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News // February 16, 2013 MAAC Staff

Medicare in the State of the Union

According to the Nielsen Company, 33.5 million viewers watched the State of the Union speech this week. If you weren’t one of them — or if you were but weren’t paying close attention — you may have missed what President Obama said about Medicare.

The President made three Medicare proposals, which the Congressional Budget Office estimated would bring about $337 billion in savings to the federal budget over the next ten years. The Medicare proposals were contained in this part of the speech –

“We’ll reduce taxpayer subsidies to prescription drug companies and ask more from the wealthiest seniors. We’ll bring down costs by changing the way our government pays for Medicare, because our medical bills shouldn’t be based on the number of tests ordered or days spent in the hospital – they should be based on the quality of care that our seniors receive. And I am open to additional reforms from both parties, so long as they don’t violate the guarantee of a secure retirement.”

Let’s look at these one at a time.

First, “We’ll reduce taxpayer subsidies to prescription drug companies” refers to the Medicare prescription drug program, or Medicare Part D. As we’ve explained here before, Medicare Part D is a cash cow for drug companies. Why? Because the law that created the program forbids the government from negotiating directly with drug companies to get lower prices.

Other parts of the government that do negotiate prices, such as the Veteran’s Administration and Medicaid, pay a fraction of the amount that Medicare pays for the same drugs. Medicaid pays about 45 percent less, on average. If Medicare could cut its drug costs to be in line with Medicaid’s, it easily would save the government billions of dollars every year.

Second, “Ask more from the wealthiest seniors” refers to means testing, or asking higher income seniors to pay higher premiums. This may sound like a good idea, but it’s not without controversy. People who have run the numbers say it wouldn’t generate that much money and it would make the program more complicated.

People applying for Medicaid would have to fill out financial forms, for example, to determine what premium they will pay. Economist Paul Krugman says if you want wealthy seniors to pay more, it would be simpler to leave Medicare alone and just raise taxes on the wealthy.

Third, “We’ll bring down costs by changing the way our government pays for Medicare, because our medical bills shouldn’t be based on the number of tests ordered or days spent in the hospital – they should be based on the quality of care that our seniors receive.”

The Obama Administration has already taken some steps in this direction. At the beginning of this year, Medicare began to phase in a “bundled payment” reimbursement program. Instead of reimbursing doctors and hospitals for every test and treatment procedure, the provider will receive a lump sum to treat the patient’s illness. In pilot programs, it was found that bundled payments discouraged unnecessary procedures without reducing quality of care.

Finally, the President said he was open to other suggestions for reducing Medicare cost. But as he said elsewhere in the speech, the real problem is not that Medicare is too expensive, but that health care is too expensive. There are indications that the Affordable Care Act is beginning to slow the increase in health care costs, but it may take a few years before we see a substantial effect.

Keep in mind that little of what the President said he hoped to do can be done without the approval of Congress, and these days Congress seems unable to approve so much as a lunch menu. The President’s speech did tell us what he’d like to do, however, and it wouldn’t hurt to let your senator and representative know what you think. Whether you are in good health or have a life-threatening illness like mesothelioma, what goes on in Washington does affect you.