“Medicare at 60” Shows Democrats’ Lust for Government-Run Health Care

The day after socialist Sen. Bernie Sanders, I-Vt., suspended his campaign for the Democratic presidential nomination, presumptive nominee and former Vice President Joe Biden announced his support for a smaller version of Sanders’ signature single-payer proposal. In a Medium post, Biden said he had “directed [his] team to develop a plan to lower the Medicare eligibility age to 60.”

As with many Democratic plans, the proposal sounds like a moderate option. After all, near-seniors will join Medicare soon enough, so how much harm would this plan cause?

But viewed from another perspective, Biden’s proposal looks like a major step toward Sanders’s goal of a government-run health care system. As a way to reduce the number of uninsured, the idea seems like a solution in search of a problem. But as a method to replace private coverage with government-run health care, the Biden plan could accomplish its goals effectively.

Most Eligible People Already Have Coverage

The consulting firm Avalere Health, founded by a Democrat and with liberal leanings, recently released an analysis indicating nearly 23 million people may qualify for coverage under the Biden proposal. But the firm’s headline cleverly attempted to bury the lede, obscuring the fact that the vast majority of eligible people already have health insurance.

As the below graph shows, Avalere found only 7 percent, or 1.7 million, of the 22.7 million people potentially eligible for the Biden proposal lack coverage. The majority of the 60-64 population (13.4 million, or 59 percent) obtain coverage not from government, but from their current or former employer.

Composition of Individuals Newly Eligible for Medicare Under Biden Proposal, Ages 60–64, 2018

The Avalere analysis more accurately depicts how 16.6 million people (13.4 million with employer coverage and 3.2 million with individual plans) could lose their existing private coverage. It also demonstrates how taxpayers could face major costs — particularly if people with private insurance drop that coverage and join the Biden Medicare plan — to reduce the uninsured population by a comparatively small amount.

Near-Retirees Are Comparatively Wealthy

Biden didn’t say how he would structure his proposal to allow people to buy into Medicare at age 60. But he did imply that enrolled individuals would receive some type of federal subsidy when he stated, “Any new federal cost associated with this option would be financed out of general revenues to protect the Medicare trust fund.”

Here again, many near-retirees, in the peak years of their earning potential, don’t need federal subsidies for health insurance. Various surveys show the median household income of near-retirees ranges between $85,000 and over $90,000.

At that income level, even those people who have to pay their entire insurance premiums — Obamacare Exchange policies can easily exceed $1,000 per month for the 60-64 population — could do so without a subsidy. Indeed, a family of three making $86,880 in 2020 would not qualify for any subsidy under the present regime, although Biden’s original health care plan calls for increasing the richness of the Obamacare subsidies.

‘Medicare at 60’ Is a Slingshot to Single-Payer

If Biden’s “Medicare at 60” proposal wouldn’t significantly reduce the number of uninsured — it wouldn’t — and wouldn’t lower costs for people who can’t afford coverage — the comparatively small number of uninsured among people ages 60-64 demonstrates the fallacy of that proposition — then why did Biden propose it in the first place?

Apart from serving as an obvious political sop to the Sanders crowd, the Biden “Medicare at 60” proposal would function as a major cost-shift. By and large, it wouldn’t help the previously uninsured obtain coverage nearly as much as it would use federal dollars to supplant funds already spent by the private sector (whether individuals or their employers).

By doing so, it would build the culture of dependence that represents the left’s ultimate aim: crowding out private insurance and private spending, and putting more people on the government rolls. That Biden would propose a plan so obviously centered around that objective shows he doesn’t fundamentally disagree with Sanders’s single-payer plan at all. He just doesn’t want to disclose his intentions before bringing socialized medicine to the American health-care system.

This post was originally published at The Federalist.

Hospitals’ Corona Cash Crunch Shows Problems of Government-Run Care

The coronavirus pandemic has inflicted such vast damage on the American economy that one damaged sector has gone relatively unnoticed. Despite incurring a massive influx of new patients, the hospital industry faces what one executive called a “seismic financial shock” from the virus.

The types of shocks hospitals currently face also illustrate the problems inherent in Democrats’ proposed expansions of government-run health care. Likewise, the pay and benefit cuts and furloughs that some hospitals have enacted in response to these financial shocks provide a potential preview of Democrats’ next government takeover of health care.

Massive Disruptions

The health-care sector faces two unique, virus-related problems. The lockdowns in many states have forced physician offices to close, or scale back services to emergencies only. The cancellation of routine procedures (e.g., dental cleanings, check-ups, etc.) has caused physician income to plummet, just like restaurants and other shuttered businesses.

While many physician practices have seen a dramatic drop-off in patients, hospitals face an influx of cases—but the wrong kind of cases. According data from the Health Care Cost Institute, in 2018 a hospital surgical stay generated an average $43,810 in revenue, while the average non-surgical stay generated only $19,672.

The pandemic has raised hospitals’ costs, as they work to increase bed capacity and obtain additional personal protective equipment for their employees. But as one Dallas-based hospital system noted, coronavirus’ true “seismic financial shock” has come from the cancellations of elective surgeries that “are the cornerstone of our hospital system’s operating model.”

This rapid change in hospitals’ case mix—the type of patient facilities treat—has inflicted great damage. Replacing millions of higher-paying patients with lower-paying ones will rapidly unbalance a hospital’s books. Changing patient demographics, in the form of additional uninsured patients and patients from lower-paying government programs, only compounds hospitals’ financial difficulties.

A Preview of Democrats’ Health Care Future

The shock hospitals face from the rapid change in their case mix previews an expansion of government-run health care. The Medicare Payment Advisory Commission noted in a report released last month that in 2018, hospitals incurred a 9.3 percent loss on their Medicare inpatient admissions. To attempt to offset these losses as hospitals treat coronavirus patients, Section 3710 of the $2 trillion stimulus bill increased Medicare payments for COVID-related treatment by 20 percent.

With respect to the single-payer bill promoted by Sen. Bernie Sanders (I-VT), neither the conservative Mercatus Center nor the liberal Urban Institute assumed the higher reimbursement rates included in the stimulus bill. Mercatus’ $32.6 trillion cost estimate assumed no increase in current Medicare hospital or physician payments, while Urban’s $32 trillion cost estimate assumed a 15 percent increase in hospital payments and no increase in physician payments. Raising Medicare reimbursements to match the 20 percent increase included in the stimulus bill would substantially hike the cost of Sanders’ plan.

Conversely, presumptive Democratic nominee Joe Biden believes his “public option” proposal, by making enrollment in a government plan voluntary, represents much less radical change. But his plan increases the generosity of Obamacare subsidies and repeals current restrictions prohibiting workers with an offer of employer coverage from receiving those subsidies—both of which would siphon patients toward the government plan.

In 2009, the Lewin Group concluded that a government plan open to all workers would result in 119 million Americans dropping their private coverage. Such a massive influx of patients into a lower-paying government system would destabilize hospitals’ finances much the same way as coronavirus.

Economic Cutbacks and Job Losses

Sadly, the coronavirus pandemic has allowed us to see what a rapid influx of lower-paying patients will do to the hospital sector. A few weeks into the crisis, many systems have already resorted to major cost-cutting measures. Tenet Healthcare, which runs 65 hospitals, has postponed 401(k) matches for employees. In Boston, Beth Israel Deaconess has withheld some of emergency room physicians’ accrued pay, a measure sure to harm morale as first responders face long hours and difficult working conditions.

This economic damage from a rapid change in hospitals’ payer mix echoes a study in the Journal of the American Medical Association last spring. That study concluded that a single-payer health care system paying at Medicare rates would reduce hospital revenues by $151 billion annually, resulting in up to 1.5 million job losses for hospitals alone. Robust enrollment in the government-run health plan Biden supports would have only marginally lower effects.

Hospitals, like the rest of our economy, will in time recover from the financial impacts of the coronavirus pandemic. But they may not bounce back quickly, or at all, from another expansion of government-run health care—a fact that hospital workers facing cutbacks, and patients needing care, should take to heart in November.

This post was originally published at The Federalist.

How Hillary Clinton’s Credit for Out-of-Pocket Health Costs Could Backfire on Taxpayers

Hillary Clinton said recently that she supports efforts to allow some under 65 to buy into Medicare and suggested that this would help lower health-care costs. A key element of her broader health-care platform could, however, increase them–at a sizable cost to the federal government.

A plan the Clinton campaign unveiled in September would create a refundable tax credit worth as much as $2,500 per individual and $5,000 per family to cover out-of-pocket health-care expenses. The campaign has said that the credit would be “available to insured Americans with qualifying out-of-pocket health expenses in excess of five percent of their income, and who are not eligible for Medicare or claiming existing deductions for medical costs.” This means people eligible for the credit would include not only those who have plans through the Obamacare exchanges but also those insured through their employer. Making the credit refundable could allow individuals with little or no income tax liability to receive a refund from the federal government toward their out-of-pocket health costs.

The potential breadth of this proposal could prove its undoing. For one thing, the most recent Census Bureau survey, published in September, estimates that 175 million Americans are covered by employer plans. That’s nearly 14 times the 12.7 million individuals covered by plans through the Affordable Care Act exchanges. While there have been proposals to increase federal subsidies provides to those enrolled through the ACA exchanges, this is the only plan suggesting new federal subsidies for those with employer coverage.

Extending federal subsidies for out-of-pocket costs incurred by those with employer-provided plans could dramatically remake that market. Companies could opt to increase employee cost-sharing, knowing that workers would recoup some or possibly all of their new costs through the federal program. A Kaiser Family Foundation survey of employer plans last year found that only 19% of workers with single coverage faced a deductible of more than $2,000. The Clinton plan sets the maximum credit for individuals at $2,500. If the federal government provides individuals with high health costs a refundable credit to help subsidize their expenses, employers would have reason to try to offload their costs onto employees—which ultimately could end up costing the U.S. Treasury more.

Details of the Clinton plan are still limited. Should it be implemented, policy makers could attempt to shape or amend the tax credit’s effects. Still, it’s possible that a policy designed to absorb higher health costs would shift them from employers and workers to federal taxpayers. That cost-shifting wouldn’t lower spending–and could increase it. Knowing there is a federal credit might give employees incentive to incur additional expenses to exceed the subsidy threshold. That would mean a credit aimed at mitigating the effects of rising health costs for some families could end up exacerbating the problem on a broader scale.

This post was originally published at the Wall Street Journal Think Tank blog.

Obamacare Harming Ventures to Control Health Costs

Amidst the ongoing debate about whether Medicare can contain costs, it’s worth looking at a relevant article in the issue of Health Affairs released yesterday.  The article (subscription required) traced one Medicare Advantage plan, a chronic condition special needs plan for patients with diabetes operating in several states in the South.  The plan in question engages in home house calls, nurse management, care transitions, and other similar interventions to improve the quality of care beneficiaries receive.  The study examined diabetic patients in the plan on several metrics of care, and compared their health outcomes to a cohort of diabetic beneficiaries who remained in government-run Medicare.  The results?  Enrollees in the Medicare Advantage plan “had lower admission rates, shorter average lengths-of-stay in the hospital, lower readmission rates, slightly lower rates of hospital outpatient visits, and slightly higher rates of physician office visits than their fee-for-service counterparts.”  In other words, beneficiaries in the private Medicare Advantage plan got better care than beneficiaries in government-run Medicare.  And government-run Medicare’s outcome gap between white and non-white patients was virtually eliminated under the Medicare Advantage plan.

In one instance at least, it appears that beneficiaries in Medicare Advantage plans are getting better care than in government-run Medicare.  So what does Obamacare do to these innovative plans?  It cripples them.  According to one study, Obamacare’s Medicare Advantage cuts by 2017 will cut enrollment in half, and cut plan choices by two-thirds.  Not only will fewer beneficiaries enroll in these plans and therefore receive these types of benefits – fewer plans will even come into existence, meaning there will be fewer innovative practices created like the ones profiled in the Health Affairs piece.

In recent weeks, liberals have taken to making the point that Medicare has a great record of reducing costs.  And in one sense, it does – it can do a great job of dictating prices to providers, at least in the short term.  But all those arbitrary reductions in provider rates merely cause the air in the proverbial balloon to move when squeezed, as private insurers pay more because government insurers pay less.  The real savings comes in reducing costs by improving care – and on that note, the Health Affairs article shows but one way the private sector is outperforming the federal government.

Thus, even as the federal government, in various Obamacare provisions, is trying to create new care integration models in order to replicate what the private sector has already achieved, it’s simultaneously undermining those private sector innovations by cutting payments to Medicare Advantage plans.  This perverse behavior is one more reason why Obamacare will not live up to its promise of containing health care costs.

The Myth of “Market Power”

The Center for Budget and Policy Priorities released a preliminary analysis of the Ryan-Wyden Medicare proposal late last week, and (unsurprisingly) outlined reasons to oppose it.  But included in their brief was an interesting line: “Ryan-Wyden would deny Medicare much of its ability to serve as a leader in controlling costs by depriving it of the considerable market power it secures from its large enrollment.”  The “market power” argument is one liberals toss around frequently, claiming Medicare can use its power to get “better bargains.”

But there’s one easy question that exposes the fallacy of this liberal argument.  If anyone tries to talk about preserving or expanding Medicare’s “market power,” ask them this: Would you have any objections if drug companies, or major hospitals, decided to drop out of the Medicare program, or all government-run programs?  Recent experience suggests that Democrats will NOT allow providers to drop out of government-run programs – in Massachusetts, Gov. Deval Patrick proposed “solving” the problem of physician access by forcing doctors to participate in government-organized insurance plans as a condition of licensure.  That’s NOT a market – that’s government coercion.  And “leveraging market power” is just a euphemism by the left for the government dictating prices to medical providers.

Liberals’ incoherence on “market power” is actually quite stunning:

  • Zeke Emanuel wrote a New York Times opinion piece yesterday on premium support (about which more soon) stating that when it comes to Medicare, “We Must Cut Costs, Not Shift Them.”  The only problem with his logic is that one 2008 study found that Medicare and other government-run programs ALREADY shift costs from the public sector to the private sector – to the tune of nearly $1,800 per family per year.
  • Ezra Klein last week alleged that Medicare Advantage compete against government-run Medicare, apparently unaware that the structure of the Medicare Advantage program means plans actually compete against themselves, and have ZERO incentive to compete against government-run Medicare on price.
  • Then there’s Paul Krugman, who says that “Patients Are Not Consumers.”  Well, if patients are not consumers, then how can there be a “market” for Medicare to exercise its “power” over?  The only other potential “buyers” under Krugman’s logic are government bureaucrats – and does anyone think some government officials sitting in Washington offices constitute a “market” in any realistic sense of the word?

The fact of the matter is, many conservatives believe that there is certainly NOT a market in health care – or not enough of one anyway – and that comprehensive entitlement reform should look to change that fact.  And their rhetoric notwithstanding, the policy positions of most liberals prove that their talk about increasing “market power” is really just an excuse for government to increase its dominance over everything in its path.

Ohio Study Confirms: Obamacare Will Raise Premiums, Kill Current Coverage

Last month, Wisconsin released a study showing how Obamacare will raise premiums and lead firms to drop coverage.  Yesterday, the state of Ohio released a report from independent actuaries at Milliman that came to much the same conclusions – nearly 700,000 individuals leaving employer-sponsored coverage in Ohio alone, along with premium increases for individual policies averaging 55-85%.  The report is over 150 pages long, but the key section is from pages 26-45, which highlights the major changes in both premiums and coverage scheduled to take place thanks to Obamacare:

Dropped Coverage

  • A total of 688,000 Ohio residents will move OUT of employer coverage; “population decreases in the [employer insurance] markets will be driven by low-income individuals opting out of these plans for Medicaid.”
  • While 503,000 previously uninsured residents will obtain Medicaid coverage, a greater number of individuals (569,000) who already have coverage will move into government-run Medicaid – suggesting Obamacare encourages both employers and employees to quit private coverage in order to join taxpayer-funded programs.  As the report notes, “The other half of new Medicaid enrollees will consist of individuals who currently have ESI [employer-sponsored insurance] or individual coverage.”
  • Likewise, while 289,000 previously uninsured residents will obtain new coverage in Exchanges, almost as many (204,000) will join Exchanges after having employer coverage – likely because Obamacare will encourage firms to “dump” their workers.
  • “The estimated prevalence of grandfathered plans is expected to diminish quickly and be almost non-existent by 2014” – meaning virtually everyone will lose their current plan within three short years of Obamacare’s passage.

Higher Premiums

  • Before subsidies, “the individual health insurance premiums are estimated to increase by 55% to 85% above current market average rates (excluding the impact of medical inflation).”  The report goes on to delineate the specific reasons for these skyrocketing premiums.
  • “Individual health insurance market premium rates are estimated to increase between 20% and 30% on average due to benefit expansion requirements” – i.e., Washington bureaucrats forcing individuals to buy more health coverage than they may want or need.
  • Premium rates on the individual market will increase between 35% and 40% because high-risk pools will close and the individuals purchasing insurance through Exchanges will be sicker than the population as a whole.  This conclusion is noteworthy because it contradicts the Congressional Budget Office, which predicted that individuals in Exchanges would be healthier than average.
  • Premiums will also increase by 2-3% due to the various taxes – on device manufacturers, drug companies, and insurers – included in Obamacare; “as with any tax on businesses, these fees will be passed along to the consumer to the extent possible.”
  • Requirements under [Obamacare] to cover preventive services at 0% cost-sharing have already caused premiums to increase.”
  • For small businesses, premiums could rise 150% for some firms with healthy populations – but the firms with the highest-risk (i.e., least healthy) populations would see their premiums fall by only 38%.
  • The cumulative effect of these rating changes may result in a majority of [small businesses] experiencing premium rate increases or decreases beyond the average estimated market change of 5% to 15%.  In many cases these changes could be greater than 25%, ignoring changes in medical inflation. Premium rate volatility may affect the stability of the ESI-small group market by creating greater financial incentives for employers to self-fund or terminate their plan.  Employers wanting to continue their plan may address the issue of substantial premium rate increases by changing plan designs to shift more cost to employees, as current benefit plans may become unaffordable.”

The report also includes a separate study indicating that the Exchanges will likely cost at least $20 million dollars per year to maintain (exclusive of implementation costs) just in Ohio alone.  These administrative costs could raise premiums by more than 1% – over $50 per year – for individuals enrolling in Exchange plans.

Candidate Obama repeatedly promised to cut insurance premiums by an average of $2,500 per family, and also promised that “for those of you who have insurance now, nothing will change under the Obama plan – except that you will pay less.”  Today’s report once again illustrates how Democrats’ 2700-page health care law fails on both counts.

Three Hits on State Budgets

As the Administration keeps putting out talking points about states’ supposed flexibility to manage their Medicaid programs, it’s worth examining some of the issues and implications surrounding this issue:

  1. CBPP Report a One-Sided Argument:  To bolster the Administration’s case, the Center for Budget and Policy Priorities released a paper yesterday arguing that eliminating Medicaid maintenance of effort (MOE) requirements included in the health law would cause individuals to lose coverage, and “would also slow economic growth and job creation.”  However, the paper contains numerous flaws in its logic:
    • The study talks about beneficiaries losing Medicaid coverage outright if the maintenance of effort provisions are weakened or eliminated.  But granting states additional flexibility (by loosening the MOE mandates) would also allow them to take actions that would PREVENT beneficiaries from losing coverage – for instance, modest cost-sharing increases (see item #2 below) or enrollment checks to make sure only eligible beneficiaries are receiving taxpayer-funded assistance.  A modest co-payment increase is NOT equivalent to losing all Medicaid coverage – but the CBPP study conflates the two.
    • While the paper argues that “deep cuts in Medicaid eligibility would likely be used, at least in part, to free up room for bigger tax cuts,” it does not mention the tax INCREASES that states are being forced to consider to close their fiscal deficits, because Washington will not grant them permission to change their Medicaid programs.  Does anyone believe that Illinois’ recently passed 66 percent tax increase will help that state’s economic growth?
    • Similarly, the CBPP paper does not address the cuts in other areas of government that states may have to contemplate if not given the ability to reform their Medicaid programs.  Most of these cuts would come in the areas of law enforcement and education, where states traditionally spend most of their budgets.  It is highly presumptuous of Washington bureaucrats to believe that Medicaid alone should be a higher priority for state budgets than other important programs like education – to say nothing of the fact that cuts to education spending could have a larger negative economic impact than adjusting Medicaid spending.
  1. Flexibility HOW?  The Hill reported yesterday on a speech by Gov. Gary Herbert (R-UT) at the Heritage Foundation.  In his speech, the Governor indicated Utah would be seeking a waiver from the federal government not to cut beneficiaries from the Medicaid rolls (as the CBPP report argues), but instead “to charge richer Medicaid beneficiaries higher co-pays” – which ordinarily cannot exceed $3 for a doctor’s visit.  In addition, “Utah wants the Centers for Medicare and Medicaid Services to approve a request made eight months ago allowing the state to communicate with Medicaid beneficiaries via e-mail.”  The speech may prompt some to ask:  If a state cannot charge a $5 co-pay for a doctor’s visit – and cannot use electronic messaging to communicate with its beneficiaries more efficiently – without obtaining Washington’s permission, how exactly is the Medicaid program flexible?  And if CMS officials need to take more than eight months to approve a state’s request to contact its beneficiaries via e-mail, is Washington really being as flexible to states’ needs as Secretary Sebelius claims?
  2. Churning Beneficiaries Will Burn States’ Administrative Costs:  Last week the journal Health Affairs published an interesting article (subscription required) about low-income Americans’ eligibility for Medicaid or Exchange insurance subsidies.  The study found that within three years, nearly three-quarters of low-income adults with incomes initially under 200 percent of poverty would have an income change impacting their insurance coverage – and more than three in ten (29.3%) would have at least FOUR changes in insurance eligibility during that three-year time span.  (Remember: Individuals with incomes under 133% of poverty are eligible for Medicaid; those above that threshold will receive subsidies to purchase coverage on state Exchanges.)  This constant “churning” back and forth between Medicaid and Exchange coverage could prove taxing to beneficiaries – however, it will likely also strain states’ budgets, as state Medicaid programs and Exchanges will have to administer (and re-administer) eligibility determinations.  There is also the fiscal “tug-of-war” this churning could create – the federal government may look to keep as many beneficiaries on Medicaid for as long as possible, because Medicaid coverage will be cheaper than Exchange plans (due to low provider reimbursement), and because states are forced under the health law to fund a portion of the Medicaid expansion (unlike the Exchange subsidies).  Unfortunately, if the federal government proves as uncooperative in implementing the Medicaid expansion in 2014 as it has been with states during their current fiscal crisis, state governments may be left holding the bag for much more Medicaid spending than even they anticipate thanks to the unpopular 2,700 page health care law.

Health Law Accelerates a Medicaid Meltdown

Over the weekend, both the New York Times and Kaiser Health News ran stories about the dire warnings being issued from several states regarding their Medicaid programs.  Facing massive budget shortfalls, governors as politically diverse as Florida’s Rick Scott and New York’s Andrew Cuomo are looking to achieve significant savings from their Medicaid programs.

However, the restrictions written into the health care law and the “stimulus” bill (which gave states temporary Medicaid relief) prevent states from reducing their eligibility requirements (i.e., cutting the budgetary coat to meet a state’s fiscal cloth) until the law takes full effect in January 2014.  Arizona’s Governor has already requested a waiver from the requirements, but it’s unclear whether the federal government will approve such a request, from Arizona or any other state.  If the Administration does not, some states may then face other, even more difficult, budgetary choices.  The National Governors Association and Republican Governors Association have both written to the Administration objecting to these “maintenance of effort” requirements, which the RGA said would have “unconscionable” effects.

Kaiser Health News quotes two other possible “solutions” to the Medicaid dilemma, neither of which would have much appeal to most Republicans.  Referring to the Medicaid program, HELP Committee Chairman Harkin suggested that “maybe the federal government should take over the whole thing.” (Remember, these are the folks arguing that the health care law is NOT a government takeover of health care.)  Besides just shifting costs from the states to the federal government, such a one-size-fits-all program would stifle states’ flexibility (not to mention sovereignty) in a way that allows them to generate innovative solutions on health care – including solutions that are more market-based.

The other option floated by several Democrats – including Finance Committee Chairman Baucus, HELP Committee Chairman Harkin, and former Speaker Pelosi – would extend federal Medicaid aid first included in the “stimulus” until 2014.  That however raises two important problems of its own.  First, such a move would cost hundreds of billions of dollars – likely wiping out the purported deficit “savings” from the health care law.  Second, if states’ Medicaid programs are in such a poor state that they require a federal bailout for over five years (the “stimulus” aid was made retroactive to late 2008, and Democrats want to extend it until 2014), why on earth should the federal government be forcing MORE individuals on states’ strapped Medicaid rolls in the years after 2014?

In a story this morning about a new Medicaid advisory commission, Politico quotes commission member Sara Rosenbaum as saying that the advisory body should “not add…one cent to the burden of the states.”  It’s unfortunate that Democrats didn’t take the same tack before imposing the new and onerous unfunded mandates on state Medicaid programs included in the health care law.

If You Like Your Current Plan, Watch Out…

The New York Times has an article this morning reporting that the interim final rules for grandfathered health plans will be released today.  The article notes that “in some respects, the rules appear to fall short of the sweeping commitments President Obama made while trying to reassure the public in the fight over health legislation.”  The Administration, in attempting to sell the rules, now claims that allowing people to keep their current coverage “was just one goal of the legislation,” and acknowledged “that some people, especially those who work at smaller businesses, might face significant changes in the terms of their coverage.”  The White House is now attempting to “spin” this broken promise by saying that plans losing grandfathered status will gain additional “protections” thanks to the myriad new mandates in the law – in other words, “You may like your current plan, but government knows better than you what you’ll really like.”

(A word of caution about the details in the Robert Pear piece: While he cites statistics regarding the rule’s impact – for instance, 51 percent of employees would be in plans losing grandfathered status by 2013 – it’s unclear whether these data come from the draft regulation leaked last week or the official document.  While the OMB website shows that the grandfathered reg finished its clearance at the agency last Friday, the interim final regulation has yet to be posted at regulations.gov.)

On a related note, the Associated Press has a story this morning about a new PricewaterhouseCoopers study (registration required) predicting medical inflation trends for next year.  The report predicts a 9% rise in medical cost inflation, and notes as one of the prime drivers of rising costs for private insurance coverage the growth in cost-shifting from public to private payers as a result of Medicare payment cuts to hospitals included in the health care law.  As the study notes, “The patient population that is expected to increase the most [under the law] – Medicaid – pays the least.”  The report also highlights the rising costs associated with some of the federal mandates being imposed both now and in 2014, and opines that “prices may also be increased in anticipation of higher demand in 2014 and beyond when more people have insurance coverage.”

To summarize: Candidate Obama promised BOTH that individuals who like their current plan can keep it AND that his reforms would reduce premiums by $2,500 per family per year.  The Administration is on the cusp of releasing regulations that by their own admission would break the first promise – and, by imposing costly new federal mandates on insurance coverage, violate the second as well.  Coupled with the cost-shifting and other inflationary pressures already growing on employers, as outlined in the PWC report, these regulations will only RAISE costs for employers, thereby encouraging them to stop offering coverage entirely.  Any way you slice it, this is NOT “reform.”

Who Are You Gonna Believe — Me, Or Your Lying Eyes…?

That’s the impression one might get reading the latest “report” released by the Center for American Progress and the Commonwealth Fund about how health “reform” will supposedly reduce health costs.  The groups released this paper in response to reports by the Congressional Budget Office that the law will raise individual market premiums by an average $2,100 per family and from the Centers for Medicare and Medicaid Services that the law will raise health costs by $311 billion in its first ten years.  Even a cursory analysis of the paper reveals how it comes up short, reflecting a study that may have been drafted in the Land of Make-Believe:

  • One of the study’s authors, David Cutler, was the same Obama campaign adviser who co-wrote the famous memo attempting to defend candidate Obama’s assertion that his health plan would save families $2,500 per year on premium costs.  Cutler’s memo promised savings of $200 billion per year, or $2 trillion over ten years; today’s report asserts only $590 billion in savings over the next decade.  So anyone trying to justify this new $590 billion “savings” number should first explain why the estimated savings from health care reform declined by more than 70 percent in two short years.
  • The report attempts to differentiate itself from the analyses made by non-partisan experts at both CBO and CMS, saying these reports are “limited” and “incomplete” because neither report assigns budgetary savings to various health care delivery system reforms in the law.  In other words, since CBO and CMS didn’t give the groups favorable assumptions about the law’s broader effects, those conclusions should be discarded and replaced with their assumptions instead. (In legal terms, I believe this is called “venue shopping.”)
  • Even the authors admit “there is not much evidence in the published literature on policy reforms short of severe constraints [i.e. government-imposed rationing] that save large amounts of money” – but to solve this “problem,” the authors instead choose to rely on “a less formal, but no less important, literature that sees the world differently.” (I’m not making that part up – they really do admit that it’s “less formal.”)
  • The savings assumption “assumes that a reduction in Medicare and Medicaid payments” under the health law “will not be offset by higher prices to private payers.”  That is of course a highly favorable assumption, and not a likely one either, considering that private payers currently pay an average of nearly $1,800 per year in higher costs due to under-payment by government programs.
  • The report’s higher deficit assumptions stem from an assumption that “90 percent of private health insurance savings are passed on to employees through increased wages, which are taxed.”  So in other words, the report’s authors believe the law will reduce the deficit more than CBO projects due to higher taxes on American workers.
  • The report’s assertion of marginally lower premiums compared to the 2019 baseline assumes that “for purposes of this analysis, we exclude changes in premiums associated with better coverage” – purposefully omitting a factor that CBO said would raise premiums in the individual market by 27-30 percent.  Just as important, this exclusion attempts to ignore what the authors likely consider an inconvenient truth: individuals would be FORCED to buy richer policies, since the mandates in the legislation would mean their current insurance would be “insufficient” in the government’s eyes.
  • As might be expected, the report negates the impact on both deficits and spending from an un-offset solution to Medicare physician reimbursements.  But it’s worth reiterating that the President’s budget presumed a whopping $371 billion in new spending on the “doc fix” – and this report neither includes those costs, nor suggests alternative ways to pay for the “doc fix” absent new deficit spending.

The last several weeks have seen a flood of reports – most recently this morning’s Mercer study – indicating that both costs and premiums will rise as a result of this law.  The report makes an attempt to allege that spending $2.6 trillion on a health care law will lower costs.  But its flawed assumptions, omissions, and inaccuracies mean that any independent observer will see the study for what it’s worth: An unsuccessful effort by an Obama advisor to attempt to defend Democrats’ unpopular – and costly – government takeover of health care.