Budget Brief: The Centers for Medicare and Medicaid Services (CMS)

(This is one of a series of Budget Briefs CRD Associates is posting on key facets of President Obama’s fiscal year 2013 proposal to Congress.)

The President’s FY13 request for the Centers for Medicare and Medicaid Services (CMS) is $829.4 billion in mandatory and discretionary spending, an increase of $72 billion over last fiscal year. The Administration’s request focuses on the continued implementation of the Affordable Care Act (ACA) and increasing the efficiency of the Medicare and Medicaid programs.

Assuming there will be 52 million Medicare beneficiaries in FY13, spending on the program is expected to account for 62.8 percent of the CMS budget or $588 billion. In an effort to curb spending, the President includes proposals that would save $302.8 billion over 10 years. Highlights are provided below:

  • Align Medicare Drug Payments with Medicaid Policies for Low-Income Beneficiaries: For a savings of $155.6 billion over 10 years, Medicare would benefit from the same rebates that Medicaid receives for brand name and generic drugs to beneficiaries who receive the Part D low-income subsidy. Manufacturers would be required to pay the difference between the rebate levels for part D plans and Medicaid rebate levels.
  • Reduce Medicare Coverage of Bad Debt: Medicare’s responsibility for bad debts resulting from beneficiaries’ non-payment of deductibles and coinsurance would be reduced from 70 to 25 percent. This would align Medicare policy more closely to that of the private sector, saving $35.9 billion over 10 years.
  • Better Align Graduate Medical Education (GME) Payments with Patient Care Costs: To align GME payments with actual patient care costs, GME payments for the indirect costs of medical education would be reduced by a total of 10 percent. This proposal mirrors proposals made by MedPAC and some of the proposals aimed at reducing the federal debt for savings of $9.7 billion over 10 years.
  • Dedicate Penalties for Failure to Use EHRs Toward Deficit Reduction: Beginning in 2015, providers will be assessed penalties for not adopting EHRs as outlined in the American Recovery and Reinvestment Act of 2009. Under this proposal, these funds would be redirected toward deficit reduction for a $590 million savings over 10 years.
  • Increase Income-Related Premiums Under Parts B and D: The President proposes that income-related premiums under Parts B and D would increase by 15 percent beginning in 2017 and these thresholds would be maintained until 25 percent of beneficiaries are subject to these premiums. ($27.6 billion over 10 years)

Other provisions of interest include the President’s proposal to strengthen the Independent Payment Advisory Board (IPAB) to reduce the long-term care drivers of Medicare cost growth by lowering the target rate in 2018 from GDP plus 1 percent to GDP plus 0.5 percent. This proposal will be controversial as legislation has been introduced to repeal the IPAB, garnering bipartisan support. Many members of Congress feel that the IPAB infringes upon Congressional authority over Medicare.

The President also addresses the sustainable growth rate (SGR) that dictates Medicare physician payment in the budget. It includes an adjustment of $429 billion over 10 years to work with Congress to permanently reform the SGR. This estimate differs from that of the CBO, which estimated the cost of repeal to be $316 billion. It is unclear why the estimates are so substantially different, but they both reinforce that the financial burden of this flawed system will continue to grow until Congress repeals the formula.

It is estimated that 57 million people will receive health coverage through Medicaid in FY12. To curb the growth of this program, the President outlines $55.7 billion in savings over 10 years, including:

  • A single blended matching rate to Medicaid and CHIP;
  • Reduce the Medicaid provider tax threshold beginning in FY15;
  • Rebase the Medicaid Disproportionate Share Hospital (DSH) allotments in FY21;
  • Limit Medicaid reimbursement of DME based on Medicare rates;
  • Expand State flexibility to provide benchmark benefit packages;
  • Extend transitional medical assistance (TMA) through CY13;
  • Extend the Qualified Individual (QI) program through CY14;
  • Program integrity proposals to fight fraud, waste and abuse; and
  • Establish hold harmless for federal poverty guidelines.

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