A periodical report from the Congressional Budget Office offering Congress ideas on how to reduce the federal deficit includes several options to reduce spending via cuts to Medicare and Medicaid.
The options in the report, which are neither opposed nor endorsed by the CBO, outline various possibilities and their effects on the federal deficit. Here are a few of the options that would affect Medicare and Medicaid:
1. Cap federal Medicaid spending. Depending on how these caps are designed, they could save anywhere from $162 billion to $703 billion from 2019-28, the CBO estimates. The CBO measured the effect of overall spending caps or per-enrollee caps. Capping federal Medicaid spending would make spending on the currently open-ended program more predictable, but it would also likely shift costs onto states, the report notes.
2. Raise age of eligibility for Medicare from 65 to 67. The CBO report suggests two alternative ways to implement this option: increasing the age of eligibility by two months a year until it reaches 67 or increasing the age of eligibility in three-month increments. This would decrease deficits by between $15 billion and $22 billion from 2023-28, according to CBO estimates. The policy option would refocus Medicare benefits on Americans in their last years of life as life expectancy increases. However, as gains in life expectancy have been variable, particularly by socioeconomic status, increasing the Medicare age could disproportionately affect certain groups.
3. Reduce Medicare bad debt payments. Medicare spent $3.5 billion paying bad debt in fiscal 2017, according to the CBO. The report presents various options to reduce Medicare bad debt payments that range from reducing the percentage of allowable bad debt Medicare reimburses by 20 percentage points to eliminating bad debt reimbursements entirely. Depending on the magnitude of the reduction, this would save between $12 billion and $39 billion from 2020-28, according to the CBO. The policy would reduce the disparity in bad debt reimbursement between physicians and hospitals, but it could disproportionately affect certain hospitals based on patient mix.
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