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Cross-posted from National Review Online.
UPDATE: National Review Online has posted an audio version of this article. So, if you’re puttering around the house and you feel like listening to someone read this article on your behalf, this mp3 file is for you:
It’s an oft-repeated joke in Washington: When the going gets tough, the tough appoint a commission. Presidents appoint commissions so they can say that they’re “doing something” about a politically thorny problem without actually making any difficult choices.
But congressional commissions aren’t always the joke they’re made out to be. In 1988, as the Cold War came to an end, Congress organized the Base Realignment and Closure Commission as a way of reducing our military footprint. The unorthodox idea was to close obsolete military bases on strategic merit, rather than the parochial interests of individual congressmen. The BRAC process was an enormous success, and the “peace dividend” that BRAC generated did much to balance the budget in the 1990s.
In 1997, Congress created the National Bipartisan Commission on the Future of Medicare as part of the Balanced Budget Act of that year. Led by Sen. John Breaux (D., La.) and Rep. Bill Thomas (R., Calif.), and with a staff headed by an unknown 26-year-old named Bobby Jindal, the Breaux-Thomas Commission put together the most credible plan for Medicare reform ever to receive bipartisan support. Unfortunately, because of the political dynamic fostered by the Monica Lewinsky scandal, that plan never made it into law.
President Obama sought to draw on the credibility of these commissions when, last January, he established the National Commission on Fiscal Responsibility and Reform. The president had already signed the $1 trillion stimulus package and was assembling the votes to push Obamacare through the House. He needed to throw a sop to those who were complaining about deficit spending. And a sop is what he got.
The commission, as designed, consisted of 18 members: six appointed by the president, six appointed by the House, and six appointed by the Senate. President Obama chose former Wyoming senator Alan Simpson, a moderate Republican, and Erskine Bowles, who was chief of staff in the Clinton White House, to lead the commission. Obama’s other appointments consisted of one Republican and three Democrats, and the House and Senate each sent three Democrats and three Republicans. For anyone keeping score, that adds up to ten Democrats and eight Republicans.
This was a commission set up for failure. In order to endorse a formal proposal, the commission required 14 votes out of 18: 78 percent of the commission’s members. When you consider the fact that Andy Stern, a left-wing laborite, was never going to vote for any serious deficit-reduction measure, you’re talking about 14 out of 17, or 82 percent. It’s hard enough to get a simple majority of politicians to agree on deficit-reduction measures, let alone a four-fifths majority. And that’s before you consider the fact that Republicans, who are normally more sympathetic to deficit-reduction measures, were outnumbered: Even if all eight of them supported the commission’s findings, six out of ten Democrats would also need to join in.
Given these odds, it’s somewhat miraculous that the commission came up with any useful ideas at all. To its credit, the Commission made constructive proposals for capping discretionary spending, reforming Social Security, and simplifying the tax code (albeit with substantial tax hikes).
But the commission utterly failed in the area in which it needed most to succeed: steering our health-care entitlements onto a sustainable path.
According to the long-term outlook of the Congressional Budget Office, nearly the entirety of the growth in federal spending -- and hence the entirety of the growth of our fiscal cancer -- is driven by runaway spending on health care: Medicare, Medicaid, the Children’s Health Insurance Program, and Obamacare’s exchange subsidies. In contrast, over time, Social Security and other discretionary spending will actually stay relatively constant as a percentage of GDP.
When it comes to health care, the commission’s plan would hardly prevent a fiscal collapse: Instead, it would guarantee one. By replacing the meaty plan of the old Breaux-Thomas group with a hodgepodge of half-measures, the commission did nothing to address the fundamental flaws in government health policy.
First off, this being President Obama’s commission, repealing Obamacare was off the table. Hence, any consensus would involve endorsing and ossifying the budget-busting aspects of our new health-care law: the massive expansion of Medicaid and the huge new insurance subsidies for lower-income individuals. (The CLASS Act, a new entitlement for long-term care, was a notable exception; the commission did recommend its repeal, if it cannot be adequately reformed.) Spending on these programs is certain to exceed CBO projections, and tax rates can’t increase fast enough to make up the difference.
The commission missed other opportunities for reform. Instead of eliminating the employer tax exclusion—the tax break that allows employers but not individuals to buy health insurance tax-free—the Commission proposed tinkering around the edges: capping the deductible amount at the 75th percentile of premium levels and reducing the “Cadillac tax” on expensive health plans.
In contrast, real reform would either eliminate the exclusion altogether, or give individuals the same tax break, so that individuals could buy insurance for themselves. This reform alone would transform our health-care system and is arguably more important than any other. Instead of seizing this opportunity, the commission chose to dabble in it.
On Medicare, the commission did its least bad work. The core problem with Medicare is this: If people are able to get an unlimited amount of health care for free, they will use more of it than they need. There are two ways to solve this problem: (1) giving seniors more control over their own health-care dollars, so they have an incentive to spend the money wisely; or (2) empowering government bureaucrats to deny care when they find it too costly. It won’t surprise you to learn that the commission leaned toward option number 2.
The commission did make some constructive proposals on the free-market side: It proposed (very modestly) increasing the degree to which seniors share in the costs of care, and it proposed (again, modestly) restricting the ability of private insurers to offer “Medigap” plans that wipe out Medicare’s cost-sharing provisions. The commission proposed ending the practice of reimbursing hospitals and doctors for bad debts caused by failure to collect co-payments from patients, something that should have been done a long time ago.
But they proposed these measures only to pay for increased spending elsewhere, and other needed reforms were nowhere to be found. The commission didn’t address the need to index the Medicare retirement age, nor the need to means-test Medicare benefits. Paul Ryan’s proposal to gradually shift Medicare from a defined-benefit to a defined-contribution plan—one that would do much to solve the fiscal problem—was shriveled into a symbolic pilot program within the Federal Employees Health Benefits System.
The rest of the commission’s proposals for Medicare involve enhancing the reach of Obamacare: expanding the authority of the Independent Payment Advisory board; applying Medicaid-style drug-price controls to Medicare; and accelerating the implementation of the legislation’s Medicare pilot projects.
On Medicaid, a $500 billion–a–year (and growing) program that has somehow managed to become a fiscal crisis and a humanitarian crisis at the same time, the commission proposed essentially nothing. They aspire to “restrict and eventually eliminate” a Medicaid tax loophole that states use to bilk the federal government, for savings of around $5 billion a year, though they didn’t specify how to do it. They hope to pass some administrative costs to the states, for a “savings” of under $300 million a year. They recommend that Washington grant waivers to certain states, under a plethora of conditions, to experiment with their own ideas for Medicare reform.
Given that Medicaid is the program most immediately in crisis, with the potential to drive large states such as New York and California into bankruptcy, the commission’s silence on Medicaid is breathtakingly irresponsible. It’s one thing for the Commission not to endorse real Medicaid reform: but to not even propose it?
If you’ve managed to get through the preceding 1,300 words, let me summarize them in one: punt.
On December 3, the commission’s findings received the support of eleven of its members, well short of the 14 it needed to make an official endorsement. (Those opposed included Max Baucus, all of the House members save John Spratt, and—wait for it—Andy Stern.) But on the critical issues surrounding health-care entitlements, the commission, as a group, got nowhere.
Is there hope for Americans concerned about our fiscal dysfunction? Yes, some. The commission’s final report does contain a few measures that the next Congress would do well to consider. The path forward, however, is most likely to revolve around proposals put forth by individual commission members. James Capretta praises the plan from Paul Ryan and Alice Rivlin, which, while imperfect, far exceeds the commission’s work in wrestling with health-care entitlements. Importantly, come January, Representative Ryan will be in charge of the House Budget Committee, and will be thereby able to put some of his ideas into actual legislation.
Ultimately, the failure of the National Commission on Fiscal Responsibility and Reform was a failure of leadership. One man could have done much to encourage the commission to take bolder steps and tackle the hardest issues. Unfortunately, that man was President Obama. Who could have figured that Obama would make Americans miss Bill Clinton?
Cross-posted from The Agenda on National Review Online.
The National Commission on Fiscal Responsibility and Reform has put out its anticipated report, entitled “The Moment of Truth.” In this post, I summarize the Commission’s recommendations on health care policy, with minimal editorializing. I’ll put out a subsequent post with my assessment of the actual quality of these recommendations.
Overall, the Commission aims to achieve $4 trillion in deficit reduction through 2020, by capping revenue at 21% of GDP (higher than historical averages) and reducing the deficit to 2.3% of GDP by 2015 (it’s currently 8%). Because Medicare and Medicaid are such are such huge components of federal spending, achieving these fiscal goals requires substantial changes to our government’s involvement in health care. These include:
Modifying the employer tax exclusion. Currently, employer-provided health insurance is excluded from taxable income, something that grossly distorts our health care system by taking purchasing decisions out of individuals’ hands and placing them in the hands of HR bureaucrats. I have advocated eliminating this exclusion entirely as a way to increase revenue and lower health costs. The Commission advocates capping the deductible amount at the 75th percentile of premium levels in 2014, and freezing the cap (i.e., not indexing it to inflation) from 2018 to 2038. The Commission also advocates reducing Obamacare’s “Cadillac tax” to 12% from 40% on high-cost plans.
Reforming the Medicare Sustainable Growth Rate (SGR) “doc fix”. The “doc fix” requires the government to reduce payments to doctors and physicians if health costs exceed the Sustainable Growth Rate, a blend of health inflation, GDP, and other measurements. Congress keeps overruling the SGR and paying doctors and hospitals at higher rates; bringing payment rates in line with SGR in 2012 would require a 23% cut to physician and hospital payments. The Commission recommends freezing rates at current levels (i.e., continuing to spend well above SGR levels), enacting a 1% cut in 2014, and directing Medicare to come up with a new payment system that would “cost about $22 billion less” than freezing payments at current levels. That is to say, the Commission advocates punting the SGR situation and saving costs elsewhere to make up for the excess spending.
Reform or repeal the CLASS Act. The CLASS Act, a voluntary entitlement for long-term care, was famously described last year by Kent Conrad as “a Ponzi scheme of the first order, the kind of thing that Bernie Madoff would have been proud of,” but Conrad voted for it anyway. The Commission advocates reforming the CLASS Act “in a way that makes it credibly sustainable over the long term”—good luck with that—or repealing it. Because the CLASS Act will rake in more money in the near term but lose money in the long term, it is considered a deficit-reducing measure within the CBO’s ten-year scoring window. Hence, repealing it will require matching tax increases or spending cuts.
Paying for SGR reform and CLASS Act repeal. The Commission recommends offsetting the above SGR and CLASS Act reforms above with a long litany of reform measures that are projected to save $391 billion from 2012 through 2020:- Waste, fraud, and abuse ($9 billion in savings from 2012 through 2020). “Increasinging the ability of CMS to combat waste, fraud, and abuse” (don’t laugh) “by providing the agency with additional statutory authority and increased resources.”
- Increased cost-sharing ($110 billion). Reforming Medicare cost-sharing rules, by increasing the amount seniors pay for increased health spending. This is key to any serious attempt to reform Medicare. The Commission recommends a single combined annual deductible of $550 for Medicare Parts A and B (hospital and medical care), with 20% coinsurance up to $5,500, 5% coinsurance from $5,500 to $7,500, and 0% cost sharing above $7,500.
- Restrict Medigap plans ($38 billion). This is another key element of serious Medicare reform: restricting the ability of private insurers to write plans that piggyback off of Medicare coverage, incentivizing seniors to overspend on health care. The Commission recommends prohibiting Medigap plans from covering the first $500 of an enrollee’s cost-sharing liabilities and no more than 50% of the next $5,000 in liabilities.
- Extend Medicaid drug rebate to dual eligibles ($49 billion). Currently, seniors who are eligible both for Medicare and Medicaid pay the private-sector (i.e., market-rate) prices for drugs through the Medicare prescription drug benefit. The Commission advocates requiring pharmaceutical companies to give these individuals the much-lower Medicaid rates.
- Reduce “excess” payments to hospitals for medical education ($60 billion). At present, Medicare provides supplemental funding to hospitals in order to subsidize the cost of training medical interns and residents (recent medical school graduates). The Commission advocates reducing these payments using a new formula.
- Cut Medicare payments for bad debts ($23 billion). Medicare reimburses hospitals and doctors for deductibles and copays owed those providers by patients, giving hospitals and doctors no incentive to track down those missed payments. The Commission recommends ending this practice.
- Accelerate Obamacare home health savings ($9 billion). The Commission recommends moving up the timetable for changes to reimbursements for home health providers, as mandated by PPACA, by several years.
- Eliminate state gaming of Medicaid tax gimmick ($44 billion). According to the Commission, many states game the system by taxing hospitals and doctors, and then using those revenues to pay for more health care delivered by those hospitals and doctors. Because the federal government gives states more Medicaid funding if the states “spend” more, this system allows states to effectively force Washington to fund profligate Medicaid spending. The Commission recommends “restricting and eventually eliminating this practice,” but declines to give specifics.
- Place dual eligibles in Medicaid managed care ($12 billion). Because the government reimburses doctors and hospitals at much lower rates in Medicaid relative to Medicare, putting these patients on Medicaid will save the government money. It will also reduce administrative redundancy.
- Reduce funding for Medicaid administrative costs ($2 billion). The Commission advocates passing these costs onto the states.
- Allow expedited application for Medicaid waivers in well-qualified states (no savings specified). The Commission advocates allowing ten states to opt out of the traditional Medicaid system, if they meet a set of “certain objective threshold criteria,” in order to come up with innovative new approaches.
- Malpractice reform ($17 billion). The Commission advocates incremental reforms to the malpractice litigation system, such as creating specialized health courts, allowing safe haven rules for providers who follow best practices, imposing a statute of limitations, etc. The Commission advocates that Congress “evaluate the impact” of “statutory caps on punitive and non-economic damages”: a victory for Democrats.
- A pilot voucher program through the Federal Employees Health Benefits (FEHB) system ($18 billion). The Commission advocates using the popular FEHB program as a vehicle for road-testing a voucher system that could be adapted to Medicare at some unknown point in the future.
Implementing Obamacare’s cost-saving measures as soon as possible. The Comission recommends directing Medicare “to design and begin implementation of [PPACA’s] Medicare payment reform pilots, demonstrations, and programs as rapidly as possible.”
Allow IPAB to cut payments to hospitals. For all the talk about “death panels,” the Medicare Independent Payment Advisory Board, which is tasked with reducing Medicare spending, is essentially only allowed to cut payments to doctors if health costs grow too quickly. The Commission advocates allowing IPAB to cut payments to hospitals as well.
Establish a long-term global budget for total health care spending. The Commission recommends “requiring both the President and Congress” to make further recommendations about reducing health spending.
Happy thoughts for your weekend barbecue.
As many readers will be aware, on June 30, the Congressional Budget Office put out its 2010 Long-Term Budget Outlook. This year’s LTBO is notable because it incorporates the CBO’s view of the impact of Obamacare on the long-term fiscal situation. The CBO provides two sets of projections: an “extended-baseline scenario” which contains unrealistic assumptions about the willingness of Congress to rein in spending and raise taxes; and a more realistic “alternative fiscal scenario” that assumes that the Medicare Sustainable Growth Rate (a.k.a. the “doc fix”) continues to get patched, and that tax revenues hold steady at 19% of GDP. Here is how the spending looks:
As you can see, if you exclude government spending on health care (the top area of the graph), federal spending actually goes down over time as a percentage of GDP. In other words, the entire fiscal crisis is being caused by health care spending.
But wait, there’s more, because the above chart doesn’t include interest payments on the debt. When you include interest, the chart looks like this:
In 2055, based on these projections, when today’s college students are getting ready to retire, interest on the debt will be 19.8% of GDP, whereas tax revenues will be 19.3% of GDP. In other words, every dollar spent by the government in 2055 will be borrowed from someone else. In 2055, according to these projections, federal debt will be 410% of GDP.
Enjoy your weekend!
Not without serious Medicare reform.
As the Senate continues to debate yet another stopgap measure to maintain doctors’ pay under Medicare, John Graham of the Pacific Research Institute has written the definitive piece (posted both at John Goodman’s blog and at Critical Condition) on the subject. “Of all the huffery puffery in American health policy, what is the most ridiculous?” asks Graham. “I think a leading candidate is the never-ending lobbying by the American Medical Association and associated medical societies to implement a so-called “doc fix” for Medicare.”
Read the whole thing. (The latest Health Wonk Review also touches on this topic.) Goodman highlights the bizarre manner in which the government set prices for various physician services, and points out that physicians, and the AMA, are constantly gaming the system.
Ultimately, chronic physician underpayment by Medicare and Medicaid is about the government promising more to the voters than it can deliver. Instead of telling those constituents, “We can’t afford to cover all your care, so we need you to assume some of the cost,” they say “we’ll just underpay doctors and paper over the problem.” As Graham rightly points out, the only true permanent solution to the chronic underpayment of physicians is to move Medicare to a voucher system, in which the liability of the government is fixed at a dollar amount, and retirees can take out Medigap-style supplemental insurance if they choose.
I have never felt more ashamed of the medical profession than I did when, last week, I heard AMA President James Rohack announce his advertising blitz on behalf of the doc fix. Nowhere in Rohack’s remarks was there any concern for the enormous amount of spending involved in a long-term reform-free fix—$239 billion according to the CBO—nor any constructive suggestions as to how to pay for such a measure. Maybe Rohack feels that it’s not his job to talk about that. But physicians are supposed to be more than just another special interest with their snouts at the till; they are supposed to place the good of others above their own.
Rohack, by contrast, makes it clear that his first priority is the bank accounts of his constituents. And yet, even on this dubious benchmark, Rohack has been a colossal failure. Rohack was a big supporter of Obamacare, even though lawmakers broke their promise to address physician underpayment (due to the fact that it was damaging the bills’ CBO scores). Even worse, the Affordable Care Act massively expands Medicaid, the program that underpays doctors so badly that they lose money on every Medicaid patient they treat. Over a third of doctors don‘t accept Medicaid patients, a number that is certain to grow.
I hope more physicians raise their hands to say that Rohack doesn’t speak for them.
Cross-posted from The Agenda on National Review Online.
This fortnight’s Health Wonk Review was hosted by Tinker Ready of Boston Health News. A number of subjects we’ve discussed at The Agenda were on the docket.
The Dartmouth Atlas fracas was foremost on healthcare bloggers’ minds; Kate Steadman of Kaiser Health News compiled an excellent summary of left-of-center opinion on the topic. Today Steadman posted a follow-up of right-leaning commentary, including an outstanding article on the topic by John Goodman. Goodman points out that “this…discussion is very similar—almost word-for-word similar—to the public policy discussion over public education that has been underway for a quarter of a century.” Merrill Goozner finds common ground with conservatives, noting that the Dartmouth data “by itself tells us nothing about why…overutilization [of health care resources] occurs.”
The Senate is presently debating yet another patch of Medicare’s sustainable growth rate formula (SGR), otherwise known as the “doc fix.” Health Care Renewal reviews a number of structural problems with the SGR, and notes that a big part of the problem is the mysterious Resource-Based Relative Value Scale (RBRVS), an exclusive province of the American Medical Association that is used to determine Medicare reimbursements for various medical and surgical procedures. A major new article in the New England Journal of Medicine, HCR opines, fails “to mention the key roles of the RBRVS Update Committee, the obscure, opaque AMA committee that de facto controls the payment system, without public input from any other individuals.” The AMA’s role in setting reimbursement schedules is a significant conflict of interest, and one that explains why the AMA supported Obamacare when so many physicians did not. The Hospitalist Leader also discusses the problems of the RBRVS Update Commttee and its impact on the doctor shortage.
Austin Frakt agrees with conservative complaints that Obamacare incentivizes employers to drop health coverage for their employees, but points out that a gradual elimination of employer-sponsored health insurance is actually a good thing. He’s right, except for the fact that the Obamacare-led individual market is heavily subsidized, and a flood of unexpected entrants into that market will sink the Treasury.
John Goodman asks: “Should everyone be required to have health insurance? The short answer is no. There is nothing that can be achieved with a mandate to buy health insurance that cannot be better achieved by a carefully designed system of tax subsidies.”
The guys at InsureBlog point out how remarkable it is that, at a time that the U.S. health care system is becoming more like Canada’s, Canada’s system is seeking to become more like ours.
In light of Memorial Day, the Veterans Administration health system was on the minds of many. Jason Shafrin of Healthcare Economist points out that the VA outsources a significant amount of its health services, undermining its claim to be a model for single-payer health care. The New Health Dialogue discusses Phil Longman’s book on the VA, Best Care Anywhere. “If it’s good enough for wounded warriors and the American Legion, maybe it deserves a second look.”
A compilation of the most promising healthcare policy ideas.
The latest addition to Health Tank is a discussion of Medicare and Medicaid reform.
What can be said about Medicare that hasn’t already been said a thousand times? More than you might think, because the problem is actually far worse than people realize. It’s not just that Medicare threatens to swallow up the Treasury. It’s that Medicare is responsible for at least half of the real increase in the cost of health insurance between 1950 and 1990. Medicare incentivizes the elderly to consume health care without any regard to its expense, and underpays hospitals and doctors for the privilege, leading providers to overcharge those with private insurance in compensation.
It is no exaggeration to say that successful reform of Medicare, Medicaid, and Social Security must be our nation’s highest domestic priority.
Some of the ideas I discuss in Health Tank include: means-testing Medicare benefits; raising the age of Medicare eligibility; moving to a consumer-driven system; reforming Medicare cost-sharing; death panels; fixing the underpayment and cost-shifting problems; and block grants to states for Medicaid. On the Medicaid side, one of the biggest problems is how Obamacare drastically expands the program in a way that reduces flexibility for the states.
Cross-posted from The Agenda on National Review Online.
Health Wonk Review is a traveling, biweekly compilation of interesting posts from the health care policy blogosphere. The latest edition, hosted by David Williams of Health Business Blog, highlights articles from 23 blogs on the left, right, and center. Much of the focus this time around is on the provision in the Patient Protection and Affordable Care Act that requires insurers to spend 80-85% of their premium revenues on patient medical expenses (the “medical loss ratio” in industry parlance).
Austin Frakt of the Incidental Economist argues that increasing competition among insurers, by allowing people to buy insurance across state lines, for example, can lead to increased costs, because health care providers (hospitals, doctors, etc.) also play a role in determining the price of healthcare. While I partially agree with him on that front, his favored solution—converting insurers into utilities via medical loss ratio mandates—will make the problem worse, not better. As David Williams observes, “it is foolish to look at medical costs as good and administrative costs as bad,” because MLR mandates incentivize insurers to “drive premiums up over the long term so that relatively fixed administrative costs (like executive salaries) decline as a percentage of premiums.”
Jaan Sidorov of the Disease Management Care Blog summarizes the MLR debate as one between “constructionists,” who understand that insurance is strictly about pooling risk, and “activists,” who seek to so “enable the betterment of needed health care services” via insurance regulation. (I would quibble with the term “betterment.”) Sidorov notes that “the activist view of Medicare may underlie the nomination of [Donald] Berwick to lead the [Centers for Medicare and Medicaid Services].”
Louise Norris of the Colorado Health Insurance Insider analyzes a new report from the National Center for Health Statistics, which points out that most of the people who visit emergency rooms already have health insurance, debunking the myth that individual mandates are necessary to fix this problem.
John Goodman wrote an outstanding piece on his outstanding blog about why the problem of rescissions—when an insurer cancels someone’s policy because he had misrepresented his preexisting conditions—is overrated. (In sum, rescissions are very rare, and abuse of the procedure is already illegal.)
Bob Vineyard of InsureBlog notes that the latest episode of the Massachusetts health care soap opera involves the state legislature forcing wealthy hospitals to make a “one-time $100 million contribution”—a sentence in which possibly every word is factually inaccurate—to keep the Bay State’s health care system from falling apart. “Some politicians just don’t learn,” he writes.
Roy Poses at Health Care Renewal notes a Pittsburgh Tribune-Review article that shows that the University of Pittsburgh Medical Center paid $5.16 million to CEO Jeffrey Romoff in 2009, and millions to other top executives, puncturing the illusion that it’s only at for-profit entities that senior management is well-paid.
Brad Flansbaum at the Hospitalist Leader is pessimistic about the fiscally sane options for dealing with the “doc fix.” As he concludes: “‘Physicians, you will be making less money, the good time days of the last forty years are coming to a close.’ What is waste, what we can afford, who will take the hit…they are all up for debate, and it is going to get ugly.” Indeed.
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