1. State of the Union: Medicare AEI on the Hill January 25, 2012 Joseph R. Antos, Ph.D. Wilson H. Taylor Scholar in Health Care and Retirement Policy and Retirement Policy American Enterprise Institute

2. 2 Budget drives Medicare policy …and the budget outlook is dire

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4. Budget Control Act Provisions Sequester: $1.06 T non-interest; 50% defense, 50% non- defense; 2% maximum Medicare cut; Medicaid exempt Medicare sequester = $11 B in 2013, $123 B over 9 years WH proposal: Medicare $248 B, Medicaid $72 B 4 Debt ceiling and the BCA 2012 Impact2013 and Beyond Ceiling Increase$900 billion$1.2 – 1.5 trillion Deficit Reduction$917 billion$1.2 trillion or more* Last chance to prevent automatic cuts

5. House Budget ResolutionPPACA + Budget + BCA Repeal parts of PPACA, retain savings Raise Medicare eligibility to 67 Medicare premium support for age 65 in 2022 Subsidized MSA for low-income Medicare Provider payment cuts, FFS Medicare Medicare Advantage cuts Drug rebate Increase premiums/high income (2017) Home health copay (2017) Medigap surcharge (2017) New Medicare payment methods (episode- based, pay for performance) ACOs Independent Payment Advisory Board (IPAB) Center for Medicare and Medicaid Innovation 5 Ryan vs. Obama: Medicare

6. SGR – No permanent solution 27.4% reduction delayed 2 months, $3.6 B cost Another fight in the fall? Cost, 2012-21Cliff Short Term Fixes 0% update in 201222.0-34% 0% update in 2012-1326.5-38% MEI update in 201221.8-34% MEI update in 2012-1326.6-39% "Permanent" Fixes 0% update297.6 MEI update358.1 6

7. SGR pay-fors MedPAC proposal realigns FFS payments – Freeze primary care; cut specialist care 5.9% through 2014, then freeze – $200 B over 10 years Pay-fors: spread the pain – Reduce updates and payments to hospitals, home health, SNF, DME, other services – Add home health copay – Prior authorization for imaging – Part D rebates for dual eligibles 7 Cuts used for SGR cannot be used to reduce the budget deficit

8. Bending the curve? ACOs Center for Medicare and Medicaid Innovation Independent Payment Advisory Board – Target GDP + 1% growth Past experiments did not work (CBO) – Disease management, care coordination: spending unchanged or increased – 3 of 4 payment demos saved little or no money [See http://www.cbo.gov/ftpdocs/126xx/doc12663/01-18-12-MedicareDemoBrief.pdf] 8

9. Premium support Key changes in Wyden-Ryan – Traditional FFS Medicare remains an option – Full competitive bidding between MA and FFS – Spending target GDP + 1% – Other savings provisions unspecified Some form of premium support expected in 2013 House budget resolution 9