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Panel Calls For Medicare Thrift To Reduce Debt

What's the latest strategy to reduce the nation's debt? Tough health-care love from Congress. A panel of high-profile Republicans and Democrats on Wednesday recommended that Medicare beneficiaries pick up far more of their health care costs. It also wants the government to check the growth of both Medicare and Medicaid programs in the future.

The panel -- led by former Republican Sen. Pete Domenici of New Mexico and Alice Rivlin, budget director under President Bill Clinton -- also calls for a national debt-reduction sales tax of 6.5 percent, as well as changes in Social Security and income tax rates.

Leading the task force was the Bipartisan Policy Center, an initiative of former congressional leaders of both parties. Its recommendations come a week after the chairmen of President Obama’s commission on controlling the national debt proposed increasing the age at which people qualify for Social Security to 68 by 2050.

Backers of the latest plan said they hoped it would spur a reluctant public and its leaders to grapple with necessary, but painful, choices to get the country’s spending under control. But others warned the political prospects of the plan seemed doubtful -- particularly for some of the more radical ideas, like limiting the amount the government would spend on Medicare beneficiaries.

Right now, premiums account for 25 percent of the cost of Part B, or the physician component of the program, with the government paying the balance. The task force would increase beneficiaries' share to 35 percent.

And starting in 2018, traditional Medicare would be turned into a "premium support" program that would limit the rate of increase of federal spending per beneficiary to 1 percent above the growth rate of the economy. Under such a plan, beneficiaries likely would pay more to stay in traditional fee-for-service Medicare, though they could save money by getting coverage through private health plans that would compete against each other for business.

"I think the premium support is a feasible way of controlling costs," Rivlin said at a media briefing.

But this approach has never drawn much political support over the years. "It’s hard to see either party embracing a full-blown premium support plan," said Henry Aaron, a Brookings Institution expert who helped develop the idea in the mid-1990s. "The Democrats would be largely against it because of cuts in benefits, and not enough Republicans would have a stomach for it. It would mean big benefit cuts and a substantial increase in out-of-pocket costs."

AARP Executive Vice President John Rother said his group can't get behind premium support. Of the overall task force report, he said it "raises lots of questions because of how it shifts more costs to individuals."

The 2028 tax exclusion on employer-provided health care benefits also came under fire. Taxing employee health benefits would generate about $10 trillion in savings by 2040, more than any other revenue generator, according to the report.

Labor unions have opposed eliminating the tax exemption on health benefits out of concern it would lead employers to provide stingier benefits, said Paul Ginsberg, president of the nonprofit Center for Studying Health System Change and a consultant to the task force.

Other recommendations:

* On Social Security, raise the amount of wages subject to payroll taxes -- now $106,800 -- so that 90 percent would be covered, and "slightly" reduce the growth in benefits for the top 25 percent of beneficiaries.

* Establish only two income tax rates, 15 percent and 27 percent; end deductions for mortgage interest and charitable contributions, replacing them with 15 percent refundable credits, and lower the top corporate tax rate from 35 percent to 27 percent.

But the task force also veered sharply in the direction of reviving the economy and creating jobs with a recommendation for a payroll "tax holiday" in 2011 that would excuse employers and workers from paying the 12.4 percent tax into the Social Security Trust Fund.

Taking these and other steps, by 2020 federal spending would be reduced from a projected 26 percent of GDP to 23 percent, and the federal debt would be brought down below 60 percent of GDP, the task force said.

This story was produced through collaboration between NPR and Kaiser Health News (KHN), an editorially independent news service and a program of the Kaiser Family Foundation, a nonpartisan health care policy organization that isn't affiliated with Kaiser Permanente.

Copyright 2023 Kaiser Health News. To see more, visit Kaiser Health News.

Phil Galewitz and Jordan Rau
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