Medicare Emerging as Prime Target in U.S. 'fiscal Cliff' Talks

* $400 to $600 billion in healthcare savings possible

* Hits likely for Medicare beneficiaries and care providers

* Medicare changes could be politically safe for lawmakers

By David Morgan

WASHINGTON, Dec 5 (Reuters) - With rival Democratic and Republican deficit plans increasingly focused on Medicare, experts say the two sides could be edging toward common ground on important changes to the popular health insurance program for seniors and the disabled.

None of the changes are assured and any specific decisions would come only after resolution of the "fiscal cliff," the combination of tax hikes and spending cuts that's driving the discussion.

But several ideas that have circulated among policymakers for years are frequently mentioned as the parties get more serious, and ever more specific, about how to control the exploding costs of so-called entitlement programs including Medicare.

The proposals most often discussed that would directly affect Medicare's 52 million beneficiaries are more means-testing, meaning higher costs for wealthier retirees, and raising the Medicare eligibility age from 65 to 67.

Other proposals on the table would reduce payments for hospitals, nursing homes, drug makers, insurers and physicians.

Medicare, a $590 billion-a-year program long seen as an untouchable third rail in U.S. politics, has been augmented but rarely trimmed. A change in eligibility would not alter traditional benefits. But Medicare would not be available to all senior citizens aged 65 and older for the first time since the program's creation in 1965.

While Medicare has formidable allies who oppose program changes for beneficiaries, including liberal Democrats, large segments of the public and AARP, the powerful lobby for older Americans, deeper sacrifices have moved closer to the center of the public debate over the budget deficit, with some top Democrats leaving the door to compromise ajar.

Cutbacks, along with spending reductions for other healthcare programs including the Medicaid program for the poor, could produce $400 billion to $600 billion in savings over 10 years as part of a deficit-cutting agreement Congress and the White House must reach to avoid the so-called fiscal cliff.

Potential Medicare savings, combined with the $716 billion in reduced payment increases for healthcare providers in the program enacted under President Barack Obama's healthcare overhaul, could come to more than $1 trillion over the next decade.

"It's going to hit everybody," said Joseph Antos, health expert with the conservative American Enterprise Institute.

Senate Minority Leader Mitch McConnell, in a Wall Street Journal interview, said an increase in the Medicare eligibility age would be a prerequisite for Republican willingness to accept higher revenues -- though not higher tax rates -- as part of a deficit-reduction deal.

Asked during a television interview on Tuesday about McConnell's proposal, Obama said that McConnell and John Boehner, the Republican House of Representatives speaker, "know that I'm prepared to make some tough decisions on some of these issues," quickly adding that he can't ask Medicare beneficiaries "to sacrifice and not ask anything of higher-income folks."

SAFE ROAD TO RE-ELECTION?

One of the president's closest allies in the Senate, Illinois Democrat Richard Durbin, broached the subject last week in a speech urging his left-leaning fellow party members to accept the notion of Medicare changes.

"If anybody wants to talk about a later eligibility age for Medicare, what I want to hear is the assurance and guarantee that people ... will have access to affordable healthcare and insurance" before they reach the age, Durbin said.

Some Medicare defenders have put forward plans to reduce the program's spending without affecting beneficiaries. The Center for American Progress, a liberal think tank, has proposed trimming nearly $40 billion in healthcare costs simply by requiring product-makers, service providers and insurers to submit to competitive bidding.

Alice Rivlin, a White House budget director under President Bill Clinton and a leading voice for bipartisan solutions in the current deficit debate, says there is potentially a lot of common ground between Republicans and Democrats, particularly on healthcare. "But at the moment, it's hard to know what they're talking about. All we're really seeing is numbers," she said.

The contours of the healthcare debate have been shaped in part by Obama's 2013 budget proposals, which would trim more than $350 billion from Medicare and Medicaid, and unspecified demands for $600 billion in healthcare reductions from House Republicans.

Raising the age of eligibility could save $148 billion in Medicare spending over the next 10 years, according to the non-partisan Congressional Budget Office. But critics say the change would only shift costs onto employers and beneficiaries, some of whom might have to forego coverage.

The savings would represent a 50 percent increase over the $300 billion in Medicare c ost-cuts outlined in Obama's 2013 budget, which officials describe as the basis for the White House bid to reduce healthcare and entitlement spending by $400 billion over 10 years.

The Obama budget would save $28 billion by increasing Medicare premiums for wealthier beneficiaries. But the lion's share of savings would come from changes in payments to drug makers and providers.

Meanwhile, Republican lobbyists, looking to help healthcare providers avoid further Medicare cuts, are also pushing to unify Medicare deductibles and co-insurance rates, and possibly limit the use of private insurance known as Medigap, in exchange for establishing a ceiling on beneficiary out-of-pocket costs. There are different deductibles and co-insurance rates for different segments of the program and the push is to establish a single deductible and single co-insurance rate, presumably at higher rates than people pay now.

"The amount of the spending-reduction targets will determine how far they go in terms of spending cuts and more fundamental changes to Medicare, and secondarily what they do to Medicaid," said Drew Altman, president of the non-partisan Kaiser Family Foundation.

"Whatever they do, they'll call reform, because it sounds better. But really they're talking about cutting spending."

A Harvard analysis of polling data found that 47 percent of Americans favor a higher eligibility age for Medicare and 54 percent are in favor of more means testing, suggesting that lawmakers who are up for re-election in 2014 may not suffer greatly by altering the equation for Medicare beneficiaries.

"In a world where things are not wildly popular in general, these are the least unpopular things you can do," said Robert Blendon of the Harvard School of Public Health. "It's a safe road." (Editing by Fred Barbash and Eric Beech)