a specified target.

The commission proposal would strengthen the IPAB by: 

• Eliminating special carve-outs for hospitals and certain other providers;

• Increasing the spending rate reduction target to 1.5 percent starting in 2015 instead of 2018;

• Eliminating the trigger that would turn off the IPAB in 2019 if other cuts called for in the healthcare reform bill are achieved;

• Allowing cost-saving recommendations even if spending doesn't surpass target growth rate;

• Allowing proposals that apply reforms to health plans in the exchange; and

• Creating a "back-up sequester" that would automatically increase premiums and reduce provider payments if IPAB recommendations (or equivalent savings) are not adopted.

The proposal would set a global target for all federal health spending after 2020 of GDP plus 1 percent, and review costs every two years. If costs grow too fast, the president would be required to submit — and Congress would have to consider — reforms that could include a public option.

In addition, the proposal tackles healthcare costs on the tax side.

It lays out one option, named after Sens. Judd Gregg (R-N.H.) and Ron Wyden (D-Ore.), that would cap the income-tax exclusion for employer-provided healthcare at the amount of the actuarial value of the standard option under the Federal Employees Health Benefits Plan. Taxing health benefits would likely lead employers to drop more expensive plans and almost doomed healthcare reform after unions revolted against the tax on so-called "Cadillac" plans, which ended up being significantly delayed and watered-down.

Another solution consists of a "tax reform trigger" that calls for an across-the-board "haircut" for itemized deductions, employer health exclusion and general business credits that would take effect in 2013 if reform is not yet enacted.