Billions in proposed budget cuts to Medicare, Medicaid threaten provider compensation

The 2018 federal budget and tax reform plan that narrowly passed the Senate on Thursday includes large proposed cuts to Medicare and Medicaid.

The cuts to two safety net entitlement programs would pose a significant risk to providers' reimbursement of care for older, sicker and disabled populations.

Though the provisions need additional legislation before moving forward, the budget takes $473 billion out of Medicare and about $1 trillion from Medicaid over the next decade.

The Republican proposal has been to end Medicaid as a federal entitlement and give money in block grants to states based on the number of beneficiaries per state.

The fear from those objecting to the plan is that the block grants would not provide enough funds.

The effects of per capita caps could have significant consequences for people's healthcare, providers and insurers, according to a report from The Commonweath Fund. For example, states might reduce already-low payment rates, forcing out many current providers.

If federal spending updates lag behind rising healthcare costs, states might reduce managed care payments, triggering the demise of managed care plans, the report said. Or states might narrow eligibility to control costs, perhaps eliminating some coverage.

Medicaid expansion, which is on the chopping block, was shown to lower the cost of uncompensated care for hospitals. Uncompensated care burdens fell sharply in expansion states between 2013 and 2015, from 3.9 percent to 2.3 percent of operating costs. Estimated savings across all hospitals in Medicaid expansion states totaled $6.2 billion, according to The Commonweath Fund.

In Medicare funding, policymakers have long proposed converting the program to a premium support system as a way to reduce federal spending.

The Congressional Budget Office earlier this month, at the request of Congress, updated its analysis of the plan that reportedly has the attention of Republicans looking to cut $473 billion from the program.

Under premium support, beneficiaries would choose health insurance from a list of competing plans, and the federal government would share the cost of their premiums. 

Private insurers would submit bids by region, indicating the amount they would accept to provide Medicare benefits to a beneficiary in average health.

In the options CBO analyzed, the federal government's contribution would be determined from insurers' bids, and Medicare's traditional fee-for-service program would be included as a competing plan.

In two funding scenarios, net federal spending for Medicare could be reduced between $184 and $419 billion between 2022 and 2026, the CBO said. 

If current beneficiaries are grandfathered to existing Medicare, net federal spending for Medicare would be reduced by $21 to $50 billion between 2022 and 2026.

In their report, the CBO said it assumed that the provision of the Social Security Act that prohibits out-of-network providers from charging more than Medicare's fee-for-service rates to treat Medicare beneficiaries in private plans would be retained under the premium support options. 

CBO also assumed that the Medicare FFS program would be offered as a competing plan. 

If either feature was removed, CBO said, private insurers' payment rates to providers would be higher than those projected, and the savings from the premium support options would be smaller.

Twitter: @SusanJMorse
Email the writer: susan.morse@himssmedia.com