This week on Facing the Future, we looked at the impact of health care spending on the federal budget with Anna Bonelli, Director of Health Policy at the Committee for a Responsible Federal Budget. The discussion included expiring enhanced subsidies under the Affordable Care Act (ACA), the pending insolvency of Medicare’s Hospital Insurance (HI) trust fund and overpayments to the Medicare Advantage program.
The enhanced ACA subsidies were first enacted in 2021 to increase health insurance coverage during the COVID-19 pandemic and extended through 2025 in the Inflation Reduction Act of 2022. They expanded eligibility for premium subsidies beyond 400 percent of the federal poverty level, which was the original ACA limit, and reduced the maximum share of income households would pay for a plan. When they expire at the end of this year, premiums for plans purchased on the ACA marketplaces are expected to spike.
When and how to handle the expiring premium subsidies is a key point of contention between Democrats and Republicans in the ongoing government shutdown. Bonelli warned that simply extending the subsidies without any offsets would cost about $350 billion over 10 years.
“This is a program that is very important to a lot of Americans,” she said “and some have found it worth shutting down the government over. And so, if it is a priority of Congress then Congress should make sure that it doesn’t increase our federal deficit even further. One thing that I’ve been really intrigued by is the lack of discussion on how to moderate the size of the subsidies. There’s just a real dearth of discussion. It’s like, we extend these enhanced subsidies, or we don’t extend them. And there’s a lot of gray area in between. You could shrink the size of the subsidies in order to moderate the cost. So we would encourage Congress first to look for ways to shrink the size of the subsidies to something that is tenable, but can be paid for.”
Another health care spending problem that Congress will need to deal with soon is the pending insolvency of the Medicare HI trust fund. Bonelli noted that earlier this year the Medicare trustees projected that HI would be depleted in 2033 but that the reconciliation bill passed this summer (H.R.1) “will decrease the revenue that’s going to the Hospital Insurance Trust Fund, and so we project that that will move up the date of insolvency to 2032…only 7 years away.”
The consequences of HI insolvency pose “a real concern,” she said because “once the hospital insurance trust fund runs out of its reserves, then it’s only going to be funded by the amount that’s coming in year to year by tax revenue and it’s not going to be able to keep up. We project a 12% cut at that point in the amount that CMS can pay providers.” “So, we’re really encouraging Congress and everyone to look for ways to shore up the funding of the trust fund,” she said. “If you had a 12% cut among hospitals and some nursing facilities and so on you would see a lot of hospitals shutting down entirely, and then you might see some hospitals just withdrawing from the program and saying, ‘we’re not going to participate in Medicare at these levels’, and then that would make things really difficult for a lot of beneficiaries.”
Bonelli also described fiscal problems with the popular Medicare Advantage (MA) program, which now serves more than half of Medicare enrollees. “When the Medicare Advantage program was conceived,” Bonelli said, “it was thought of as a cost saver because plans would have an incentive to reduce costs, because if they reduce costs then they actually get to pocket the amount that they’re saving the federal government. Unfortunately, that has not happened over time.”
She explained that MA plans “get additional funds for each beneficiary who joins their plan based on how sick they are, which makes perfect sense. You would definitely want to make sure that these plans are not looking for only healthy people. So, the federal government pays plans a little bit extra if somebody enters the program who is more ill than your average traditional Medicare beneficiary. The problem is that over time, plans have gotten really good at making the people that enroll in their plans look as sick as possible. And in some cases, some of these diagnoses are questionable. So now, for every enrollee who enters Medicare Advantage plans, those plans are paid way more to care for this person than the traditional Medicare program would expend if that person had stayed in the traditional Medicare program. So, it is driving costs like crazy. The Committee for a Responsible Federal Budget projects that the costs over 10 years of Medicare Advantage plans up-coding, over-billing Medicare, will cost the federal government over $1 trillion.”
Hear more on Facing the Future. Concord Coalition Senior Advisor Bob Bixby hosts the program each week on WKXL in Concord N.H., and it is also available via podcast. Join us as The Concord Coalition team discusses issues relating to national fiscal policy with budget experts, industry leaders, and elected officials. Past broadcasts are available here. You can subscribe to the podcast on Spotify, Pandora, iTunes, Google Podcasts, Stitcher, or with an RSS feed. Follow Facing the Future on Facebook, and watch videos from past episodes on The Concord Coalition YouTube channel.
