Medicare, Medicaid, CLASS in crosshairs of 'Gang of Six' deficit plan

The latest plan to surface in the Congressional debate to raise the debt ceiling is the proposal from the recently resuscitated "Gang of Six" senators that aims to reduce the federal deficit by $3.7 trillion and includes significant cuts in government healthcare programs.

Under this plan, the Senate Finance Committee would be required to find $500 billion in healthcare spending cuts over 10 years, though it carries the proviso that cuts cannot come at the expense of services that the poor and elderly rely upon. The cuts to healthcare are reportedly deeper than the bi-partisan group of senators had in their original proposal earlier this year. The deeper healthcare cuts were reportedly added in order to bring Sen. Tom Coburn (R – Okla.) back into the fold, after he abruptly pulled out of the group earlier this year.

"I understood Sen. Coburn," Gang of Six member Sen. Mark Warner (D – Va.) told Politco. "He wanted even more reductions in certain entitlement programs. He wanted specific policy adjustments that [Sen. Dick Durbin] and others did not."

Nearly $200 billion in savings detailed in the plan would come from the elimination of the Community Living Assistance Services and Supports (CLASS) Act, a voluntary, government-run, long-term care insurance program created last year under the Affordable Care Act. While CLASS still has support among many Democrats, it has come under regular fire from House and Senate Republicans and even a handful of Democrats amid worries that premiums paid into the program would not sustain the program.

[See also: Sebelius affirms commitment to CLASS long-term care insurance]

"Despite the fatal flaws of the CLASS Act, the Obama Administration continues to push ahead in implementing this unsustainable entitlement program," said Sen. John Thune (R – S.D.), in a statement last week. "The Department of Health and Human Services owes the American taxpayer some honest accounting of where the administration is in the implementation process of the CLASS Act, and why they continue to ignore all of the red flags raised about the massive new entitlement program that is being created."

CLASS is designed as an insurance program that would help pay for the costs of long-term care, while at the same time lessening the budgetary burden on Medicaid, which pays for about half of the $200 billion spent annually on long-term care.

"We are not prepared, either as families or as a society, to pay for the long-term care supports and services most of us will need before we die," noted a May story in the AARP Bulletin.

But even AARP concedes the program's weaknesses, though it urges fixing the program, rather than scrapping it altogether.

"CLASS is poorly designed, particularly the financial thresholds for eligibility, contributions and coverage," AARP noted. "These will need to be revised if the program is to succeed. Unfortunately, nearly all congressional Republicans and a few Democrats would rather kill it than work to implement it."

While the Gang of Six deficit plan is light on specifics for how it will save another $300 billion in Medicare and Medicaid spending, both programs would likely take a significant hit since it also calls for the elimination of the much-maligned SGR Medicare physician payment formula.

[See also: CMS final rule to cut 2011 Medicare pay for physicians; Senate reaches tentative deal to delay Medicare physician pay cuts for one year]

The Medicare payment formula, originally passed in the 1990s with the aim of keeping healthcare spending in check, is severely broken and has required Congress to regularly over-ride the law to stave off massive Medicare reimbursement cuts to physicians. In 2010 alone, Congress needed to act on four separate occasions to avert the automatic cuts under current law.

"(We) commend the Senate Bipartisan "Gang of 6" for recognizing that reform of the Medicare physician payment formula – specifically a full repeal of the sustainable growth rate formula – must be included in deficit reduction legislation," noted a widely circulated letter from American Association of Family Physicians, that was also signed by numerous healthcare trade groups – including the AMA – representing more than 700,000 physicians. "Failure to recognize the impact of the SGR on the long-term financial health of the Medicare program would be to ignore one of the most pressing financial and healthcare policy issues facing our nation."

Yet even as Congressional leaders have readily acknowledged the fatal flaws of SGR, it has been equally reluctant to act on the so-called "Doc-Fix," which would reform the payment formula for the long haul. Every time it ignores the problem, the price tag to fix it goes up. Estimates last year indicated a permanent fix would cost approximately $300 billion and the Gang of Six plan doesn't include specific details on where the money would come from to pay for this.

"We'll need to see more details before we can consider whether to recommend supporting the proposal as a whole," said Kevin Burke, director of government relations for AAFP. "The value of having the Gang of Six proposal include repeal of the SGR is itself a positive step toward a better payment model."