For the Health of the Country, Let's Use Commonsense to Reduce Medicare Spending

The increasingly adversarial debt negotiations on Capitol Hill have both parties anxious to settle the budget debate.

Republicans want to seriously cut entitlement spending, while Democrats are looking to raise government revenue through eliminating tax loopholes and certain deductions and increasing some taxes.

As the debate continues there are several ways for lawmakers to reduce Medicare spending in a commonsense, bipartisan manner.

For example, the eligibility age for Medicare should be 67 -- not 65. Making this change would save $124 billion.

Lawmakers should also cut back subsidies for beneficiaries to buy supplemental “Medigap” insurance. This could save $92 billion by 2021.

Increase premiums that beneficiaries pay for Medicare doctors’ coverage so they cover 35 percent of the program’s costs -- instead of today's 25 percent -- would save $241 billion.

Finally, lawmakers should modernize Medicare’s benefits package, including the copayment structure. With a deductible and out-of-pocket maximum that is indexed to increases in spending per beneficiary, the government would save about $14 billion through 2018.

Unfortunately, lawmakers in both parties seem most eager to pursue hyper-partisan policies that could end up backfiring -- both raising costs and hurting seniors. One suggestion that some Democratic lawmakers are pushing for is to impose mandatory rebates on many of the drugs sold in Medicare Part D. Republicans are reportedly considering signing onto this plan. It's a bad idea.

Reforming Medicare is a crucial component of federal fiscal reform. But forcing rebates in Part D will wind up distorting the health marketplace and hurting patients. Both parties must come together to create Medicare policies that are truly innovative, bipartisan, and sensitive to beneficiary needs.

Medicare Part D is unique in that it employs both market competition and government oversight. Private insurers administer the drug plans and are responsible for negotiating with pharmacies and drug companies when crafting benefits. Part D enrollees may pick among the various drug plans offered, comparing and contrasting price and quality for each. The government sets fair rules of play and provides financial assistance to beneficiaries.

This model yields huge savings and keeps healthcare costs under control. The Congressional Budget Office's current estimate for Part D's total costs between 2004 and 2013 is 46 percent lower than the initial projections.

Patients have also seen low costs since the program's inception. The monthly premium for the average Part D enrollee is $30 this year. That's well below the original estimate of $53 per month. And low costs haven't put a damper on patient's drug coverage options. The Lewin Group finds that the most popular Part D plan covers 99 percent of the most popular pharmaceuticals.

Despite this success, some lawmakers hope rebates will extract additional savings from Part D.

This plan would be modeled on Medicaid's drug benefit, which is administered jointly by states and the federal government and covers America's neediest citizens.

In each state, the Medicaid program receive rebates from drug manufacturers for drugs dispensed to enrollees. For brand-name pharmaceuticals, the typical rebate is either about a quarter of the Average Manufacturer Price (AMP) for the drug, or it's the difference between the AMP and the lowest price offer to private purchasers. The rebate is always the highest of the two figures.

Some lawmakers propose instituting this same rebate system to Part D. But this will increase seniors' premiums and stifle innovation. The CBO has estimated that imposing Medicare-style rebates could cause enrollee premiums to jump by as much as 20 percent. It has also found that mandatory rebates in Part D "would reduce manufacturers’ incentives to invest in R&D."

This isn't the only potential change to Medicare that could hurt America's seniors. Another is the establishment of an unelected panel created under last year's healthcare reform law called the "Independent Payment Advisory Board," which will recommend cuts to Medicare spending.

This cost-cutting board has strong support from the Obama administration and some lawmakers on Capitol Hill. But fortunately, members of both parties -- including Democratic Rep. Frank Pallone of New Jersey and Democratic Rep. Allyson Schwartz of Pennsylvania -- are beginning to speak loudly in support of repeal, fearing that IPAB could result in to arbitrary cuts to doctors and other healthcare providers.

The budget debate need to be grounded in smart policies. This isn't the time for artificial partisan boundaries. Lawmakers must come together and put this country back on a sustainable fiscal course.

Medicare reform is a large part of that effort, but meddling with a successful program is the wrong way to do it. Instituting bipartisan, sound reforms makes much more sense.

Douglas E. Schoen is a political strategist and Fox News contributor. His most recent book is "Mad as Hell: How the Tea Party Movement is Fundamentally Remaking Our Two-Party System" published by Harper, an imprint of HarperCollins.