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Policy Options to Sustain Medicare for the Future

Preface and Introduction
  1. CBO defines “excess cost growth” as the extent to which nominal health care costs per person increase at a faster rate than potential GDP per person.

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  2. Kaiser Family Foundation analysis of data from Medicare Trustees, Office of Management and Budget, Congressional Budget Office, Centers for Medicare & Medicaid Services, and U.S. Bureau of the Census.

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Section 1: Medicare Eligibility, Beneficiary Costs, and Program Financing
  1. People younger than age 65 qualify for Medicare if they have received Social Security Disability Insurance payments (SSDI) payments for 24 months, or if they have end-stage renal disease (ESRD) or amyotrophic lateral sclerosis (ALS).

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  2. This option was proposed with corresponding changes in eligibility for Social Security benefits that are not discussed here.

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  3. In 2012, approximately one in four Medicare beneficiaries was enrolled in Medicare Advantage plans, which have different cost-sharing structures than traditional Medicare. Medicare Advantage plans are required to provide all Medicare-covered services, subject to requirements of actuarial equivalence, and must provide a limit on out-of-pocket spending (not to exceed $6,700).

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  4. Not all beneficiaries in traditional Medicare would face an increase in cost-sharing obligations that year because some would not be enrolled in Part B. Others would not incur medical expenses that exceed the deductible amount under current law.

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  5. Part of the motivation for eliminating the coinsurance and deductible for home health services (among other changes) in 1972 and 1980 was to reduce hospital costs and address concerns about underutilization of the home health benefit at the time (Benjamin 1993).

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  6. This broader change to the benefit package was intended to have a neutral impact overall on beneficiary cost-sharing liabilities.

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  7. Based on Kaiser Family Foundation analysis of the CMS Medicare Current Beneficiary Survey 2009 Cost and Use file.

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  8. Based on Kaiser Family Foundation analysis of the CMS Medicare Current Beneficiary Survey 2009 Cost and Use file.

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  9. Based on Kaiser Family Foundation analysis of the CMS Medicare Current Beneficiary Survey 2009 Cost and Use file.

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  10. Based on Urban Institute analysis for the Kaiser Family Foundation.

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  11. Federal and state spending on the Medicaid program would increase if Part B premiums were increased, as would Federal spending on the LIS program if Part D premiums were increased. However, state contributions to the LIS program (known as “clawback” payments) are not directly tied to the Part D premium, meaning that a Part D premium increase would not directly affect state spending.

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  12. Broad-based increases in general revenue, through income taxes or otherwise, also would contribute to the funds available to help finance the Medicare program; however, that menu of changes is not addressed here.

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  13. This estimate is the result of subtracting two separate revenue estimates from the Joint Committee on Taxation (JCT), one for $86.8 billion from the new 0.9 percent additional Medicare payroll tax alone (from the March 11, 2010 publication “Estimated Revenue Effects Of The Manager’s Amendment To The Revenue Provisions Contained In The “Patient Protection And Affordable Care Act,” As Passed By The Senate On December 24, 2009”; JCX-10-10) and one for $210.2 billion for both tax provisions combined (from the March 20, 2010 publication, “Estimated Revenue Effects Of The Amendment In The Nature Of A Substitute To H.R. 4872, The “Reconciliation Act Of 2010,” As Amended, In Combination With The Revenue Effects Of H.R. 3590, The “Patient Protection And Affordable Care Act (‘PPACA’),” As Passed By The Senate, And Scheduled For Consideration By The House Committee On Rules On March 20, 2010”; JCX-17-10); JCT did not publish a stand-alone estimate of the 3.8 percent tax provision.

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  14. The CBO estimates are all net revenue effects, which take into account revenue losses from income and payroll taxes that result when excise taxes are increased.

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  15. The Joint Committee on Taxation estimates the total revenue loss from exclusion of employer contributions for health care, health insurance premiums, and long-term care insurance premiums including cafeteria plans to be $128 billion for Fiscal Year 2011 and $725 billion for the 5-year period from 2011–2015.

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Section 2: Medicare Payments to Plans and Providers
  1. Because payment for drugs in Medicare Part A is bundled with other services delivered in institutional settings, no separate options are presented for Part A.

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  2. Spending on drugs under Part B was about $19 billion in 2010. Projected amounts are not available for 2013, but the growth trend has been modest in recent years. Estimates are not readily available for drug spending in Part A, since the costs are bundled inside the hospital prospective payment system.

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  3. Benchmark plans are PDPs with bids below a certain amount (the benchmark) that are available to LIS enrollees for no premium.

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  4. Calculated from the CMS Dashboard.

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  5. The estimate of 13 percent is based on a comparison of per-person spending for specialty drugs compared to traditional drugs, as reported by Express Scripts for its book of business (Express Scripts, Inc. 2012). Although specialty drugs are not exactly the same as biologics, this estimate is generally consistent with other estimates.

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  6. This estimate is based on combining 13 percent of Part D spending with about three-fourths of Part B spending. A separate estimate by IMS for 2011 found that 23 percent of drug spending was for biologics; see IMS Institute for Healthcare Informatics 2012.

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  7. Updates based on the market basket or Medicare economic index (MEI) rely on measures of the resource costs assumed to be required to deliver a service. CPI and C-CPI, on the other hand, have no direct relationship to production costs. They are convenient proxies for inflation and have the advantage of tracking price changes in the general economy, which rise slower than health care costs

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  8. CMS reduced ESRD payments in 2012 by up to 2 percent for facilities that did not meet the established performance standards in 2010 for three quality measures. The performance standard for each facility is the lesser of the national average performance on the measure in 2008 or that facility’s performance on each measure during 2007.

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  9. For example, savings of 0.1 percent could be realized if one percent of spending in these services is contributed to a VBP pool combined with providers’ performance failing to “earn back” 10 percent of the pool contributions.

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  10. This general approach was one element of a 1999 Breaux-Thomas Medicare reform proposal considered by the National Bipartisan Commission on the Future of Medicare, under which, among many other things, a government-run fee-for-service plan “could operate on the basis of contracts negotiated with local providers on price and performance, just as is the case with private plans” in any region “where the price control structure of the government run plan is not competitive.” The Breaux-Thomas reform proposal did not receive the minimum 11 votes needed to formally recommend it to the Congress or the President. See http://thomas.loc.gov/medicare/index.html for additional details about this commission.

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  11. Medicaid covers cost sharing for Medicare beneficiaries who are fully Medicaid eligible (“full dual eligibles”) and for other beneficiaries with incomes up to 120% of the federal poverty level.

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Section 3: Delivery System Reform and Care for High-Need Beneficiaries
  1. The Health Quality Partners program achieved net savings of $3,500 per person per year; the Washington University Hospital Program achieved net savings of $3,400 per person per year ,but only for participants who had multiple hospitalizations in the year prior to enrollment) (Peikes et al. 2012). Two other models in the Medicare Care Coordination Demonstration also reduced hospitalizations significantly, but not by enough to generate net savings to Medicare when the care coordination fee was considered (Brown et al. 2012)

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  2. Estimate reflects total spending (primarily Medicare spending); based on analysis of the CMS Medicare Current Beneficiary Survey 2008 Cost and Use file

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  3. See Institute for Healthcare Improvement Triple Aim Initiative: www.ihi.org/offerings/Initiatives/TripleAim/Pages/default.aspx

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  4. The Agency for Healthcare Research and Quality (AHRQ) has supported the development, by the American Institutes for Research and its partners, of a Hospital Guide to Patient and Family Engagement. One of the engagement strategies included is an “IDEAL” discharge effort that builds on other evidence-based discharge planning reforms, but with more focus on patient and family engagement.

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  5. See The Institute for Patient- and Family-Centered Care website:  www.ipfcc.org/.

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Section 4: Medicare Program Structure
  1. Medicare Part C, also known as Medicare Advantage, is a voluntary program through which Medicare contracts with private health plans to deliver all Part A and B benefits; some MA plans also provide Part D benefits.

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  2. In contrast to traditional Medicare, all Medicare Advantage plans are required to provide an out-of-pocket spending limit on Medicare-covered services. The 2013 spending limit is not to exceed $6,700. Part D also provides a catastrophic spending limit, after which enrollees generally pay only 5 percent of drug costs.

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  3. Estimates from Kaiser Family Foundation analysis of the Centers for Medicare & Medicaid Services Medicare Current Beneficiary Survey 2009 Cost and Use file.

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  4. This discussion assumes that preventive and hospice services would continue to be exempt from cost sharing.

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  5. Unlike the option modeled by CBO, the Simpson-Bowles commission included a 5 percent coinsurance after $5,500 in out-of-pocket spending, up to a spending limit of $7,500.

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  6. The dollar savings estimate is derived by applying 0.5 percent to total Medicare outlays in 2009 of $499 billion (CBO 2010).

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  7. This option also would put in place requirements for shared decision making, with financial penalties for specialists who fail to engage beneficiaries in discussions about available treatment options.

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  8. For instance, requiring Medigap policies to charge the same premium regardless of age (also known as “community-rating”) would make it more difficult for Medigap plans to draw younger beneficiaries away from this option. A risk adjustment procedure would have a similar result by shifting resources away from plans serving relatively low-risk populations to those insuring high-risk populations. This type of plan could also charge a late enrollment penalty in order to encourage beneficiaries to enroll when they are first eligible.

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  9. Currently, beneficiaries can choose from among traditional Medicare, Medicare Advantage plans (with an average of 20 plans per market in 2013), and Part D plans (with an average of 31 plans per region in 2013) (Kaiser Family Foundation 2012b; Kaiser Family Foundation 2012c).

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  10. One study conducted by researchers Roger Feldman, Robert Coulam and Bryan Dowd suggests this approach could achieve $339 billion in savings over 10 years, based on an analysis that used the 25th percentile of plan bids to approximate the second lowest plan bids in an area (AEI 2012). Another study estimated savings of more than $700 billion over 10 years if the Federal contribution were instead tied to the lowest cost plan in an area (this also assumes repeal of the Affordable Care Act) (The Heritage Foundation 2011).

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  11. These estimates were produced prior to the enactment of the Affordable Care Act, which reduced payments to Medicare Advantage plans. Additionally, the ACA reduced payments to providers under traditional Medicare, in addition to other changes, which would result in a lower “bid” for traditional Medicare under current law.

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  12. This approach was reflected in Representative Ryan’s FY 2012 budget proposal that did not include traditional Medicare as an option (unlike Rep. Ryan’s FY 2013 budget proposal), and would have indexed Medicare payments per beneficiary to CPI-U. Under the proposal, the payment made on behalf of Medicare beneficiaries to private plans would be based on projected average per capita Medicare spending in 2022 that would be adjusted for health status, age, and income. The government contribution would then increase annually based on the CPI-U.

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  13. CBO’s alternative fiscal scenario incorporated several changes to current law that are “widely expected to occur or that would modify some provisions of law that might be difficult to sustain for a long period”, including the assumption that Medicare spending would be higher under the alternative fiscal scenario than under the extended-baseline scenario in 2022 because 1) payment rates for physicians’ services were projected to grow at the same rate as the Medicare economic index rather than at the lower rates of the sustainable growth rate mechanism, and 2) several policies that would restrain spending were assumed not to be in effect after 2020.

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Section 5: Medicare Program Administration
  1. This bipartisan task force, co-chaired by former Senate Budget Committee Chairman Pete Domenici (R-NM) and Alice Rivlin, former Clinton Budget Director, Congressional Budget Office Director and Vice Chair of the Federal Reserve, was launched in January 2010 by the Bipartisan Policy Center to develop a long-term plan to place the U.S. on a sustainable fiscal path.

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  2. While this report focuses on Medicare, this option presumes that CMS would become an independent agency, with its responsibilities continuing to include Medicare, Medicaid, and CHIP; implementation of ACA insurance reforms and Exchanges; and associated programs.

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  3. Discretionary spending requires the Congress to pass an annual appropriations bill, typically for a fixed period (usually a year). On the other hand, mandatory spending refers to spending enacted by law, but not dependent on an annual or periodic appropriations bill.

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  4. The ACA broadened CMS’ authority to suspend Medicare payments to a provider when there is a “credible allegation of fraud” unless there is “good cause not to suspend payments.” This provision gives CMS much more leverage to obtain settlements, as the suspension of payments to a provider could mean all or most of the provider’s Medicare cash flow would cease until an investigation is resolved.

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  5. This proposal was first introduced as H.R. 675 “Strengthening Medicare Anti-Fraud Measures Act of 2011” proposed by Rep. Wally Herger (R-CA) on February 2, 2011 with 30 co-sponsors.

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Exhibit 1.1

Exhibit 1.1: Life Expectancy at Age 65, 1960-2009
Exhibit 1.1: Life Expectancy at Age 65, 1960-2009
x

Exhibit 1.2

Exhibit 1.2: Median Income Among Medicare Beneficiaries, Overall and by Race/Ethnicity and Age, 2012
Exhibit 1.2: Median Income Among Medicare Beneficiaries, Overall and by Race/Ethnicity and Age, 2012
x

Exhibit 1.3

Exhibit 1.3: Health Care Expenses as a Share of Household Spending for Medicare and Non-Medicare Households, 2010
Exhibit 1.3: Health Care Expenses as a Share of Household Spending for Medicare and Non-Medicare Households, 2010
x

Exhibit 1.4

Exhibit 1.4: Share of Beneficiaries Using Home Health Services Who Potentially Would Be Affected by New Cost-Sharing Requirements, by Characteristics, 2014
Exhibit 1.4: Share of Beneficiaries Using Home Health Services Who Potentially Would Be Affected by New Cost-Sharing Requirements, by Characteristics, 2014
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Exhibit 1.5

Exhibit 1.5: Share of Medicare Beneficiaries with Medigap Policies
Exhibit 1.5: Share of Medicare Beneficiaries with Medigap Policies
x

Exhibit 1.6

Exhibit 1.6: Medicare Part B Monthly Premium Amounts, 2013
Exhibit 1.6: Medicare Part B Monthly Premium Amounts, 2013
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Exhibit 1.7

Exhibit 1.7: Distribution of Medicare Beneficiaries by Income Level, 2012
Exhibit 1.7: Distribution of Medicare Beneficiaries by Income Level, 2012
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Exhibit 1.8

Exhibit 1.8: Medicare Enrollment Growth, 2000–2040
Exhibit 1.8: Medicare Enrollment Growth, 2000–2040
x

Exhibit 1.9

Exhibit 1.9: Sources of Medicare Revenue, 2011
8402 - Exhibit 1.9
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Exhibit 1.10

Exhibit 1.10: Medicare Part A Trust Fund Balance, 2011-2024
Exhibit 1.10: Medicare Part A Trust Fund Balance, 2011-2024
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Exhibit 2.1

Exhibit 2.1: Total Medicare Private Health Plan Enrollment, 2000–2012
Exhibit 2.1: Total Medicare Private Health Plan Enrollment, 2000–2012
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Exhibit 2.2

Exhibit 2.2: Share of Medicare Advantage Enrollees Residing in Higher-Cost and Lower-Cost Counties, 2012
Exhibit 2.2: Share of Medicare Advantage Enrollees Residing in Higher-Cost and Lower-Cost Counties, 2012
x

Exhibit 2.3

Exhibit 2.3: Medicare Spending on Part B and Part D Drugs as a Share of Total Medicare Spending, 2013
Exhibit 2.3: Medicare Spending on Part B and Part D Drugs as a Share of Total Medicare Spending, 2013
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Exhibit 2.4

Exhibit 2.4: Historical and Projected Per Beneficiary Part D Spending, 2006–2020
Exhibit 2.4: Historical and Projected Per Beneficiary Part D Spending, 2006–2020
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Exhibit 2.5

Exhibit 2.5: Standard Medicare Prescription Drug Benefit, 2013
Exhibit 2.5: Standard Medicare Prescription Drug Benefit, 2013
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Exhibit 2.6

Exhibit 2.6: Quality Reporting and Value-Based Purchasing in Medicare
Exhibit 2.6: Quality Reporting and Value-Based Purchasing in Medicare
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Exhibit 2.7

Exhibit 2.7: Illustrative Value-Based Purchasing Savings Equal to 0.1 Percent of Program Spending, 2016–2022
8402 - Exhibit 2.7
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Exhibit 2.8

Exhibit 2.8: Description of Eight Traditional Tort Reforms
Exhibit 2.8: Description of Eight Traditional Tort Reforms
x

Exhibit 2.9

Exhibit 2.9: Description of “Innovative” Tort Reforms
Exhibit 2.9: Description of “Innovative” Tort Reforms
x

Exhibit 3.1

Exhibit 3.1: Center for Medicare & Medicaid Innovation Models, as of March 31, 2012
Exhibit 3.1: Center for Medicare & Medicaid Innovation Models, as of March 31, 2012
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Exhibit 3.2

Exhibit 3.2: Characteristics of the Medicare Population, 2009
Exhibit 3.2: Characteristics of the Medicare Population, 2009
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Exhibit 3.3

Exhibit 3.3: Average Medicare Spending Among Medicare Beneficiaries, by Presence of Chronic Conditions and Functional Limitations
Exhibit 3.3: Average Medicare Spending Among Medicare Beneficiaries, by Presence of Chronic Conditions and Functional Limitations
x

Exhibit 3.4

Exhibit 3.4: Dual Eligible Beneficiaries as a Share of the Medicare Population and Medicare Spending, 2008
8402 - Exhibit 3.4
x

Exhibit 4.1

Exhibit 4.1: Medicare Benefits and Cost-Sharing Requirements, 2013
Exhibit 4.1: Medicare Benefits and Cost-Sharing Requirements, 2013
x

Exhibit 4.2

Exhibit 4.2: Distribution of Traditional Medicare Beneficiaries, by Change in Expected Out-of-Pocket Spending Under an Alternative Medicare Benefit Design, 2013
Exhibit 4.2: Distribution of Traditional Medicare Beneficiaries, by Change in Expected Out-of-Pocket Spending Under an Alternative Medicare Benefit Design, 2013
x

Exhibit 4.3

Exhibit 4.3: Distribution of Traditional Medicare Beneficiaries, by Change in Expected Out-of-Pocket Spending Under an Alternative Medicare Benefit Design with Medigap Coverage Restrictions, 2013
Exhibit 4.3: Distribution of Traditional Medicare Beneficiaries, by Change in Expected Out-of-Pocket Spending Under an Alternative Medicare Benefit Design with Medigap Coverage Restrictions, 2013
x

Exhibit 5.1

Exhibit 5.1: Historical and Projected Average Annual Growth Rate in Medicare Spending Per Capita and Other Measures
Exhibit 5.1: Historical and Projected Average Annual Growth Rate in Medicare Spending Per Capita and Other Measures
x

Exhibit 5.2

Exhibit 5.2: Description of Recent Proposals To Cap Medicare Spending
Exhibit 5.2: Description of Recent Proposals To Cap Medicare Spending