Medicare doctors face a 21 percent pay cut this year because a complex formula called the Sustainable Growth Rate (SGR), a feature of current law, requires the drastic cut. Repealing that formula to pay physicians would add hundreds of billions of dollars to the nation’s deficits, which is why the House Energy and Commerce Committee is holding two days of hearings on new ways to reform Medicare physician payment while improving Medicare and controlling its costs.

The Heritage Foundation has proposed several Medicare reforms that would generate major savings that could more than offset the cost of replacing the Medicare physician payment formula while making structural improvements to the Medicare program. These include simplifying Medicare’s benefit structure, gradually increasing the Medicare age of eligibility from 65 to 67, reducing taxpayer subsidies to wealthy Medicare recipients, and introducing market-based payment setting into the Medicare Advantage program.

The first two lead witnesses, former Senator Joseph Lieberman (a Democrat turned independent from Connecticut) and former Congressional Budget Office Director Alice Rivlin (now with the left-leaning Brooking Institution), are offering certain proposals that, though differing in detail, are broadly similar to those long advanced by Heritage. For example, as Heritage proposes, both plans recommend that Congress combine the complex parts of Medicare Part A, which covers hospital services, and Medicare Part B, which covers physicians’ services, into one program with a single deductible and a uniform co-insurance system. The American Hospital Association also favors this change. It would simplify Medicare’s crazy quilt of confusing co-insurance and co-payments.

Like the Heritage proposal, the Lieberman, Rivlin, and American Hospital Association proposals also recommend a reform of the current Medigap program, which provides supplemental coverage. Seniors purchase supplemental insurance and pay additional premiums, largely because Medicare does not give them protection from catastrophic illness, leaving them vulnerable to financially devastating health care costs. But today’s arrangement, where supplemental health insurance also provides for “first-dollar” coverage, drives excessive utilization of medical services and thus higher premiums for seniors, as well as higher costs for the taxpayers. Like the Heritage proposal, the Lieberman and the American Hospital Association proposals would limit first-dollar coverage by Medigap to a reasonable level and thereby slow premium increases and cost growth. Senator Lieberman also agrees that seniors should be protected from catastrophic costs, giving them a peace of mind and security that they do not have today with traditional Medicare.

The Lieberman and Rivlin proposals, like the Heritage proposal, also favor reducing taxpayer subsidies to the wealthiest Medicare recipients. To fix the broken Medicare physician payment system, while improving Medicare and reducing the burden on seniors and taxpayers alike, would amount to a major bipartisan achievement for the new Congress.