Expert says Medicaid, Medicare reform is critical and can save $2.1 trillion

Spending on federal health care programs has surged in recent years amid the aging of America's populations, and a health care policy expert is calling for reforms to programs including Medicare and Medicaid as well as ObamaCare.

Paragon Health Institute, a think tank specializing in health care market-based policy proposals and research, has outlined a set of strategies and policies for reforming federal health programs as they take up an increasingly large share of the federal budget. Medicare, Medicaid and Affordable Care Act (aka ObamaCare) programs are projected to rise from about a quarter of federal non-interest spending to roughly 40%, creating significant budgetary pressure.

Paragon President Brian Blase, Ph.D., told FOX Business in an interview that health policy "is the most important domestic policy area" given the percentage of families' household budgets and the federal budget that go to health care. Paragon published a report with 12 reforms that would net an estimated $2.1 trillion in savings over a decade.

"There's many strengths in the American health care system. If you get certain conditions or diseases, you want to get your care in the U.S. – cancer care, for instance. But there are so many inefficiencies… so much of our attention on health care policy is on stuff that doesn't matter much for health," Blase said.

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"Generally, the left's agenda has been to get more people enrolled in coverage, mostly Medicaid and Medicaid-like coverage, and that just doesn't lead to health improvements. So we're spending enormous amounts of money, we're enriching the health care industry, but U.S. life expectancy declined the first three years in a row that the ACA was implemented," he explained.

The proposal with the largest potential savings in Paragon's report is eliminating the 50% floor on the federal medical assistance percentage (FMAP) that applies to Medicaid services provided to enrollees who weren't made eligible by the ACA. The FMAP tends to send more federal Medicaid funding to wealthier states because those states have the finances to grow larger Medicaid programs. Eliminating the 50% floor would save $667 billion over a decade, according to a 2022 Congressional Budget Office (CBO) estimate.

Ending the Medicaid provider tax safe harbor would eliminate exceptions to a federal requirement that states collect tax at the same rate from health care providers of the same type, regardless of how many Medicaid patients are served. The policy would yield $526 billion in savings over a decade per a 2022 CBO estimate.

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"We really need a different direction in health care policy that's not focused on just getting people enrolled in the Medicaid program or the Medicaid-like plans in the individual market, and focuses on getting people access to the care they need so they have control," Blase said.

Paragon is also calling for a series of site neutrality reforms to Medicare. Under its current policy, Medicare payments for clinic visits in physician offices are 60% less than in hospital outpatient departments (HOPDs), creating an incentive for hospitals to acquire independent physician practices and convert them into HOPDs to get higher payments. 

Site neutral reimbursement ends those incentives by paying the same amount for a procedure wherever it's performed, and three policy adjustments to that end would save $220 billion over a decade per estimates from the Office of Management and Budget (OMB) in 2020.

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Using a different inflation measurement – known as a chained consumer price index – for mandatory health programs like Medicare and Medicaid is another proposal Paragon included, which would yield $256 billion in savings per a 2022 CBO estimate.

A pandemic-era expansion of the health insurance subsidies under the Affordable Care Act, also known as ObamaCare, is set to expire at the end of 2025. The boosted subsidies – which cost an estimated $25 billion a year according to the CBO – will be a notable health policy flashpoint in what's expected to be a significant debate over federal tax and spending policies in light of other provisions slated to expire next year.

"The key thing about these expanded subsidies is that the federal government pays the entire cost for enrollees that claim their income is within a certain threshold, and the federal government isn't verifying whether people actually have the income that they report," Blase said. 

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"We think that these expanded subsidies are wasteful, they're fraudulent, and Congress needs to let them expire after 2025," Blase said, calling it his "top health policy recommendation" for next year and noting Paragon has estimated there are four to five million enrollees in expanded plans this year.