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Latest Simpson-Bowles health plan stirs worry but lacks detail

Fiscal Commission co-chairs Alan Simpson (C) and Erskine Bowles (R) speak to reporters after their meeting with U.S. President Barack Obama
Fiscal Commission co-chairs Alan Simpson (C) and Erskine Bowles (R) speak to reporters after their meeting with U.S. President Barack Obama

By David Morgan

WASHINGTON (Reuters) - A new bipartisan deficit-reduction plan to slash a massive $600 billion from U.S. healthcare spending over two decades has policy experts scratching their heads over how such an ambitious target can be reached.

Democrat Erskine Bowles and Republican Alan Simpson have yet to declare what they would do to wring savings from Medicare, Medicaid and other programs, according to analysts who provide the two deficit hawks with their facts and figures.

Those ideas will be laid out in a detailed plan due to be issued at some point over the coming weeks.

But policy experts say the latest Simpson-Bowles plan may call for politically unpalatable steps, such as an increase in the Medicare eligibility age and a phasing out of the tax protection for employer-sponsored health insurance plans.

The $600 billion savings target is one-quarter of a $2.4 trillion deficit reduction plan that Simpson and Bowles released on Tuesday, as pressure mounted on Congress and the White House to find a way to avoid a package of automatic cuts known as the "sequester," due to take effect on March 1.

The plan also includes $600 billion in revenue from tax reform, $1.2 trillion from cuts in defense and non-defense spending and a shift to a slower inflation gauge for federal programs including Social Security.

"It might help Congress do something right for a change. Slim hope, but it's all we have," said Joseph Antos of the conservative American Enterprise Institute.

The approach to winnowing back the $2.8 trillion U.S. healthcare system appears at some level to split the difference between Democrats and Republicans. The spending reduction target is closer to larger Republican demands than to the $400 billion in savings offered by President Barack Obama.

However, much of the content appears to reflect Obama's priorities, from reining in the underlying healthcare cost curve to encouraging new payment structures that reward improvements in quality and efficiency rather than volume of treatments.

For now, experts said the plan provided too few details to know who would be on the hook for the biggest sacrifices.

"They have not made final decisions about the exact numbers or specific policies they will include in the plan they release in the coming weeks," said Ed Lorenzen, executive director of the Moment of Truth Project, a Simpson-Bowles led initiative that released the deficit reduction plan on Tuesday.

POTENTIAL ISSUES ON BOTH SIDES

Some analysts worried that the detailed plan would pose problems for Democrats and Republicans alike.

For example, the White House recently rejected the idea of raising to 67 from 65 the eligibility age for Medicare, the federal healthcare program for the elderly and disabled.

"It's impossible to get to $600 billion in healthcare savings without raising the Medicare age," said Topher Spiro, a former aide to the late Democratic Senator Edward Kennedy who helped draft Obama's healthcare reform law.

"I don't think it's constructive for them to move the goal posts, because it emboldens Republicans to demand cuts that are really unrealistic," added Spiro, now an analyst with the Center for American Progress, a Washington think-tank with close ties to Democrats and the Obama White House.

Bowles last proposed $600 billion in healthcare spending cuts in 2011 when he appeared before the so-called Super Committee, a bipartisan panel of lawmakers that ultimately failed to agree on a deficit reduction package that would have avoided the looming sequester.

The Center for a Responsible Federal Budget, the think-tank that sponsors the Moment of Truth Project, followed up his remarks with proposals that would cut $609 billion from healthcare spending over a decade. This list included $175 billion in provider payments, $112 billion in rebates and $125 billion from raising the Medicare eligibility age.

In an emailed response to a Reuters query, Lorenzen said those savings proposals are "not necessarily" a good guide to what the latest Simpson-Bowles plan will look like.

But analysts noted that the two men on Tuesday spoke of Medicare payments cuts to hospitals, doctors and other providers who have already seen more than $700 billion in reduced pay increases under Obama's Patient Protection and Affordable Care Act. Some worry that further cuts could force certain providers to stop serving Medicare's 50 million beneficiaries.

"Right now, we're looking an unprecedented reduction in provider payments," said Robert Moffit of the conservative Heritage Foundation. "If the current payment cuts are actually maintained, we will start to see a serious problems of senior citizens having access to care."

Simpson and Bowles also talked about "adjusting benefits to account for population aging," which analysts interpreted as a reference to the Medicare eligibility age. Moffit said such a move, along with further means testing for wealthy beneficiaries and changes in cost-sharing, would go a long way toward reducing the program's contribution to federal spending.

(Reporting by David Morgan; Editing by Ros Krasny and Maureen Bavdek)

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