Saving Medicare: Part A PAYGO

In late January, the Commonwealth Fund released a bipartisan blog series where Medicare experts contributed ideas on how to make the program more solvent. The series featured perspectives from 12 authors. Authors primarily offered ideas in two main areas: raising taxes and reducing spending. Tell me if you have heard this story before. As a former committee congressional staffer (over Medicare Part A), I have experience with this laundry list of tax increases and provider cuts. Given the right political winds, these policies could all be signed into law tomorrow. But they have not been signed into law and highlighting them in a vacuum does not actually advance the policy process. 

The thing that struck me most about the blog series was that no one mentioned the recent congressional mandates around Part A spending. First, a bit of review on Medicare’s finances. The Hospital Insurance trust fund covers services in hospitals, skilled nursing facilities, home health and hospice. The Congressional Budget Office estimates that 2020 Part A spending will be $342 billion. The CBO also projects that the HI trust fund will be insolvent — the federal government will be unable to pay its obligations — by 2024. That is less than 3 years from now. Logic would dictate that Part A Medicare is one area where we should all expect Congress to pursue extreme fiscal discipline, right? Wrong. 2020 had a lot from Medicare Part A spending.

Nearly a year ago, President Donald Trump signed the Coronavirus Aid, Relief, and Economic Security Act of 2020 into law. The CARES Act included five Medicare Part A policies, including: an eight-month delay of sequestration provider cuts, hospital inpatient add-on payment for COVID-19, a waiver of post-acute care payment rules, an expansion of rural hospital accelerated payments and operational funding for the National Quality Forum. These policies took an additional $15 billion (through 2028) away from the HI trust fund. 

In December, Trump signed the Consolidated Appropriations Act of 2021 into law. CAA included nine Medicare Part A policies: a thousand new medical residency positions, a new medical residency rotators program, payment increase for rural hospitals, the delay of sequestration provider cuts for one quarter, operational funding for the National Quality Forum, skilled nursing facility quality measure development, information technology funding for beneficiary enrollment, an extension of the rural community hospital demonstration and an extension of the frontier community health integration demonstration. CBO has not made a detailed cost analysis for these provisions publicly available — but it is safe to assume these policies likely exceed the amount of spending included in the CARES Act, for a total of more than $30 billion in new spending from the Medicare Part A trust fund in 2020.

Some of this new 2020 Part A spending may have been justified — but some of it may not have been justified. Ultimately, it is Congress’ prerogative to determine funding of its priorities. However, Congress needs to consider where spending is occurring, especially in the context of the HI trust fund. 

I was struck by the “COVID relief” label that was used to describe the 2020 bills. I could give a detailed assessment of how each Medicare Part A policy does or does not meet the Congressional intent of “COVID relief,” but I will spare you the rhetoric. Let’s just agree that all of the 2020 Part A policies were about COVID. But why did the spending have to come from the HI trust fund? Congress established a $175 billion Provider Relief Fund in 2020 — that cost of which was charged to “general revenue.” 

Congress could have easily directed the secretary of the Department of Health and Human Services to use the PRF to fund these COVID relief priorities. My first new idea: Congress needs to get more creative with the budget and find alternative sources, beyond the HI trust fund, to pay for its Medicare Part A priorities. 

Two of the Commonwealth Fund authors, James C. Capretta and Paul N. Van de Water, also endorsed this idea of creative budgeting. Both authors explicitly mentioned the Medicare Part A investment in graduate medical education. Both authors supported the bipartisan idea of turning the investment into a grant process, subject to annual appropriations. Whether it is use of the PRF or appropriations, both of these ideas could help save the HI trust fund. It has always struck me as odd that the annual $15 billion spent to cover doctor’s salaries and expenses directly competes with beneficiaries for health care services in the fiscal equation of the HI trust fund.

My second new idea to address HI solvency is to pay for what is spent — a simple dollar-for-dollar exchange in cost-to-savings. You could argue that this is not a new idea; Congress has had some version of PAYGO policy in effect since the 1980s. My idea is for Congress to adapt this policy specifically to the HI trust fund. Medicare Part A needs its own PAYGO. It is worth a try.

The one benefit of a Part A PAYGO policy is that it has not suffered the same political heat as the ideas highlighted by the Commonwealth blog — corporate pass-through loopholes or premium support. Special interest groups do not have a playbook to destroy Part A PAYG — yet. 

In reality, the Part A PAYGO idea is very close in concept to many of the provider cuts mentioned by more than half of the blog authors. The difference with my idea is how the policy issue is framed. Many members of Congress likely view solvency as a nameless, faceless bogeyman. But if you add a member priority — one that allows the member to form a picture with a name and a face from their district — and pair it with a pay-for, you have a much more productive policy conversation. To the Commonwealth Fund, I say thank you for spotlighting Medicare Part A issues. Next time, let’s not label it “solvency.” That really frightens lawmakers. 


Lisa Grabert is a research professor at Marquette University and a former congressional aide to the House Ways & Means Committee, where she had the lead for Medicare Part A policy.

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