HHS Secretary Releases Medicare Funding Warning Response Act of 2008

The Secretary of the Department of Health and Human Services, Michael O. Leavitt, recently released the text of a letter to House Speaker Nancy Pelosi and a related legislative proposal, entitled the Medicare Funding Warning Response Act of 2008 (Act).

According to the letter, the Act is being proposed to address the Medicare funding warning issued by the Medicare Board of Trustees (Trustees) pursuant to the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (MMA).  Under the MMA, the Trustees are required to include a finding in their annual report whenever they project that general revenues will make up more than 45 percent of total Medicare funding within 7 years.  If the Trustees make this determination for 2 consecutive years, a Medicare funding warning is triggered requiring the President to propose policies to reduce general revenues as a share of Medicare costs.

According to Secretary Leavitt, the Act would take a 3-step approach.  As reflected in a summary of the Act, the first step would generally include the development and implementation of interoperable electronic health records and personal health records for beneficiaries, increasing the transparency of pricing and quality information for beneficiaries, and providing incentives for providers to deliver, and beneficiaries to choose, high-quality, low-cost health care.

As an apparent second step, the Act would implement malpractice liability reforms, including reforms limiting noneconomic damages, regulating attorney contingency fees, addressing evidence of collateral source benefits, and specifying guidelines for punitive damages. As a third step, the Act would increase the Medicare Part D premium for beneficiaries with incomes greater than $82,000 and married beneficiaries with incomes greater than $164,000. 

In the President's budget for fiscal year 2009, the President proposes to reduce Medicare spending by $178 billion over 5 years.  The President also proposes an automatic reduction in the rate of Medicare growth if the above MMA threshold is exceeded.  The reduction would begin as a .4% reduction to all payments to providers in the year the threshold is exceeded, and would grow by .4% every year the shortfall continues to occur. Reportedly, this automatic reduction is designed to encourage the President and Congress to reach an agreement on reforms to slow Medicare spending and bring it back in line with the threshold established by the MMA.

In the letter to House Speaker Nancy Pelosi, Secretary Leavitt characterizes the Act and the President's budget for fiscal year 2009 as taking "the first step of responding to the funding warning" and laying the "foundation for the comprehensive Medicare reforms that are necessary to strengthen and improve the program for future generations."  However, others have characterized the proposals as dead on arrival.