This is the third and last post in a series on fiscal reform. Rep. Paul Ryan’s plan can be found at Roadmap for America (The font is very small – you might want to use zoom to make it larger – I used 140%) The Report (pdf version) of the President’s Commission on Fiscal Responsibility, chaired by Alan Simpson can be found at The Moment of Truth I’ll endeavor to summarize the differences for you, but the actual language can be found at these websites. Neither proposal has gotten very far. President Obama accepted Simpson’s commission report in December 2010, and hasn’t mentioned it since, nor has he included any portion of it in his own so-called Fiscal Reform Plan. A few days after Ryan’s plan was released, Obama lambasted it in a speech with Ryan sitting directly in front of him. Truly, I don’t know why Ryan didn’t get up and leave the room. Federal Health care reform is incredibly difficult to address. (Even without the 800-pound gorilla, Obamacare) it’s a patchy mess of Medicare, Medicaid, the CLASS Act, CHIP, and too many regulations on doctors, hospitals, and health care insurance providers.
The sheer magnitude of annual costs in the United States makes it impossible for the federal government to cover all. Here is a distribution of medical costs for 2009: US medical costs 2009 This shows costs in $1,000 of dollars. Exhibit 1 shows the total annual health care cost at 2.5 trillion dollars. If we take the current population at 312 million, that’s an astounding $7967 share per person (man, woman, child). That would be the tax amount or insurance premium, neglecting administrative costs, to cover that amount. Health care is paid for by a combination of out-of-pocket billing , insurance, and unpaid charges written off by hospitals and doctors. In 2009, $2.5 trillion was spent on health care services and products, over 60 percent of which purchased hospital care, physician and clinical services, and retail prescription drugs. Private health insurance paid for 32.2 percent, out-of-pocket sources for 12.0 percent, and other private sources for 7.3 percent. The two largest government health care programs, Medicare and Medicaid, purchased $877.2 billion of health care goods and services in 2009, accounting for 38.3 percent of total health care spending.
Before Obamacare, government focused on care for people 65 and over (Medicare) and care for those who can’t afford to pay (Medicaid, CHIP). Medicaid costs are divided between federal and state jurisdictions, at about 2 to 1. The Department of Defense and the Department for Veteran’s Affairs, were also significant providers of medical care. The rest of the population 65 and under paid their own costs, purchased insurance, obtained health care without paying for it, or did without. Suppose, instead of Obamacare, we just put everyone on Medicare. What would we have? An insurance that pays a large portion of basic costs, but provides very little catastrophic cost protection. The limits, copay rates, and deductibles in Medicare mean that patients pay significant costs out-of-pocket. That’s why Medicare participants are wise to purchase additional insurance (medigap) plans to protect against really large medical costs. Here is a complete rundown on Medicare premiums, deductibles, and limits Medicare premiums, etc.
Health insurance isn’t cheap. According to a 2010 study by the Kaiser Family Foundation, the average cost for medical insurance for those between 18 and 34 years old who bought their own insurance was $2,630 per year. For those between ages 35 and 49 years old, the average individual plan costs $2,843; the average family coverage plan was $6,864. For those between 50 and 64 years old, the average annual cost for an individual plan was $4,822 per year, while for family plans the average cost was $7,102. Again, these aren’t pay-all plans; they will have deductibles and limits as Medicare does. So, after all that, the federal government still wants to reform health care? Let’s compare the Ryan and the Simpson plans to do that.
The Ryan Plan: Ryan wants to control the rising costs of health care. He wants to change the tax treatment of Health Coverage. According to Ryan, ownership of health insurance must be shifted away from third parties to those who are actually using it. His plan is to issue a refundable tax credit, paid directly to the insurance company, to each individual not in the military or covered under Medicare (which, from the above, we know is only partial coverage.) In effect, the federal government would pay all or most of the premiums for the entire population. (Note – I am highly skeptical of this plan.) The credit values he proposes are $2,300 for individuals and $5,700 for families. Claimed featuresof the plan:
- UNIVERSAL ACCESS: Everyone, regardless of income, employment, or geography is eligible for the credit. There are no screenings, income-verification tests, or health criteria.
- PORTABILITY. Individuals will be able to take their health insurance from job to job. The choice of physician and insurance plan will belong to the employee, not the employer.
- A MORE RESPONSIVE MARKET. Because current tax law encourages the employer, not the individual, to be the purchaser and owner of health insurance. Under the Ryan plan, the individual will be the owner.
- GREATER OPPORTUNITY FOR SMALL-BUSINESS COVERAGE. The proposal creates an alternative for small businesses to offer health benefits.
- ENHANCED HEALTH CARE QUALITY. Health care quality will improve under this proposal due to increased competition among providers.
The Ryan plan will create State Health Insurance Exchangeswith the following benefits:
- ESTABLISHING HIGH-RISK POOLS. State health insurance high-risk pools will offer affordable coverage to individuals who would otherwise be denied coverage to pre-existing medical conditions, making coverage affordable for those currently deemed “uninsurable.” States may offer direct assistance with health insurance premiums and/or cost-sharing for low-income and/or high-cost families.
- ONE-STOP MARKETPLACE FOR HEALTH INSURANCE. Each individuals will get an opportunity to choose the plan that best meets his or her needs through a State based Exchange.
- BENEFITS BY THE SAME STANDARD USED FOR MEMBERS OF CONGRESS.
- GUARANTEED ACCESS TO CARE. The Exchange will require all participating insurers to offer coverage to any individual regardless of the patient’s age or health history.
- AFFORDABLE PREMIUMS. Under the status quo, plans offering coverage to individuals often charge exorbitant premiums. This proposal solves the problem through independent risk-adjustment among insurance companies. A non-profit, independent board will penalize insurance companies that cherry-pick healthy patients while rewarding companies that seek patients with pre-existing conditions. This solution will ensure health insurers compete based on superior products and price.
- SIMPLE AUTO-ENROLLMENT. An Exchange would make it easy for individuals to obtain health insurance by providing new and automatic opportunities for enrollment through places of employment, emergency rooms, the Division of Motor Vehicles, and the like.
The Ryan plan will also:
- Make insurance coverage purchases across state lines possible.
- Require availability of fee schedules and quality ratings to the general public.
- Promote the adoption of information technology in health care. By establishing a modern market-driven approach to building a National Health Information Network, this plan will give every American ownership over his or her own medical record, transitioning the health care industry from paper-based medical records to electronic medical records through the creation of Independent Health Record Trusts.
- Limit medical liability. This proposal limits lawsuit abuse without limiting legal justice by implementing a cap on non-economic damages, and assisting States in establishing solutions to medical tort litigation.
What Ryan will do to Medicaid: Basically, it becomes similar to all other care, with the refundable tax credit mentioned above. However, there are some obscure provisions in the Ryan Plan which address Medicare:
- Direct Assistance. Providing low-income families with dependent children the financial assistance to purchase high quality private plans will end the two-tiered health care system that exists today. In addition to the health care tax credit, this individual Medicaid payment will provide Medicaid beneficiaries with nearly $11,000 that can be applied to health care costs.
- Realignment of Federal and State Responsibilities. With the Federal Government assuming responsibility for the distribution and coordination of the individual Medicaid payments, States’ budgets are freed from having to account for this burden. In return, States contribute 50 percent of the individual payment amount.
- Removal of the Stigma. Medicaid recipients deserve to choose their own doctors and make their own health care decisions, instead of having the government dictate those decisions for them.
- Retention of Medicaid for Specific Populations. States’ long-term care and disabled populations do not take part in the tax credit, but continue in the current Medicaid program, with each State receiving a block grant of this portion of its Medicaid funds.
- State Children’s Health Insurance Program [SCHIP]. The current SCHIP population becomes eligible for the health care tax credit.
What Ryan will do to Medicare: (Bill’s note – I don’t understand why Ryan still needs Medicare) Here’s a quote from the Roadmap: The entire methodology of the program must be converted away from a program that shelters providers and consumers from prices – and is therefore inefficient in restraining rising costs – into one in which beneficiaries choose the most affordable coverage that best suits their needs. Features of the Ryan Plan for Medicare:
- Only applies to those reaching the age of 65 in 2021 or later.
- The existing plan continues to be financed by trust fund revenues, Medicare payroll taxes, and general revenue contributions.
- The proposal creates a standard Medicare payment to be used for the purchase of private health coverage.
- When fully phased in, , the average payment is $11,000 per year (the average amount Medicare currently spends per beneficiary).
- the beneficiary retains any leftover amount as a payment from the health plan, but must assume responsibility for any difference in the payment and the total cost of the premium. This allows the Medicare beneficiary to invest the leftover amount in a Medical Savings Account [MSA] to pay for other medical expenses, or to purchase long term care insurance.
- There is an “Income-Relating” limitation (read as “means test”). The payment amount is modified based on income, in a manner similar to that for current Medicare Part B premium subsidies. Specifically: beneficiaries with incomes below $80,000 ($160,000 for couples) receive full standard payment amounts; beneficiaries with annual incomes between $80,000 and $200,000 ($160,000 to $400,000 for couples) receive 50 percent of the standard; and beneficiaries with incomes above $200,000 ($400,000 for couples) receive 30 percent.
- There is Enhanced Support for Low-Income Beneficiaries. While any Medicare beneficiary, regardless of income level, is able to set up a tax-free MSA if he or she desires, the new Medicare Program establishes and funds an MSA for low-income beneficiaries. Specifically, for those who are fully “dual eligible” (eligible under current policies for both Medicare and Medicaid), and beneficiaries with incomes below 100 percent of the poverty level, the plan provides an MSA payment equal to the amount of the deductible for the average Medicare high-deductible health plan. Those with incomes between 100 percent and 150 percent of poverty receive 75 percent of the full deposit.
And that’s it. Don’t take my word for this, read it for yourself at the link given at the top of this post. My analysis of the Ryan Plan? Unless I’m missing something, as described in the plan, it seems crazy and totally unworkable. There’s not enough money in the world to give every American $2300, every family $5700, every Medicare or Medicaid beneficiary $11,000 annually. For example, $2300 * 312,000,000 is $717.6 billion dollars. While that amount is near the total cost for Medicaid and Medicare now, there’s nothing to stop health care costs from growing so the tax refund would need to be raised. Also, there’s no guarantee the refundable tax credit is enough to pay the health insurance premium.
A better estimate, say in 2050, is a larger refund amount and a larger population – let’s use $3500 * 350,000,000, for example, which would be $1.225 trillion dollars. That money would have to be raised in taxes. Don’t forget also, the Medicare population is rising, and they receive $11,000 per year. The refundable tax credit is used to buy insurance. Would that insurance have deductibles, copay per cents, and limits? Of course it would. So, especially for the poor, the government would feel obliged to pay for those charges. The actual cost to the federal government and the taxpayers would be higher. While Ryan did think of “income relating” reductions to refunds, the limits he sets are much too high, in my opinion. I wouldn’t allow one red cent for anyone making over $80,000, or a couple making over $120,000. I will need to see exhaustive fiduciary studies proving this plan is fiscally supportable. Better yet, we ought to select a state and pilot test Ryan’s Plan there before committing our entire country’s future to it. I’d volunteer New York.
The Simpson Plan:
The President’s Commission tends to be much less aggressive than Ryan in reforming Health Care, but they have addressed numerous problems, and their plan is equally as involved as Ryan’s, although parts of theirs are not specific, and are mere recommendations. Here’s an excerpt from their introduction to Health Care reform: “Federal health care spending represents our single largest fiscal challenge over the long-run. As the baby boomers retire and overall health care costs continue to grow faster than the economy, federal health spending threatens to balloon. Under its extended-baseline scenario, CBO projects that federal health care spending for Medicare, Medicaid, the Children’s Health Insurance Program (CHIP), and the health insurance exchange subsidies will grow from nearly 6 percent of GDP in 2010 to about 10 percent in 2035, and continue to grow thereafter. These projections likely understate true amount, because they count on large phantom savings – from a scheduled 23 percent cut in Medicare physician payments that will never occur and from long-term care premiums in an unsustainable program (the Community Living Assistance Services and Supports Act, or “CLASS Act”). “ So, they seem to understand, there’s a problem. Here are the (sometimes technical) recommendations of Simpson’s Plan:
- Reform the Medicare Sustainable Growth Rate for physician payment and require the fix to be offset. (Saves $3 billion in 2015, $26 billion through 2020, relative to a freeze). In other words, reduce the amounts Medicare will pay the doctors for specific services. Note, this only applies to Medicare. I have no idea what “offset” means in this context. They want to work out a way to pay doctors based on quality instead of quantity of services.
- Repeal or reform the CLASS Act. The Community Living Assistance Services and Supports (CLASS) Act established a voluntary long-term care insurance program enacted as part of the Affordable Care Act (i.e., Obamacare.)
- Enact specific health savings to offset the costs of the Sustainable Growth Rate (SGR) fix and the lost receipts from repealing or reforming the CLASS Act. (I told you this is technical.)
- Increase government authority and funding to reduce Medicare fraud. (Saves $1 billion in 2015, $9 billion through 2020)
- Reform Medicare cost-sharing rules. (Saves $10 billion in 2015, $110 billion through 2020) the Commission recommends establishing a single combined annual deductible of $550 for Part A (hospital) and Part B (medical care), along with 20 percent uniform coinsurance on health spending above the deductible. We would also provide catastrophic protection for seniors by reducing the coinsurance rate to 5 percent after costs exceed $5,500 and capping total cost sharing at $7,500.
- Restrict first-dollar coverage in Medicare supplemental insurance. (Medigap savings included in previous option. Additional savings total $4 billion in 2015, $38 billion through 2020.) This option would prohibit Medigap plans from covering the first $500 of an enrollee’s cost-sharing liabilities and limit coverage to 50 percent of the next $5,000 in Medicare cost-sharing. We also recommend similar treatment of TRICARE for Life, the Medigap policy for military retirees, which would save money both for that program and for Medicare, as well as similar treatment for federal retirees and for private employer-covered retirees.
- Extend Medicaid drug rebate to dual eligibles in Part D. (Saves $7 billion in 2015, $49 billion through 2020) Drug companies are required to provide substantial rebates for prescription drugs purchased by Medicaid beneficiaries. We recommend extending these rebates to Medicaid beneficiaries who are also eligible for Medicare (individuals known as “dual eligibles”) and who receive prescription drug coverage through the Medicare Part D program.
- Reduce excess payments to hospitals for medical education. (Saves $6 billion in 2015, $60 billion through 2020)
- Cut Medicare payments for bad debts. (Saves $3 billion in 2015, $23 billion through 2020) Currently, Medicare reimburses hospitals and other providers for unpaid deductibles and copays owed by beneficiaries.
- Accelerate home health savings in ACA. (Saves $2 billion in 2015, $9 billion through 2020).
- Eliminate state gaming of Medicaid tax gimmick. (Saves $5 billion in 2015, $44 billion through 2020). Many states finance a portion of their Medicaid spending by imposing taxes on the very same health care providers who are paid by the Medicaid program, increasing payments to those providers by the same amount and then using that additional “spending” to increase their federal match.
- Place dual eligibles in Medicaid managed care. (Saves $1 billion in 2015, $12 billion through 2020). Approximately nine million low-income seniors and disabled individuals are covered by both Medicaid and Medicare. The divided coverage for dual eligibles results in poor coordination of care for this vulnerable population and higher costs to both federal and state governments.
- Reduce funding for Medicaid administrative costs. (Saves $260 million in 2015, $2 billion through 2020)
- Medical malpractice reform. (Saves $2 billion in 2015, $17 billion through 2020) Most experts agree that the current tort system in the United States leads to an increase in health care costs. This is true both because of direct costs – higher malpractice insurance premiums – and indirect costs in the form of over-utilization of diagnostic and related services (sometimes referred to as “defensive medicine”). (Note – I believe the savings given here are much too modest.)
- Pilot premium support through FEHB Program. (Saves $2 billion in 2015, $18 billion through 2020). The Commission recommends transforming the Federal Employees Health Benefits (FEHB) program into a defined contribution premium support plan that offers federal employees a fixed subsidy that grows by no more than GDP plus 1 percent each year. For federal retirees, this subsidy could be used to pay a portion of the Medicare premium. In addition to saving money, this has the added benefit of providing real-world experience with premium support.
- AGGRESSIVELY IMPLEMENT AND EXPAND PAYMENT REFORM PILOTS. Direct CMS to design and begin implementation of Medicare payment reform pilots, demonstrations, and programs as rapidly as possible and allow successful programs to be expanded without further congressional action.
There are are few more technical provisions in the Simpson Plan, but I’ve given the gist of it. In general, it’s a set of cosmetic fixes to Medicare and Medicaid. There is no Health Care for the general population outside those programs. Of course, Obamacare is intended to pick up all the rest. I’m not overly impressed.
I have conceived my own plan, which I will reveal one of these days, soon. Whenever I’m more ready to accept scorn and ridicule.