The Freedom and Empowerment Plan for American Health Care

A PDF of the full health care plan is available on the America Next website.

The Problem of American Health Care

By many measures, the American system of health care is the best in the world. It is a source of incredible innovation at the cutting edge of medical science, providing high quality care to people who need it. We have some of the best doctors, nurses, researchers, and provider systems on earth. When world leaders need complex surgery and lifesaving treatment, they fly to us. It is here, in America, where treatments are discovered, methods are improved, and diseases are cured.

But by all sorts of other measures, the American system of health care is the worst of both worlds – and that was true before Obamacare. For starters, it is extraordinarily expensive. This is partly because we aren’t interested in just managing pain, but in curing diseases; partly because market-warping government policies and regulations drive costs higher and incentivize monopolization over competition; partly because Americans have a limited choice of health insurance options; and partly because patients and providers are insulated from the true costs of health care services.

Imagine for a moment if other forms of insurance worked the same way as American health insurance does today. Say you arrive home one day and find that the lightbulb on your front porch has burned out. This happens every couple of months, and it’s predictable as clockwork – or a chronic condition. But because your homeowners insurance policy works like health insurance does, you can’t just drive to a store and buy a lightbulb, oh no. Instead, you have to call and set up an appointment with a highly-paid and highly-educated expert lightbulb specialist.

You go in the waiting room wait for two hours so the specialist can spend five minutes examining the lightbulb and telling you what new one you need to buy. The specialist used to be in a small practice, but now he’s in a big group, because there are all sorts of government regulations he has to deal with, and only big systems can afford to deal with them. He also has to overcharge your private insurer for this brief visit, because he spends a third of his time seeing people on government entitlement programs who dramatically underpay for his services.

The specialist gives you a nearly illegible prescription for a new lightbulb, but you can’t buy it just anywhere – your homeowners insurance has a network of stores, and going out of network means you’ll face penalties. You have to drive across town to an in-network hardware store, and then wait for someone to get the right lightbulb out of the back. You have no idea how much the lightbulb actually costs, or if it would be cheaper at the store ten minutes away – you just have a small co-pay for it, and the rest is covered by your insurer – or how much the specialist is paid to tell you which one to buy. And in a few months when the light burns out again, you’ll have to go through all of this all over again.

When you start to think about the American health insurance system in this context, you start to understand why things are so upside down when it comes to the costs of care. At each stage, everyone is insulated from costs, and most people have no incentive to shop and compare prices and services as they do in every other market. And government policies and sweeping regulations have only served to make it worse.

Health care represents one of the most complex arenas of public policy. It was an animating interest for me from a young age, in part because it is an area that touches every American during the course of their lives in profound ways. I worked at the U.S. Department of Health and Human Services, the National Bipartisan Commission on the Future of Medicare, and the Louisiana Department of Health and Hospitals.  During my lifetime, many attempts have been made to try and fix the broken aspects of our system, some more successful than others. President Obama’s health care law is just the latest in a long line of wrongheaded steps – but it is by far the worst yet.

As someone who believes in empowering patients and using market forces to improve American health care, I oppose President Obama’s law and believe we must repeal all of it—no matter what the conventional wisdom in Washington says. But we must also enact positive reforms to move our health system in the right direction, because the status quo of American health care and insurance is simply not defensible.

What the President said in the course of selling his signature legislation actually sounded good to me – it’s what he did that was awful. The President sold his law as a path to lower premium costs, promising that he’d cut them by $2,500 by the end of his first term. He said he wanted people to be able to keep their health plans and their doctors if they liked them. He said he wanted to bend the cost trajectory down while improving quality. I’m for all of that – but unfortunately that’s not what his law does.  At best the President was horribly naïve about how our health care system works, and how to reform it.  At worst he was deliberately untrue, and sold his government-centric plan as a “conservative” proposal because he knew the American people would never accept the truth.

We want to make sure that people have access to affordable high quality healthcare. We want to create a solid safety net for the poorest of the poor and the sickest of the sick. This is, according to President Obama, what he wants, too. But from my perspective, he never stepped back and really looked at what’s wrong with our system, and asked what we want it to look like if we can tear down the existing market-warping problems and start afresh.

America needs a health care system where it is easy for the consumer to be in control, and where government won’t get in between you and your doctor. Sometimes on the right we’re blind to the fact that health care bureaucracy isn’t just Medicare and Medicaid personnel – it also could be a big insurance bureaucrat, and they’re little better. At each point, this system of bureaucracy, monopolization, and the lack of price transparency serves to drive costs higher and higher for all of us. The most fundamental question in health care policy is: do you want the patient to be in control, working with their doctor and health care provider, or do you want a bureaucrat – whether from the government or your insurer – to be in control?

The left has its answer to this question: empowering government. Instead, we should be empowering patients. How should we go about doing that? Well, there are several things that have to change, steps that will push health care in this country toward being a true competitive marketplace, and which make providers understand once again that the individual patient is their customer.

Big changes never happen organically in Washington, and many of the big stakeholders were heavily invested in Obamacare just a few years ago. But as President Obama’s monopartisan program has stumbled, it presents the opportunity for conservatives to make the case for real reform. It is now obvious to everyone that his plan simply won’t deliver on the many promises he made along the way. And that’s because, from the beginning, his approach was wrongheaded. He trusted the government to fix the problems and get everything right, instead of trusting the American people to know what’s best. We shouldn’t make that mistake twice.

A Conservative Alternative

In the debate surrounding the Patient Protection and Affordable Care Act, more commonly referred to as Obamacare, conservatives have consistently faced one myth, perpetuated by President Obama himself and his political allies: That there is no alternative to Obamacare, and that opponents of the law have offered no solutions on health care themselves.

Nothing could be further from the truth.  In November 2009, House Republicans offered their alternative to Obamacare during a debate on the House floor; not a single Democrat voted for the legislation.[1]  One more recent compilation lists more than 200 pieces of health care legislation offered by conservative Members of Congress in 2013 alone.[2]  Conservatives have consistently proposed alternatives to Obamacare, and publicly advocated on their behalf, yet the President finds it easier to peddle untruths than to engage the American people on why his unpopular law is “better” than alternative reforms.

One reason President Obama fails to recognize conservative alternatives to Obamacare lies in a fundamental dispute about the root problems plaguing the American health care system.  Conservatives believe that the best way to improve access to health insurance coverage is to make that coverage more affordable.  Many conservatives may agree with then-Senator Obama, who stated during his 2008 presidential campaign: “I believe the problem is not that folks are trying to avoid getting health care.  The problem is they can’t afford it.”[3]

Candidate Obama may have talked like a conservative in his rhetoric highlighting health costs and opposing mandates, but President Obama has governed as a liberal.  Instead of tackling the root of the health care problem, and lowering costs first, Obamacare focused on spending trillions of dollars to expand health coverage, creating massive new entitlements in the process.  Rather than making health care more affordable for all Americans, Obamacare gave America a law it can’t afford to keep.  The law is fiscally unsustainable, its tax increases economically damaging, and its enshrinement of greater government control of every aspect of health care is more dangerous than some in Washington appreciate.

For these reasons and more, any conservative health reform must start with repealing Obamacare.  But conservative health reform must not end there.  Even prior to Obamacare, the status quo was, and remains, unacceptable.  Many Americans struggle every day with the high cost of health care, and Americans with pre-existing conditions cannot access the care they need.  America’s health care system does need reforms—but it needs the right reforms.

The policy solutions put forward by America Next in this paper focus on preserving what’s right with American health care, while fixing what’s wrong.  Fixing what’s wrong involves restoring one basic American principle—freedom—that has been eroded due to Obamacare  While it is wise for any individual to have health insurance coverage, Washington cannot—and should not—attempt to compel such behavior.

After restoring those freedoms, we can enact the reforms the American health system needs.  We focus first and foremost on reducing health care costs—because while most Americans want to buy health care and health insurance, many of them struggle to afford it.  We also work to preserve and strengthen the safety net for the most vulnerable in our society, including those with pre-existing conditions.  And we focus on enhancing patient choice, removing obstacles to portability and consumer selection, including many put into place by Obamacare itself.  These principles should form the foundation for true health reform—one that puts doctors and patients, not government bureaucrats, at the heart of all policy decisions.

 

Principle #1: Lowering Health Costs

When running for President in 2008, candidate Obama promised that his health plan would lower premiums—in fact, he promised on numerous occasions that his plan would reduce costs for the average family by $2,500 per year.[4]  Unfortunately, the law President Obama signed bears little resemblance to that campaign pledge.  Obamacare moves American health care in the opposite direction—raising health costs and premiums, not lowering them.  The non-partisan Medicare actuary has concluded that Obamacare will raise total health spending by $621 billion dollars in its first decade alone.[5]  Likewise, independent analysts at the Congressional Budget Office (CBO) concluded that Obamacare would raise premiums for those buying health insurance on the individual market by an average of $2,100 per year.[6]

The higher premiums due to Obamacare are discouraging many people from enrolling in coverage under the law.  A recent survey by analysts at McKinsey found that only 27 percent of Americans selecting insurance plans were previously uninsured—the group Obamacare intended to target for expanded coverage.[7]  The same survey found that half of those individuals who shopped for insurance coverage but did not select a plan cited affordability reasons in deciding not to purchase coverage: “I could not afford to pay the premium.”[8]  For many Americans, the measure dubbed the “Affordable Care Act” has proven anything but affordable.

Obamacare is raising health costs because its mandates and regulations force customers to buy health insurance products they may not want or need, merely because a government bureaucrat tells them they must.  Conversely, true reform would provide incentives for consumers to serve as smart health care shoppers, saving money by engaging in healthy behaviors and taking control of their health care choices.

Tax Equity:  When it comes to health insurance, today’s tax code contains two notable flaws.  First, it includes a major inequity: workers can purchase employer-provided coverage using pre-tax funds, but individuals who buy coverage on their own must use after-tax dollars to do so.  Second, because cash wages provided by an employer are taxable, but health insurance benefits are not taxed, no matter how generous the benefit, the tax code currently gives a greater value to health insurance than increases in cash wages.  This disparity has resulted in employers scaling back pay raises to help fund rapidly rising health plan costs.  The Congressional Budget Office has also noted that this disparity has exacerbated the growth in health costs, and that capping the tax subsidy for employer-provided insurance would help slow cost growth.[9]  Reforms could result in employers raising cash wages if their health costs grow more slowly over time.—and slowing the growth of health care costs would yield benefits for the broader economy.

A conservative health reform would transform the existing tax exclusion for employer-provided health insurance into a standard deduction for all forms of health insurance, regardless of where they are purchased.  First proposed in 2007, this concept was also recently introduced in legislative form in the House of Representatives.[10]  This proposal would not raise taxes; following Obamacare’s repeal, total government revenues would remain at pre-Obamacare levels.  In other words, this proposal would not repeal Obamacare’s tax increases, only to replace them with other tax hikes.

Under this model, the standard deduction would grow at higher rates initially, but as the other efficiencies take effect and the growth in health spending slows, the deduction would in time rise annually according to consumer price inflation.  Much as the current exclusion for employer-provided coverage applies to both income and payroll taxes, the standard deduction would apply towards income and payroll taxes as well.

These reforms would solve several problems with our current tax code.  The standard deduction would create equity between those who buy health coverage through their employer, and those who buy health coverage on their own.  In 2007, one analysis noted this change could reduce the number of uninsured Americans by 9.2 million.[11]  Over time, this policy might encourage more individuals to buy coverage independent of their employer plans, but such a change would likely be gradual and voluntary—as opposed to the millions of Americans who lost their existing health coverage last fall, because their plan did not meet Obamacare’s bureaucratic standards.

Just as importantly, the new standard deduction would contain in-built mechanisms to slow the growth of health costs.  Individuals who purchase insurance costing less than the amount of the standard deduction would still retain the full tax benefit from it—giving them reason to act as smart health care shoppers.  In addition, the slower growth rate of the deduction would give both insurance companies and consumers a greater incentive to maximize efficiencies in the health care system.  For decades, the tax code’s perverse incentives have accelerated spiraling health costs, but creating a standard deduction will help reduce costs rather than raising them.

State Health Insurance Program:  Although millions of Americans without access to employer-sponsored health coverage will benefit from the standard deduction for health insurance, some individuals with minimal tax liability—primarily those with incomes under about 150 percent of the federal poverty level—will receive little benefit from a tax deduction.  Instead, eligible individuals should receive an explicit government subsidy to purchase affordable health insurance.

This health reform plan proposes a pool of $100 billion in federal funding over the next ten years for states to subsidize affordable health insurance for low-income individuals and individuals with pre-existing conditions.  The funding would be provided to states with minimal restrictions:

  1. States must achieve measurable reductions in average health insurance premiums in the individual and small group markets, and must ensure that individuals have access to affordable health insurance—with premiums that do not exceed a defined percentage of that state’s median income.
  2. States must establish and maintain a form of guaranteed access for individuals with pre-existing conditions—a high-risk pool, a reinsurance fund, or some other risk transfer mechanism.  States could use some of their federal allotment to help fund the costs of covering high-risk individuals.
  3. Obamacare reduced disproportionate share hospital (DSH) payments by half to finance expensive, unaffordable health coverage; this plan would instead restore that funding to help fund more affordable health insurance options. [12]  In order to access state grants, states must direct this restored funding toward covering eligible populations, reducing the amount of uncompensated care provided by instead subsidizing health insurance.  States will receive about $10 billion per year in DSH funding; re-directing some of these funds would supplement the $100 billion provided by the federal government.[13]

This reform model relies on federalism to promote innovation in health care and health insurance.  The federal government sets key goals—keeping insurance premiums affordable, and expanding access to low-income individuals and those with pre-existing conditions—and allows states to meet those goals in the manner they believe will work best for their state.  For example, if a state wants to incorporate an account-like savings mechanism to promote healthy behaviors, as Indiana has done, it can pursue that option.

Empowering states with flexibility and freedom can be a powerful tool in reducing health costs.  Analyzing a similar proposal put forward as part of the House Republican alternative to Obamacare in 2009, the non-partisan Congressional Budget Office (CBO) found that state innovation grants, coupled with liability reform and other common-sense solutions, would lower small business health insurance premiums by 7 to 10 percent, and would lower individual health insurance premiums by 5 to 8 percent.[14]  This reduction is even more stark when compared to the premium increases CBO predicted will occur (and are occurring) due to Obamacare.  Overall, estimates suggest that, when compared to Obamacare, this state-based approach could reduce premiums on the individual health insurance market by nearly $5,000 per family.[15]

Washington has tried a top-down approach to health care; it hasn’t worked.  Allowing states to serve as laboratories of innovation could slow the growth in health insurance costs and premium increases.  In addition, the $100 billion in federal funding, coupled with the matching funds from state DSH payments, would expand health care access for low-income individuals who do not benefit from the standard insurance deduction and those with pre-existing conditions.  This state-based model, not more Washington mandates and regulations, represents the best route to true health care reform.

Health Savings Accounts:  One of the innovations over the past decade that has helped slow the growth in health care costs has been Health Savings Accounts (HSAs), which couple a high-deductible health plan with a tax-free savings account.  The high deductible plans provide lower premiums for consumers, who can then deposit the savings in their HSAs to use for routine health expenses.  And because funds in an HSA accumulate from year to year tax-free, they provide motivation for consumers to serve as smart purchasers of health care.

First made available in 2004, HSAs have grown in popularity; more than 15 million Americans are now covered by HSA-eligible health plans.[16]  Many are using tools provided by these plans to take better control of their health and health spending, seeking out preventive care, using generic drugs more frequently, and utilizing plan-provided decision support tools.[17]  These plans are also saving Americans money; in 2013, the average HSA plan provided by an employer cost $1,318 less per family than non-HSA plans—even after firms placed an average of $1,150 per family into the HSA to fund health expenses.[18]  A recent study found that more widespread adoption of HSA coverage could reduce health spending by as much as $73.6 billion per year.[19]

Obamacare moves in the opposite direction by placing limits on the effectiveness of HSAs.  For example, it prohibits the use of funds from an HSA to purchase over-the-counter medications without a prescription.[20]

Conservative health reforms should build upon the success of HSAs by offering new options to make HSA plans more flexible for patients and consumers.  Congress should allow HSA funds to be used to purchase health insurance in all cases, making it easier for consumers who save to fund their health coverage.  Another possible reform would create more flexible insurance policies, linking the size of the deductible for an HSA plan to customers’ account balances, incomes, or other assets; in this way consumers with sizable savings could choose coverage with an even lower premium in exchange for a higher deductible.  These changes would further accelerate a health coverage model that has already helped slow the growth of health costs for millions of Americans.

Greater Incentives for Wellness:  One of the few areas of bipartisan agreement during the Obamacare debate was a consensus around the “Safeway model”—namely, providing financial incentives for individuals and employees to engage in healthy behaviors.[21]  At the time, employers could vary premiums by up to 20% to reward participation in various wellness programs.  However, then-Safeway CEO Steve Burd noted that a 20% premium variation did not allow the company to recoup all the higher costs associated with unhealthy behaviors like smoking.

Congress can and should do more to enhance these innovative efforts to reduce health costs.  First, it can provide explicit statutory authority for premium variations of up to 50%.  It can also allow employers (or insurance companies selling individual insurance plans) to offer any financial incentives for healthy behaviors on a tax-free basis, by placing the money in new Wellness Accounts.  As with HSAs, the money in these accounts could then be used tax-free for health expenses, or withdrawn for other purposes.  This reform would marry two proven successes—HSAs and wellness incentives—turbo-charging efforts to slow the growth in health costs by encouraging Americans to engage in healthy behaviors.

Crack Down on Fraud:  Health costs have grown at a rapid rate at least in part due to widespread fraud in government health programs.  Unfortunately, a recent case in which 49 Russian diplomats were charged with fraudulently obtained Medicaid benefits—lying about their immigration status and income on application forms, even as they purchased goods from Tiffany’s and Jimmy Choo—is not an aberration.[22]  Several years ago, the New York Times cited expert analysis that as much as 40 percent of that state’s Medicaid spending was either questionable or outright fraudulent.[23]  The Medicare program for the elderly also faces widespread fraud—$60 billion per year, according to a 60 Minutes investigation.[24]

While the private sector has a series of programs and protocols in place to combat fraud, government health programs have traditionally lagged; their focus has been on paying claims quickly, whether real or fraudulent.  In recent years, some government programs have improved their efforts to combat fraud; for instance, Louisiana’s new Bayou Health managed care model built in robust savings from fraud detection, requiring plans participating in Bayou Health to crack down on suspicious transactions or face financial penalties.  But Congress should do more to end the current “pay and chase” model, which attempts to track down fraud after-the-fact, and enhance penalties for those who steal or traffic in Medicare patient numbers and other personal health information.

Price and Quality Transparency:  In many cases, consumers who wish to serve as “smart shoppers” of health care do not have the information to do so.  For far too long, price and quality transparency data have been lacking in the health sector, meaning patients face a dearth of information when they have to make potentially life-altering decisions about their care.  The good news is that these trends are slowly changing, and that transparency has provided consumers with useful, and powerful, information:

There is emerging evidence that when hospitals publish prices for surgical procedures, costs decrease without a loss of quality.  The Surgery Center of Oklahoma, for example, has been publishing its prices for various procedures for the past four years.  Because the center’s prices tend to be lower than those of other hospitals, patients started coming from all over the country for treatment.  In order to compete, other hospitals in Oklahoma began listing surgical prices; patients were able to comparison shop, and hospitals lowered their prices.[25]

Further efforts at transparency could help to reduce an estimated $105 billion paid in health costs annually due to uncompetitive pricing levels by medical providers.[26]  Just as importantly, patients could have more objective sources of information about doctors and medical treatments than recommendations from friends or acquaintances.  Online posting of price and quality data can easily lead to new Consumer Reports-type rating systems, which will empower patients with trusted data and provide providers an greater incentive to improve their quality practices.

 

Principle #2: Protect the Most Vulnerable

In trying to provide all Americans with health insurance, Obamacare may actually detract from efforts to protect those who need health care most.  The law provides a more sizable federal match for states to expand their Medicaid programs to childless adults than it does for states to cover their disabled populations.[27]  At a time when more than half a million disabled Americans are on state lists waiting to qualify for long-term supports and services, it is both uncompassionate and unfair for the Administration instead to focus on covering childless adults, most of whom are able to work or prepare for work.[28]

True health reform would focus first and foremost on targeting government resources to the most vulnerable in our society—protecting the safety net rather than stretching it past its breaking point.  These reforms would help individuals with pre-existing conditions, senior citizens, the disabled, and the unborn.  Making these populations the centerpiece of coverage efforts would meet one of Obamacare’s core goals—providing access for individuals with pre-existing conditions—without necessitating the upheaval caused by the President’s 2,700-page health law.

Guaranteed Access for Pre-Existing Conditions:  Obamacare was sold as a way to address the very real problem of Americans with pre-existing conditions—but the size of the problem did not warrant such a massive overhaul.  One estimate found that approximately 2-4 million individuals under age 65 may face difficulties purchasing health insurance.[29]  The Obama Administration has attempted to claim that up to 129 million Americans “could be denied coverage” due to pre-existing conditions.[30]   But when Obamacare created a high-risk pool to provide temporary coverage for those with pre-existing conditions, under 150,000 Americans ever enrolled in it[31]—far fewer than the 600,000-700,000 originally projected to seek enrollment in the program.[32]

Ironically enough, Obamacare has failed to deliver on its promise for individuals with pre-existing conditions.  The Administration froze enrollment in the law’s high-risk pools due to funding constraints,[33] and the unintended consequences of over-regulation meant that 17 states lost access to child-only health insurance plans.[34]  Some patients have also found that their Obamacare plans don’t include the specialists or hospitals they need; for instance, many plans do not offer access to advanced cancer centers.[35]

Conversely, conservative health reform would ensure that states have the incentive of funding to provide guaranteed access for Americans with pre-existing conditions.  Many states use various vehicles to cover these individuals—whether high-risk pools, reinsurance programs, or some other risk transfer mechanism.[36]  The incentive pool of federal dollars would allow states to determine the best mechanism for providing access to those with pre-existing conditions, and a stable source of funding for those endeavors.

Much of the case for Obamacare was made on the basis of an issue which effects a small portion of consumers: the challenge of pre-existing conditions. Since 1996, federal law included a requirement of guaranteed renewability in the individual health insurance market—so long as you paid for your policy, you were guaranteed the ability to renew your plan.  Policy cancellations—also called rescissions—were rare, and nearly always due to fraud, impacting according to some measures just four-tenths of one percent of the private individual market (which is itself just 10 percent of the insured marketplace).[37]  Though relatively small in number, the issue of pre-existing conditions raised concerns for many Americans—who feared that they, or someone they knew, would be affected if they developed an illness that made them uninsurable.

Obamacare was supposed to solve the problem of pre-existing conditions, but in many respects, the law actually made things worse.  It took away the coverage renewability guarantee, by forcing insurance companies to cancel the policies of millions of Americans. Even as they made the case that if you liked your plan you could keep it, those who favored the president’s legislation knew they were about to repeal the existing guaranteed renewability for millions of Americans. By doing this, Obamacare has completely disrupted the individual market, forcing many people who were satisfied with their coverage and the access they had to doctors and specialists being dumped into more costly and less comprehensive insurance simply because of Obamacare.

This lie should not be allowed to stand. Guaranteed renewability should ensure that patients have the ability to renew their coverage, regardless of their health status, so long as they have not committed fraud. Thus, people who maintain continuous coverage should be protected from premium spikes and have confidence their insurance will be there when they need it.

The central irony of Obamacare is that it hurt the very people it was supposed to help. For Americans signing up for new insurance, guaranteed renewability should offer peace of mind that their insurer cannot drop them merely for getting sick. For those Americans for whom access to guaranteed renewability contracts has been destroyed by Obamacare, the incentive pool of state dollars for more innovative approaches, coupled with greater flexibility for individuals leaving employer plans, will be there to help them get the coverage they need in a post-Obamacare system.

Premium Support:  Medicare faces a dire financial predicament.  According to the annual report by the program’s trustees—including members of the Obama Administration—the Part A trust fund financing hospital care will be insolvent by 2026.  In the short term, the program has taken a hit from the recession and slow economic recovery; the Medicare trust fund ran $105.6 billion in deficits during the years 2008-12.[38]  In the longer term, the outlook is even worse: Medicare faces 75-year unfunded obligations of at least $27.3 trillion, and even this estimate may understate the program’s liabilities, due to various budgetary and accounting gimmicks.[39]

Among the biggest gimmicks understating Medicare’s financial shortfalls is Obamacare itself.  In October 2011, Nancy Pelosi admitted what all Americans realize Democrats did as part of Obamacare: “We took a half a trillion dollars out of Medicare in…the health care bill,” to pay for that law’s new entitlements.[40]  Yet the Obama Administration utilized an “only-in-Washington” logic to argue otherwise, citing trust fund accounting to assert that the Medicare provisions in the law could be used both to “save Medicare” and to “fund health care reform.”[41]  There are two kinds of people in politics—those that want to fix Medicare and those who want to use it to score political points.  Sadly, Obamacare followed the latter course.  Current and future generations of seniors deserve better—they deserve true reform that makes Medicare more sustainable.

One bipartisan solution to Medicare’s fiscal shortfalls would give seniors a choice of plans, with the federal government providing a generous subsidy to purchase coverage.  This premium support concept was developed, and endorsed, by a bipartisan majority in a commission created by Congress and President Clinton, whose Executive Director was Bobby Jindal.[42]  The commission’s work was in turn endorsed by the Democratic Leadership Council.[43]  More recently, Rep. Paul Ryan, the Republican Chairman of the House Budget Committee, and Sen. Ron Wyden, the Democratic Chairman of the Senate Finance Committee, submitted a bipartisan health reform plan that included a premium support proposal for Medicare beneficiaries.[44]

The key feature of a premium support proposal is the ability of competition among health plans to bring down costs and provide better care to America’s seniors.  Former Clinton Administration official Alice Rivlin testified before Congress in 2012 that nearly nine in ten seniors live in areas where private health plans have costs lower than traditional, fee-for-service Medicare; under a premium support proposal, these seniors could save money by choosing to enroll in a private plan.[45]  Likewise, the Congressional Budget Office recently analyzed one premium support proposal, and found that it could reduce Medicare spending by $15 billion dollars annually, while also reducing overall out-of-pocket spending by beneficiaries by an average of 6 percent.[46]

As part of the transition to premium support, the traditional Medicare benefit itself should be modernized.  For the first time ever, Medicare should provide a catastrophic cap on out-of-pocket expenses—so that seniors would know their spending.  At the same time, Medigap insurance, which provides supplemental coverage of co-payments and deductibles for some seniors, should also be reformed, so that seniors would no longer be pre-paying their health coverage by over-paying to insurance companies.

Under Medigap reform, seniors’ premium costs would fall substantially.  A 2011 study by the Kaiser Family Foundation found that under one version of reform, Medigap premiums would plummet by an average of over 60%, from nearly $2,000 per year to only $731.[47]  Because less money from Medigap policy-holders would be diverted to administrative overhead, seniors would be able to keep their own money to finance their own health care.

Medigap reform not only lowers seniors’ premiums, it also lowers their overall health costs.  A 2011 Kaiser Family Foundation study concluded that “the savings for the average beneficiary” under Medigap reform “would be sufficient to more than offset his or her new direct outlays for Medicare cost sharing.”[48]  According to Kaiser, nearly four in five Medigap policy-holders would receive a net financial benefit from this reform – with those savings averaging $415 per senior each year.[49]

What’s more, modernizing traditional Medicare and Medigap would drive greater efficiency within the health care system.  The Congressional Budget Office estimates that this reform would make Medicare more sustainable for future generations, by as much as $114 billion in its first decade alone.[50]  As with premium support, this package of proposals represents a true “win-win:” Current seniors would save on their health expenses, while seniors-to-be would have greater confidence that the promises made to them can be kept when they prepare to join Medicare themselves.

For all these reasons and others, this modernization of Medicare carries broad support from across the political spectrum.  Bipartisan endorsers of Medigap reform include the Simpson-Bowles Commission,[51] the Rivlin-Domenici commission on debt and deficits,[52] Sen. Tom Coburn (R-OK) and former Sen. Joe Lieberman (D-CT),[53] and even President Obama’s most recent budget.[54]

Seniors deserve the potential savings and better care these reforms can provide.  Seniors’ plan choices would include some of the same options available to Americans under age 65, along with the traditional, government-run fee-for-service model, updated with new and more flexible options.  Likewise, future generations deserve the peace-of-mind that comes from knowing Medicare has been placed on a more sustainable path.  It is long past time for Washington to enact true Medicare reform.

Medicaid Reforms:  Despite Obamacare’s massive new regulations, some states have already acted to reform their Medicaid programs.  For instance, Rhode Island’s global compact waiver—in which the state received additional regulatory flexibility from the federal government in exchange for a cap on its Medicaid budget—has successfully slowed the growth of health costs in that state.  A 2011 Lewin Group report found that the global compact waiver “generated significant savings”—more than $50 million from the small state’s Medicaid budget—and did so not by reducing care, but by improving it:

The mandatory enrollment of disabled members in care management program [sic] reduced expenditures for this population while at the same time generally resulting in improved access to physician services.[55]

Since the Lewin study in 2011, Rhode Island’s success in managing its Medicaid program has continued.  The state has reduced its per capita Medicaid spending by more than five percent over the past three fiscal years, resulting in three straight years of minimal expenditure growth,  even as the state’s Medicaid caseload increased.[56]

These remarkable accomplishments come despite the Obama Administration’s efforts, not because of them.  The 2011 Lewin report notes that passage of Obamacare and the “stimulus” bill, both of which imposed new restrictions on state Medicaid programs, “had a profound impact” on the Rhode Island waiver, because “the flexibility sought did not always materialize.”  For instance, the original waiver gave Rhode Island the authority to assess modest premium charges for some beneficiaries, but the Obamacare mandates took this flexibility away.[57]

Other states have also acted to reform their Medicaid programs.  Louisiana has transitioned its Medicaid program toward a managed care model, named Bayou Health.  The program has furthered the goals of the Birth Outcomes Initiative, claims data for which reveal a reduction of 23,000 in statewide neonatal intensive care unit days paid by Medicaid—meaning more babies were carried to full term.

The Hoosier State’s Healthy Indiana Plan includes a personal responsibility component, and provides incentives to engage in wellness screenings, and imposes co-payments on beneficiaries who make non-urgent visits to the emergency room.  The plan also requires participants to make modest contributions to an account to fund their health needs, ensuring patients have incentives to manage their health spending and health care.  The financial requirements are not onerous; approximately 70% of beneficiaries consider the required account contributions just the right amount, and 94% of members report being satisfied or highly satisfied with their coverage.[58]  Yet, Obamacare could put this innovative plan out of business entirely, due to its Washington-imposed mandates on state Medicaid programs.[59]

Because the federal government provides states with at least a 1:1 match on their Medicaid expenses, states have a built-in incentive to spend more on Medicaid when compared to other state priorities like education, transportation, and corrections.  This open-ended entitlement drastically reduces states’ incentives to make efficient choices in managing their health care systems.  A more conservative approach should better align incentives to focus states’ efforts on improving care and reducing costs, instead of merely “gaming the system.”

Medicaid is not merely a fiscal failure, however. The error of Obamacare’s Medicaid expansion was to double down on a program whose health outcomes range from the marginal to the horrendous—the result of paying doctors pennies on the dollar and cramming Medicaid recipients into already overburdened systems. Compared to both those patients with private insurance and those without any insurance at all, Medicaid patients stay in the hospital longer, cost more while they are there, and yet are significantly more likely to die before they leave.[60] The recent Oregon Medicaid study, which offered real-world examples of Medicaid recipients compared to those who were not on the program, answered questions about just how significant the benefits of modern Medicaid are.[61] The study authors found that after two years, Medicaid “had no significant effect” on physical health outcomes compared to being uninsured.[62] Spending nearly half a trillion dollars a year on a program which is so ineffective is unacceptable and immoral.

More than two years ago, Republican governors presented a report laying out common-sense reforms to the Medicaid program—from modernizing benefit design to simplifying accountability to eliminating unnecessary requirements.[63]  While the Obama Administration has not implemented most of the report’s 31 separate suggestions, they represent a good place to start when it comes to updating this important program and prioritizing the actual health care of those who need a safety net.

The best way to reform Medicaid lies in a global grant approach, which empowers states with maximum flexibility in exchange for a fixed funding allotment from the federal government.  The allotment would be adjusted annually for inflation and eligible population growth, and could be adjusted if a state receives a sudden increase in its disabled population.  Rhode Island’s innovative waiver demonstrates how it can be done—and further illustrates that indexing the grant to inflation can be achieved without cutting benefits, or harming beneficiaries’ access to care.

States should have additional flexibility to manage their Medicaid programs in a manner that they believe best meets the needs of their citizens—while facing clear and simple accountability metrics from the federal government.  Rather than focusing on managing processes and completing forms, state Medicaid programs should emphasize improving outcomes.  In return, the federal government should revamp its accountability process to hold states to these higher standards.  Those who want to micro-manage states do so because they do not trust the people and their locally elected leaders.

Pro-Life Protections:  Among its many other flaws, Obamacare represents an intrusion on the moral values many Americans hold dear.  Contrary to prior practice, the law has seen federal tax dollars flow to fund health insurance plans that cover abortions.[64]  The law also forces many Americans to choose between violating the law and violating their consciences, imposing mandates on non-profit and other institutions that violate their deeply-held religious beliefs.  As a result, literally dozens of institutions nationwide have taken Obamacare’s anti-conscience mandate to court; the Supreme Court is scheduled to rule on the issue later this summer.[65]

Repeal of Obamacare will remove the law’s anti-conscience mandates, and the funding of plans that cover abortions.  But true health reform should go further, instituting conscience protections for businesses and medical providers, as well as a permanent ban on federal funding of abortions, consistent with the Hyde Amendment protections passed by Congress every year since 1976.[66]  There is much in health care about which Americans disagree, but protecting all Americans’ religious liberty should be one principle that warrants bipartisan support. The government should not force religious people to abandon their faiths in order to keep their doors open.

 

Principle #3: Portability and Choice

In an address to Congress in September 2009, President Obama attempted to sell Obamacare as offering consumers “competition and choice.”[67]  At least 4.7 million Americans—those who have already received cancellation notices due to the law—would beg to differ with the President.[68]  While the President offered a short-term concession—unilaterally waiving portions of Obamacare, and permitting some who lost health coverage to keep their plan until the 2016 presidential election—the cancellation notices are likely to continue for some time.  A 2010 Administration document admitted that more than half of all workers, and up to four in five employees in small businesses, would lose their pre-Obamacare health coverage.[69]

Obamacare undermines choice by dictating what type of insurance health plans must offer—and then dictating to firms that they must offer, and individuals that they must buy, this type of coverage.  Conversely, true health reform would smooth the problems of portability that occurred prior to the law’s enactment, while offering more personalized choices so consumers can buy the plan they want, not the plan a government bureaucrat tells them to purchase.

State Reforms to Expand Access:  For many decades, many states have held laws on their books that block access to care.  At least 36 states have certificate of need (CON) requirements, which force organizations to obtain clearance from the state before building new health care facilities.  In addition to the offensive nature of this approach—entities must ask government bureaucrats for permission to create a facility that will help patients—CON requirements have proven ineffective at their stated goal of reducing costs.  One recent analysis noted that states without CON requirements have significantly lower health costs than those states with certificate of need mandates.[70]  Congress repealed the law that created CON requirements nearly three decades ago; states can follow suit.[71]

Similarly, state licensing requirements can impose unnecessary burdens on medical practitioners, also limiting access to health care.  Given that the supply of doctors is not expected to keep up with projected demand, policy-makers should allow other medical professionals to utilize more of their expertise to provide more affordable and convenient care for patients.[72]  In 2011, the Institute of Medicine recommended that all professionals should be empowered to practice to the full scope of their professional training.[73]  States should modify their licensing requirements to remove artificial barriers impeding the ability to provide high-quality care.  States must also act prudently to protect patient quality and maintain high standards.  Doing so would expand access to care, allowing Minute Clinics and other similar entities to treat patients quickly and at lower cost than hospital emergency rooms or other sources of care.

Both certificate of need and artificial scope of practice restrictions sometimes prioritize the interests of incumbent members of the health system over the needs of patients.  In 2008, the Justice Department testified that CON laws “create barriers to entry and expansion to the detriment of health care competition and consumers.  They undercut consumer choice, stifle innovation, and weaken markets’ ability to contain health care costs.”[74]  Likewise, a seminal 2004 report on competition in health care by the Federal Trade Commission and Justice Department noted that scope of practice laws create anticompetitive risks, have raised costs, and limited mobility of medical providers, all for unclear benefits to health care quality.[75]  At a time when health costs remain high and access for vulnerable populations limited, states should act in both these key areas, initiating reforms that have the potential to reduce costs while simultaneously increasing access to needed care.

Better Access for Individuals Changing Employers:  The fact that so many Americans currently receive health insurance coverage through their employers means that individual health insurance plans have traditionally occupied a smaller segment of the marketplace.[76]  As a result, most individuals transition from one employer plan to another when they switch jobs.  However, moving from employer coverage to an individual plan can often prove more difficult and costly.

While not undermining the employer coverage that many Americans currently have and enjoy, conservative health reforms should also encourage policies that promote greater personal ownership of health insurance.  One key reform would allow individuals who maintain continuous coverage to purchase an individual health insurance plan of their choosing, eliminating the requirement that such individuals first exhaust COBRA coverage before accessing an individual plan.  These and other similar reforms will encourage Americans to purchase coverage they can take with them from job to job.

Cross-State Insurance Purchasing:  Because health insurance is regulated at the state level, many health insurance markets face two major problems.  First, in many states, one or a handful of insurers control most of the market for coverage, and these oligopolies tend to raise premiums.  Obamacare has not helped this trend, and in fact may have worsened it.  According to the New York Times, more than half of all counties in the United States have only one or two health plans participating in their states’ insurance Exchanges.[77]

Second, benefit mandates imposed by state legislatures force individuals to purchase more insurance coverage than they may need or want.  According to the Council for Affordable Health Insurance, states have imposed an average of 44 benefit mandates, each of which raises health costs.[78]  Individually, the mandates may not appear to raise premiums by a significant amount, but estimates suggest that collectively, benefit mandates impose hundreds of dollars in added costs to consumers every year.[79]

One solution to both these problems rests in Congress enacting legislation allowing consumers to purchase health insurance across state lines.  Consumers purchasing insurance across state lines would receive clear disclosures that their health coverage would be regulated by another state with respect to benefit mandates, solvency standards, and other similar requirements.  By using its constitutional authority to regulate interstate commerce, Congress could give consumers the power—a power they currently lack—to buy the health insurance plan that best meets their needs, regardless of the state in which that plan is offered.  Such a measure would give power from insurance company cartels back to consumers, make health insurance portable across state lines, and reduce the growth of premiums.

Pooling Mechanisms:  In addition to allowing the purchase of health insurance across state lines, Congress should also provide clear protections, similar to those provided in the Employee Retirement Income Security Act of 1974 (ERISA), for organizations that wish to establish multi-state insurance pools.  These organizations could be churches, fraternal organizations, trade groups for small businesses, alumni groups, or any other type of group with a common interest.  These groups should be permitted to band together and purchase health insurance for their members, providing coverage that fits members’ distinct needs while potentially reducing administrative costs.  Just as importantly, coverage obtained through these pools, unlike employer coverage, would be portable: Individuals would have and own their personal health policy, and would not need to change plans when they change jobs.

Lawsuit Reform:  In many states, medical liability problems present several problems for patients.  First, defensive medicine practices—doctors performing unnecessary tests due to fear of litigation—raise health costs, according to some estimates by more than $100 billion annually.[80]  Second, the seeming randomness of the legal system—in which some frivolous claims receive large awards, but some legitimate claims are dismissed—frustrates patients.  Finally, at a time when America already faces expected physician shortages, the legal climate discourages prospective doctors from pursuing medicine as a career choice.[81]  A recent study found that physicians spend more than 10% of their careers with an outstanding malpractice claim lingering over their practice.[82]  More than three in five physicians claim they or one of their colleagues may retire in the next three years due to frustration with the health care system—a fact likely exacerbated by an overly litigious culture.[83]

Enacting lawsuit reforms—including a cap on non-economic damages, restrictions on attorney contingency fees, discouraging frivolous lawsuits, and other common-sense changes—would reduce health care costs.  Because nearly half of all health spending is controlled by government, largely through the Medicaid and Medicare programs, Congress should take the lead in enacting lawsuit reforms in instances where the federal government is a payer of health services.[84]  If enacted, these changes could have a salutary effect on America’s physicians, just as the passage of tort reform in Texas encouraged more doctors to move to that state.[85]

Freedom for Seniors to Choose:  The doctor-patient relationship is the foundation on which our health care system should be based.  Unfortunately, government requirements often impede the ability for patients to choose the best option for their own care.  For instance, one law dictates that senior citizens may not make their own financial arrangements with their doctors if those arrangements contradict Medicare’s payment rates; any physician who does so is prohibited from receiving any reimbursements from Medicare for two years.[86]

Congress should restore the doctor-patient relationship by repealing this onerous requirement.  It should also restore the ability of Medicare patients to buy procedures on their own, provided seniors receive full disclosure from their physicians and medical providers for the costs of their care.  The Wall Street Journal reported that the number of doctors dropping out of Medicare nearly tripled between 2009 and 2012. [87]  Senior citizens should not have access to the physician of their own choosing—or to procedures their doctors recommend for them—violated due to arbitrary restraints imposed by federal bureaucrats.

 

Taken together, this package of reforms would accomplish the objectives the American people are looking for in their health care system—the objectives President Obama said his legislation would bring, but which Obamacare has not delivered.  Enacting policies that get the incentives right can reduce costs, even while protecting the most vulnerable and enhancing portability and choice for consumers.

The American people deserve true health reform—one that puts patients and doctors first, not government bureaucrats.  After repealing Obamacare, enacting America Next’s plan would point America’s health system in the right direction.

 

 

[1] Vote on Boehner Substitute Amendment to H.R. 3962, Affordable Health Care for America Act, House Roll Call Vote 885, 111th Congress, November 7, 2009, http://clerk.house.gov/evs/2009/roll885.xml.

[2] “Republican Study Committee Policy Brief: Members’ Health Care Initiatives in the 113th Congress,” November 25, 2013, http://rsc.scalise.house.gov/uploadedfiles/113th_112513_rsc_healthcare_menu.pdf.

[3] Remarks in Democratic presidential debate sponsored by CNN and Congressional Black Caucus Institute, January 21, 2008, http://www.cnn.com/2008/POLITICS/01/21/debate.transcript2/index.html.

[4] A video compilation of candidate Obama’s remarks on this issue from the 2008 campaign is available at http://freedomeden.blogspot.com/2010/03/obama-20-promises-for-2500.html.

[5] Gigi A. Cuckler, et al., “National Health Expenditure Projections: Slow Growth Until Coverage Expands and Economy Improves,” Health Affairs October 2013, http://content.healthaffairs.org/content/32/10/1820.

[6] Congressional Budget Office, Letter to Sen. Evan Bayh regarding premium effects of the Patient Protection and Affordable Care Act, November 30, 2009, http://cbo.gov/sites/default/files/cbofiles/ftpdocs/107xx/doc10781/11-30-premiums.pdf.

[7] Amit Bhardwaj, et al., “Individual Market Enrollment: Updated View,” McKinsey Center for U.S. Health System Reform, March 2014, http://healthcare.mckinsey.com/sites/default/files/Individual-Market-Enrollment.pdf.

[8] Ibid.

[9] Congressional Budget Office, Key Issues in Analyzing Major Health Insurance Proposals, December 2008, http://www.cbo.gov/sites/default/files/cbofiles/ftpdocs/99xx/doc9924/12-18-keyissues.pdf, pp. 84–87.

[10] The White House, “Affordable, Accessible, and Flexible Health Coverage,” January 2007, http://georgewbush-whitehouse.archives.gov/stateoftheunion/2007/initiatives/healthcare.html; Republican Study Committee, “The American Health Care Reform Act,” September 18, 2013, http://rsc.scalise.house.gov/solutions/rsc-betterway.htm.

[11] John Sheils and Randy Haught, “President Bush’s Health Care Tax Deduction Proposal: Coverage, Cost, and Distributional Impacts,” The Lewin Group, January 28, 2007, http://www.lewin.com/~/media/Lewin/Site_Sections/PressReleases/BushHealthCarePlanAnalysisRev.pdf.

[12] Patient Protection and Affordable Care Act (P.L 111-148), Section 2551.

[13] Congressional Budget Office, Medicaid baseline, May 2013, http://cbo.gov/sites/default/files/cbofiles/attachments/44204_Medicaid.pdf.

[14] Congressional Budget Office, analysis of House Republican substitute amendment to H.R. 3962, November 4, 2009, http://cbo.gov/sites/default/files/cbofiles/ftpdocs/107xx/doc10705/hr3962amendmentboehner.pdf.

[15] Press release by House Ways and Means Committee Ranking Member Dave Camp, November 5, 2009, http://waysandmeans.house.gov/news/documentsingle.aspx?DocumentID=153186.

[16] America’s Health Insurance Plans, Center for Policy and Research, “January 2013 Census Shows 15.5 Million People Covered by Health Savings Account/High-Deductible Health Plans (HSA/HDHPs),” June 2013, http://www.ahip.org/HSACensus2013PDF/.

[17] America’s Health Insurance Plans, Center for Policy and Research, “Health Savings Accounts and Account-Based Health Plans: Research Highlights,” July 2012, http://www.ahip.org/HSAHighlightsReport072012/.

[18] Kaiser Family Foundation and Health Research and Educational Trust, “Employer Health Benefits: 2013 Annual Survey,” August 2013, http://kaiserfamilyfoundation.files.wordpress.com/2013/08/8465-employer-health-benefits-20132.pdf, Exhibit 8.8, p. 140.

[19] Amelia M. Haviland, M. Susan Marquis, Roland D. McDevitt, and Neeraj Sood, “Growth of Consumer-Directed Health Plans to One-Half of All Employer-Sponsored Insurance Could Save $57 Billion Annually,” Health Affairs, May 2012, http://content.healthaffairs.org/content/31/5/1009.abstract.

[20] Patient Protection and Affordable Care Act (P.L. 111-148), Section 9003.

[21] Steven A. Burd, “How Safeway Is Cutting Health Costs,” Wall Street Journal June 12, 2009, http://online.wsj.com/news/articles/SB124476804026308603.

[22] Christopher Matthews, “U.S. Accuses Russian Diplomats of Medicaid Fraud,” Wall Street Journal December 5, 2013, http://online.wsj.com/news/articles/SB10001424052702303497804579240163174732486.

[23] Clifford Levy and Michael Luo, “New York Medicaid Fraud May Reach into Billions,” The New York Times, July 18, 2005, http://www.nytimes.com/2005/07/18/nyregion/18medicaid.html.

[24] CBS News, “Medicare Fraud: A $60 Billion Crime,” 60 Minutes, September 5, 2010, http://www.cbsnews.com/8301-18560_162-5414390.html.

[25] Lisa Rosenbaum, “The Problem with Knowing How Much Your Health Care Costs,” The New Yorker December 23, 2013, http://www.newyorker.com/online/blogs/elements/2013/12/price-transparency-health-care-costs.html.

[26] Institute of Medicine, The Health Care Imperative: Lowering Costs and Improving Outcomes—Workshop Summary, February 2011, http://www.iom.edu/reports/2011/the-healthcare-imperative-lowering-costs-and-improving-outcomes.aspx.

[27] Chris Jacobs, “How Obamacare Undermines American Values: Penalizing Work, Marriage, Citizenship, and the Disabled,” Heritage Foundation Backgrounder No. 2862, November 21, 2013, http://www.heritage.org/research/reports/2013/11/how-obamacare-undermines-american-values-penalizing-work-marriage-citizenship-and-the-disabled.

[28] Kaiser Family Foundation, “Waiting Lists for Medicaid Section 1915(c) Home and Community-Based Services (HCBS) Waivers,” December 2012, http://kff.org/medicaid/state-indicator/waiting-lists-for-hcbs-waivers-2010/#table.

[29] James C. Capretta and Tom Miller, “How to Cover Pre-Existing Conditions,” National Affairs Summer 2010, http://www.nationalaffairs.com/doclib/20100614_CaprettaMiller_Web.pdf, pp. 114-15.

[30] U.S. Department of Health and Human Services, Office of Planning and Evaluation, “At Risk: Pre-Existing Conditions Could Affect 1 in 2 Americans,” November 2011, http://aspe.hhs.gov/health/reports/2012/pre-existing/index.shtml.

[31] Centers for Medicare and Medicaid Services, Center for Consumer Information and Insurance Oversight, “Covering People with Pre-Existing Conditions: Report on the Implementation and Operation of the Pre-Existing Condition Insurance Plan Program,” January 31, 2013, http://www.cms.gov/CCIIO/Resources/Files/Downloads/pcip_annual_report_01312013.pdf.

[32] Congressional Budget Office, letter to Senator Mike Enzi (R–WY), June 21, 2010, http://cbo.gov/sites/default/files/cbofiles/ftpdocs/115xx/doc11572/06-21-high-risk_insurance_pools.pdf.

[33] Department of Health and Human Services, Pre-Existing Condition Insurance Plan, notice of enrollment suspension, February 15, 2013, https://www.pcip.gov/Notifications/021513-ENROLLMENT_SUSPEND.html.

[34] Report by Senate Health, Education, Labor, and Pensions Committee Ranking Member Mike Enzi, “Health Care Reform’s Impact on Child-Only Health Insurance Policies,” August 2, 2011, http://www.help.senate.gov/imo/media/doc/Child-Only%20Health%20Insurance%20Report%20Aug%202,%202011.pdf.

[35] Ricardo Alonso-Zaldivar, “Concerns about Cancer Centers under Health Law,” Associated Press March 18, 2014, http://hosted2.ap.org/apdefault/3d281c11a96b4ad082fe88aa0db04305/Article_2014-03-18-Health%20Overhaul-Top%20Cancer%20Centers/id-d5acff9619ec4bc6aa875800d96fc270.

[36] Information on various state plans for covering high-risk individuals can be found on the website of the National Association of State Comprehensive Health Insurance Plans, www.naschip.org.

[37] John C. Goodman, “Rescissions: Much Ado About Nothing,” Kaiser Health News, May 13, 2010,    http://www.kaiserhealthnews.org/Columns/2010/May/051310Goodman.aspx.

[38] Centers for Medicare and Medicaid Services, 2013 Medicare trustees report, May 31, 2013, http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/ReportsTrustFunds/Downloads/TR2013.pdf, TableII.B4, p. 58.

[39] Suzanne Codespote, memo from Office of the Actuary, Centers for Medicare and Medicaid Services, to Senate Budget Committee Ranking Member Jeff Sessions, June 3, 2013.

[40] Maria Bartiromo, “One-on-One with Nancy Pelosi,” CNBC interview, October 28, 2011, http://video.cnbc.com/gallery/?video=3000054002.

[41] Kathleen Sebelius, testimony before the House Energy and Commerce Committee hearing on “Fiscal Year 2012 HHS Budget,” March 4, 2011, video available at http://archives.republicans.energycommerce.house.gov/hearings/hearingdetail.aspx?NewsID=8281.

[42] The National Bipartisan Commission on the Future of Medicare was chaired by Sen. John Breaux (D-LA) and Rep. Bill Thomas (R-CA); its work can be found at http://medicare.commission.gov/medicare/index.html.

[43] Testimony of David Kendall, Progressive Policy Institute Senior Analyst for Health Policy, before Senate Finance Committee hearing on “Modernizing Medicare,” May 26, 1999, http://dlc.org/ndol_ci04fb-2.html?kaid=111&subid=141&contentid=1790.

[44] Sen. Ron Wyden and Rep. Paul Ryan, “Guaranteed Choices to Strengthen Medicare and Health Security for All: Bipartisan Options for the Future,” December 15, 2011, http://budget.house.gov/uploadedfiles/wydenryan.pdf.

[45] Alice Rivlin, testimony before the House Ways and Means Health Subcommittee on “A Bipartisan Approach to Reforming Medicare,” April 27, 2012, http://waysandmeans.house.gov/uploadedfiles/rivlin_testimony_final_4-27-2012.pdf, p. 4.

[46] Congressional Budget Office, “A Premium Support System for Medicare: Analysis of Illustrative Options,” September 2013, http://www.cbo.gov/sites/default/files/cbofiles/attachments/09-18-PremiumSupport.pdf.

[47] Kaiser Family Foundation, “Medigap Reforms: Potential Effects of Benefit Restrictions on Medicare Spending and Beneficiary Costs,” July 2011, http://www.kff.org/medicare/upload/8208.pdf, Exhibit 2, p. 6.

[48] Ibid., p. 8.

[49] Ibid., p. 8.

[50] Congressional Budget Office, “Options for Reducing the Deficit: 2014 to 2023,” November 13, 2013, http://cbo.gov/sites/default/files/cbofiles/attachments/44715-OptionsForReducingDeficit-2_1.pdf, Health Option 7, p. 211.

[51] The Moment of Truth, report of the National Commission on Fiscal Responsibility and Reform, December 2010, http://www.fiscalcommission.gov/sites/fiscalcommission.gov/files/documents/TheMomentofTruth12_1_2010.pdf, p. 39.

[52] Restoring America’s Future, report of the Bipartisan Policy Center’s Debt Reduction Tax Force, November 2010, http://bipartisanpolicy.org/sites/default/files/BPC%20FINAL%20REPORT%20FOR%20PRINTER%2002%2028%2011.pdf, pp. 52-53.

[53] Overview of Coburn/Lieberman Medicare reform proposal, June 2011, http://www.coburn.senate.gov/public/index.cfm?a=Files.Serve&File_id=1ea8e116-6d15-46ba-b2e0-731258583305

[54] Office of Management and Budget, Fiscal Year 2015 Budget, March 4, 2014, http://www.whitehouse.gov/sites/default/files/omb/budget/fy2015/assets/budget.pdf, pp. 31-32.

[55] Lewin Group, “An Independent Evaluation of Rhode Island’s Global Waiver,” December 6, 2011, http://www.ohhs.ri.gov/documents/documents11/Lewin_report_12_6_11.pdf.

[56] Testimony of Gary Alexander before the Congressional Commission on Long-Term Care, August 1, 2013, http://ltccommission.lmp01.lucidus.net/wp-content/uploads/2013/12/Garo-Alexander.pdf.

[57] Lewin Group, “An Independent Evaluation,” pp. 11-12.

[58] Indiana Family and Social Services Administration, Healthy Indiana Plan 1115 Waiver Extension Application, February 13, 2013, http://www.in.gov/fssa/hip/files/HIP_WaiverforPosting.pdf, pp. 19, 6.

[59] Mitch Daniels, “We Good Europeans,” The Wall Street Journal March 26, 2010, http://online.wsj.com/article/SB10001424052748704094104575144362968408640.html.

[60] Avik Roy, “The Medicaid Mess: How Obamacare Makes It Worse,” The Manhattan Institute, March 2012,  http://www.manhattan-institute.org/html/ir_8.htm

[61] Katherine Baicker, Sarah Taubman, Heidi Allen, Mira Bernstein, Jonathan Gruber, Joseph P. Newhouse, Eric Schneider, Bill Wright, Alan Zaslavsky, Amy Finkelstein, and the Oregon Health Study Group, “The Oregon Experiment – Effects of Medicaid on Clinical Outcomes” New England Journal of Medicine, May 2013, http://www.nejm.org/doi/full/10.1056/NEJMsa1212321

[62] The Oregon Health Insurance Experiment, http://www.nber.org/oregon/

[63] Republican Governors Public Policy Committee Health Care Task Force, “A New Medicaid: A Flexible, Innovative, and Accountable Future,” August 30, 2011, http://www.scribd.com/doc/63596104/RGPPC-Medicaid-Report.

[64] Sarah Torre, “Obamacare’s Many Loopholes: Forcing Individuals and Taxpayers to Fund Elective Abortion Coverage,” Heritage Foundation Backgrounder No. 2872, January 13, 2014, http://www.heritage.org/research/reports/2014/01/obamacares-many-loopholes-forcing-individuals-and-taxpayers-to-fund-elective-abortion-coverage.

[65] A full list of the court cases, and further information regarding them, can be found through the Becket Fund for Religious Liberty, http://www.becketfund.org/hhsinformationcentral/.

[66] Chuck Donovan, “Obamacare: Impact on Taxpayer Funding of Abortion,” Heritage Foundation WebMemo No. 2872, April 19, 2010, http://www.heritage.org/research/reports/2010/04/obamacare-impact-on-taxpayer-funding-of-abortion.

[67] President Barack Obama, remarks to a Joint Session of Congress on Health Care, September 9, 2009, http://www.whitehouse.gov/the_press_office/Remarks-by-the-President-to-a-Joint-Session-of-Congress-on-Health-Care.

[68] Associated Press, “Policy Notifications and Current Status, by State,” December 26, 2013, http://money.msn.com/business-news/article.aspx?feed=AP&date=20131226&id=17219856.

[69] Interim final rule by Departments of Labor, Treasury, and Health and Human Services regarding grandfathered health insurance status, released June 14, 2010, http://www.federalregister.gov/OFRUpload/OFRData/2010-14488_PI.pdf Table 3, p. 54.

[70] Jordan Bruneau, “The Great Healthcare CON,” Foundation for Economic Education, January 15, 2014, http://www.fee.org/the_freeman/detail/the-great-healthcare-con#axzz2qbUCvcC2.

[71] There may need to be some very targeted consideration given to specific health care markets so dependent on government programs that taxpayers end up paying for unused capacity.

[72] Association of American Medical Colleges, Center for Workforce Studies, “Recent Studies and Reports on Physician Shortages in the U.S.,” October 2012, https://www.aamc.org/download/100598/data/.

[73] Institute of Medicine, “The Future of Nursing: Focus on Scope of Practice,” Report Brief, October 2010, http://www.iom.edu/~/media/Files/Report%20Files/2010/The-Future-of-Nursing/Nursing%20Scope%20of%20Practice%202010%20Brief.pdf.

[74] Joint Statement of the Antitrust Division of the U.S. Department of Justice and the Federal Trade Commission before the Illinois Task Force on Health Planning Reform, September 15, 2008, http://www.justice.gov/atr/public/comments/237351.pdf, pp. 1-2.

[75] Federal Trade Commission and Department of Justice, Improving Health Care: A Dose of Competition, July 2004, http://www.justice.gov/atr/public/health_care/204694.pdf, pp. 25-28.

[76] According to the U.S. Census Bureau, in 2012 170.9 million Americans were covered by employer-based insurance, compared with 30.6 million Americans covered by direct-purchase insurance (including various forms of supplemental coverage).  Carmen DeNavas-Walt, Bernadette D. Proctor, and Jessica C. Smith, Income, Poverty, and Health Insurance Coverage in the United States: 2012, U.S. Census Bureau, September 2013, http://www.census.gov/prod/2013pubs/p60-245.pdf, Table C-1, p. 67.

[77] Reed Abelson, Katie Thomas, and Jo Craven McGinty, “Health Care Law Fails to Lower Prices for Rural Areas,” New York Times October 24, 2013, http://www.nytimes.com/2013/10/24/business/health-law-fails-to-keep-prices-low-in-rural-areas.html.

[78] CAHI found a total of 2,271 benefit mandates enacted in 50 states and the District of Columbia.  Council for Affordable Health Insurance, “Health Insurance Mandates in the States 2012: Executive Summary,” April 9, 2013, http://www.cahi.org/cahi_contents/resources/pdf/Mandatesinthestates2012Execsumm.pdf.

[79] One study found that benefit mandates raise premiums by an average of $0.75 per month, or $9 per year.  A state with the national average of 44 benefit mandates would therefore have raised premiums by an average of $396 annually.  See Michael J. New, “The Effect of State Regulations on Health Insurance Premiums: A Revised Analysis,” Heritage Foundation Center for Data Analysis Report No. 06-04, July 25, 2006, http://www.heritage.org/research/reports/2006/07/the-effect-of-state-regulations-on-health-insurance-premiums-a-revised-analysis, p. 5.

[80] U.S. Department of Health and Human Services, Office of the Assistant Secretary for Planning and Evaluation, “Addressing the New Health Care Crisis: Reforming the Medical Litigation System to Improve the Quality of Health Care,” March 2003, http://aspe.hhs.gov/daltcp/reports/medliab.pdf, p. 16.

[81] Association of American Medical Colleges, “Recent Studies on Physician Shortages.”

[82] Seth A. Seabury, et al., “On Average, Physicians Spend Nearly 11 Percent of their 40-Year Careers with an Open, Unresolved Malpractice Claim,” Health Affairs January 2014, http://content.healthaffairs.org/content/32/1/111.full.pdf+html.

[83] Deloitte Center for Health Solutions, “Deloitte 2013 Survey of U.S. Physicians,” March 18, 2013, http://www.deloitte.com/assets/Dcom-UnitedStates/Local%20Assets/Documents/us_chs_2013SurveyofUSPhysicians_031813.pdf, p. 3.

[84] Gigi A. Cuckler, et al., “National Health Expenditure Projections.”

[85] Joseph Nixon, “Why Doctors Are Heading for Texas,” Wall Street Journal May 17, 2008, http://online.wsj.com/news/articles/SB121097874071799863.

[86] Section 4507 of the Balanced Budget Act of 1997, P.L. 105-33.

[87] Melinda Beck, “More Doctors Steer Clear of Medicare,” Wall Street Journal July 30, 2013, http://online.wsj.com/news/articles/SB10001424127887323971204578626151017241898.

Summary of the Freedom and Empowerment Plan

A PDF of the full health care plan is available on the America Next website.

Four years after being enacted into law, Obamacare’s massive government overreach and higher taxes continue to wreak havoc on the American economy and health care system.  The unpopular, unworkable, and misguided law should be repealed in its entirety.

It is now becoming obvious to all that Obamacare is not merely bad policy, but it is also constructed ineptly, and was deceptively sold to the American people with the now infamous “lie of the year.”  Without the president’s repeated acts of deception, his disastrous health regime would never have become law.

Today, costs to consumers are rising, people are losing their health coverage and access to their doctors, struggling families are being forced to buy coverage they do not want, and the Congressional Budget Office has acknowledged that the law incentivizes Americans not to work–which the President now insists is a good thing.

The American people are in favor of repealing Obamacare.  But conventional wisdom in Washington holds that the law cannot be fully repealed.  I couldn’t disagree more.  A country that won two world wars and landed a man on the moon can surely eradicate this attack on our health care system.

Repealing all of Obamacare is a good and necessary step–but not one sufficient by itself to achieve the real health reform America needs.  The President was right about one thing: American health care did need reform. But Obamacare did not “reform” American health care, so much as it took a dysfunctional system and made it dramatically worse.

Rather than focusing on the liberal shibboleth of “universal coverage”—forcing individuals to buy a plan under pain of taxation, and raising health spending through new mandates and taxes—the American health system should be focused on containing the rising tide of health costs.  To quote none other than Barack Obama: “I believe the problem is not that folks are trying to avoid getting health care.  The problem is they can’t afford it.”

True reform would also preserve what Americans like about their health care—its high quality, its innovation, the relationship of patients and doctors–while changing what they don’t.  Giving more control to the states, controlling and slowing the growth in health costs, protecting the most vulnerable in our society, and enhancing portability and choice are the keys to achieving real reform that will improve America’s health care system, and Americans’ health.

Principle #1: Lowering Health Costs

Tax Equity:  Giving all individuals the same standard deduction for health insurance, regardless of whether they obtain that health insurance from an employer or on their own, will remedy a major inequity in the tax code.  Moreover, linking the growth in the deduction to price inflation (after an appropriate phase-in) would give medical providers and insurers an incentive to become more efficient, slowing the growth of rising costs.

State Health Insurance Program:  While Congress does have a role to play in reforming health care, the states have often led the way by introducing new and exciting reforms.  Providing states with a grant pool of over $100 billion over ten years, along with a few simple restrictions—notably, guaranteed access for individuals with pre-existing conditions, coupled with reductions in health insurance premiums that make coverage more affordable—would give states both the flexibility and resources to innovate.  States could use these funds to subsidize insurance coverage for low-income individuals who would not receive tax savings from a health insurance deduction, and individuals with pre-existing conditions.

Health Savings Accounts:  Additional incentives associated with health savings accounts—allowing individuals to use HSA funds to pay health insurance premiums, and allowing for additional flexibility in benefit design—would further increase participation in this innovative insurance model, and enhance its ability to contain the growth of health costs.

Greater Incentives for Wellness:  Providing insurers and employers with additional flexibility to offer incentives for healthy behaviors—and the ability to provide those incentives on a tax-free basis—would accelerate efforts at changing behaviors in a way that can slow health cost growth.

Crack Down on Fraud:  Our current record deficits and debt highlight the need to spend taxpayer resources wisely.  Reforms should move away from the existing “pay and chase” model, while targeting those who profit from or traffic in personal health information.

Price and Quality Transparency:  Health care remains one of the few industries where consumers struggle to find information on price and quality.  Online posting of price and quality data can empower patients with trusted information and provide providers a greater incentive to improve their quality practices.

Principle #2: Protect the Most Vulnerable

Guaranteed Access for Pre-Existing Conditions:  As a condition of participation in the new $100 billion innovation pool, states will be required to guarantee access for individuals with pre-existing conditions—through a high-risk pool, reinsurance, or some other method ensuring those with chronic conditions can obtain needed care.

Premium Support:  A bipartisan concept since its introduction nearly two decades ago, premium support can provide seniors with more health insurance choices, while making Medicare more financially solvent and sustainable for future generations.

Medicaid Reforms:  While some states have already implemented innovative reforms to their Medicaid programs, the federal government can and should do more to assist their efforts.  Specifically, Washington should empower Medicaid reform through a global grant program, which gives states additional flexibility to design solutions that meet their needs, in exchange for a fixed funding allotment from the federal government and accountability standards.

Pro-Life Protections:  Unlike Obamacare—which sees federal funds flowing to plans that cover abortion—true reform would make permanent in law the pro-life protections enacted by Congress annually since 1976, as well as strengthening conscience protections for businesses and medical providers.

Principle #3: Portability and Choice

State Reforms to Expand Access:  By reforming laws that govern medical licensure and construction of new medical facilities, states can dramatically increase the supply of medical providers—including new options that could lower health care costs.

Better Access for Individuals Changing Employers:  Individuals leaving their employers should not be required to exhaust COBRA continuation coverage before gaining access to the individual health insurance market.  Removing this requirement would alleviate a costly mandate on businesses, and ease the transition into individual health coverage for those changing jobs.

Pooling Mechanisms:  Allowing small businesses, fraternal organizations, civic groups, alumni associations, and other similar organizations to band together and offer health insurance to their members will provide new options for individuals to purchase coverage that goes with them from job to job.

Cross-State Insurance Purchasing:  Empowering individuals to purchase health insurance across state lines—a power most currently do not have—would allow Americans to buy the customized plan that best meets their needs.

Lawsuit Reform:  Enacting common-sense tort reforms to crack down on frivolous lawsuits—some of which have successfully been implemented in Texas and other states—would expand patient access and lower costs by reducing the incidence of defensive medicine practices among physicians.

Freedom for Seniors to Choose:  Enhancing choice and competition involves eliminating the arbitrary restrictions on seniors’ choice of medical providers imposed by bureaucratic mandates.  Congress should restore the doctor-patient relationship by repealing these onerous requirements.

After Repeal of Obamacare: Moving to Patient-Centered, Market-Based Health Care

A PDF of this Backgrounder is available on the Heritage Foundation website.

For a better life, Americans need a health care system that they, not the government, control. Consumers should have the ability to choose how to meet their health insurance needs in a free market for insurance. Taxpayers should benefit from a more efficient and affordable system for helping those who need health care but cannot afford it. Above all, patients, with their doctors, should make their own health care decisions free from government interference.

The important first step is to repeal the Obamacare statute that puts the government in charge of health care. The second step is to let the country move to a patient-centered, market-based system that focuses on citizens and not on the government.

Principles for Reform

To allow Americans to reclaim control of their own health care and benefit from competition in a free market for insurance and health care, Congress should repeal the Obamacare statute and enact patient-centered, market-based reforms based on five principles:

  • Choose, control, and carry your own health insurance;
  • Let free markets provide the insurance and health care services that people want;
  • Encourage employers to provide a portable health insurance benefit to employees;
  • Assist those who need help through civil society, the free market, and the states; and
  • Protect the right of conscience and unborn children.

The Patient Protection and Affordable Care Act (Obamacare) moves health care in the wrong direction. It puts government, not patients, in charge of individual health care decisions. Moreover, it fails to meet the promises laid out by President Barack Obama. With each passing day, it becomes clearer that Obamacare will not reduce premiums for average American families, bend the cost curve in health care spending, or bring down the deficit. For these reasons, among others, Obamacare must be repealed.

However, a return to the status quo before Obamacare is not the final step. Policymakers should pursue reforms based on five basic principles. Adopting such reforms would move American health care in the right direction: toward a patient-centered, market-based health care system.

Principle #1: Choose, control, and carry your own health insurance.

True health reform should promote personal ownership of health insurance. While Obamacare uses government-run insurance exchanges to limit individual choice, real reforms would focus on encouraging Americans to purchase insurance policies that they can take with them from job to job and into retirement in a competitive, free market. Policymakers should enact several key changes for this culture of personal health care ownership to take root.

Portability. Most Americans obtain coverage through their place of work. This allows employers to provide tax-free health benefits to their employees, while individuals purchasing health insurance on their own must use after-tax dollars. As a result, most individuals with private health insurance obtain that coverage from their employer.[1]

Rather than following Obamacare’s example of forcing Americans into government-run health insurance exchanges, true patient-centered reform of health care would make insurance more portable. Individuals should be able to purchase an insurance policy when they are young and carry that policy with them throughout their working lives into retirement.

Equal Tax Relief. While Obamacare alters the tax treatment of health insurance, it does so in a way that increases burdens on taxpayers. Its 40 percent tax on so-called Cadillac health insurance plans is but one of 18 separate tax increases included in the law,[2] which, according to the Congressional Budget Office and the Joint Committee on Taxation, will raise $771 billion in revenue from 2013 to 2022.[3]

A better approach would equalize the tax treatment of health insurance without raising new revenues. The Heritage Foundation has previously proposed replacing the existing deduction for employer-provided health coverage with a flat tax credit that individuals could use to purchase a health insurance policy of their own.[4] Another idea, first proposed by then-President George W. Bush, would give all Americans purchasing health coverage—whether through an employer or on their own—the same standard deduction for health insurance.[5] Both proposals assume revenue neutrality over 10 years. Unlike Obamacare, they do not propose using reform to increase net tax revenues.

Both of these proposals would accomplish two important objectives.

First, they would equalize the tax treatment between health coverage provided through an employer and health coverage purchased by an individual. Providing equal tax treatment would remove a major obstacle that discourages individuals from buying and holding their own health insurance policy for years and taking that coverage from job to job. Tax equity would also encourage firms either to provide direct contributions toward their workers’ health coverage or to increase wages in place of health benefits.

Second, limiting the amount of the tax benefit provided, either with a tax credit or with a standard deduction, would encourage individuals to become smarter purchasers of health insurance coverage. Studies have demonstrated that the current uncapped tax benefit for employer-provided health insurance encourages firms to offer richer health plans and individuals to overconsume health care. According to the Congressional Budget Office, reforming the tax treatment of health insurance “would provide stronger incentives for enrollees to weigh the expected benefits and costs of policies” when buying insurance, thus helping to reduce costs.[6]

Choice of Providers. Through its new system of government control, Obamacare restricts choice and access for many patients. The nonpartisan Medicare actuary concluded that the Medicare reimbursement reductions in Obamacare could make 40 percent of all hospitals unprofitable in the long term, thus restricting beneficiary access to care.[7] Moreover, preliminary reports suggest that Obamacare’s insurance exchanges will feature limited provider networks in an attempt to mitigate premium increases for individuals purchasing exchange coverage.[8]

The most important element of any health care system is the trusted relationship between doctor and patient. Any system of truly patient-centered health care should work to preserve those important bonds and to repair the damage to those bonds caused by Obamacare.

Encouraging Personal Savings. Since their creation in 2004, health savings accounts (HSAs) have become a popular way for millions of families to build savings for needed health care expenses. HSA plans combine a health insurance option featuring a slightly higher deductible—but catastrophic protection in the event of significant medical expenses—with a tax-free savings account. As one of several new consumer-driven health options, HSAs encourage patients to take control of their own health care, providing financial incentives for consumers to serve as wise health care purchasers.

Over the past several years, millions of families have taken advantage of the innovative tools that HSA plans offer. The number of people enrolled in HSA-eligible policies has skyrocketed from 1 million in March 2005 to 15.5 million in January 2013.[9] Numerous studies have also shown that individuals with HSA plans have used tools provided by their health insurer to become more involved with their health care—for example, by using online support tools, inquiring about provider cost and quality, and seeking preventive care.[10] As a result, individuals had saved at least $12.4 billion in their HSAs by the end of 2011.[11]

However, HSA holders still face obstacles to building their personal savings. For instance, under current law, funds contributed to an HSA may not be used to pay for insurance premiums, except under very limited circumstances.[12] Changing this restriction and increasing HSA contribution limits would enhance both personal savings and personal ownership of health insurance.

Coverage for Pre-Existing Conditions. The problem of providing access to individuals with pre-existing conditions, while very real, did not necessitate the massive changes in America’s health care system included in Obamacare. In 2011, the Obama Administration suggested that as many as 129 million Americans with pre-existing conditions were “at risk” and “could be denied coverage” without Obamacare’s massive changes in America’s insurance markets.[13]

That claim was wildly untrue. Under prior law, individuals with employer-sponsored coverage (90 percent of the private market) could not be subjected to pre-existing condition exclusions.[14] In fact, prior to Obamacare, the number of individuals with pre-existing conditions who truly could not obtain health coverage was vastly smaller, and the problem existed only in the individual market. It is therefore not surprising that, according to the most recent data, only an estimated 134,708 individuals have enrolled in the supplemental federal high-risk pool program since it was created under Obamacare to cover individuals with pre-existing conditions[15]—still less than the 200,000 individuals originally projected to enroll.[16]

States could use a variety of approaches to provide coverage to individuals who are unable to purchase insurance. For instance, 35 states already operate high-risk pools with a collective current enrollment of 227,000 individuals to ensure access to coverage for individuals with pre-existing conditions.[17] Alternatively, states could establish reinsurance or risk transfer mechanisms under which insurance companies would reimburse each other for the cost of treating individuals with high medical expenses without added funding from state or federal taxpayers. Either approach would be far preferable to the massive amounts of regulation, taxation, and government spending under Obamacare.

Principle #2: Let free markets provide the insurance and health care services that people want.

Many individuals have already learned that, due in part to Obamacare, with its government-run health exchanges, new bureaucracies, and other forms of government control, they will not be able to retain their current health insurance.[18] There is a better way, and it involves providing more choice through market incentives rather than undermining markets through centralized bureaucracy.

Cross-State Purchasing. Currently, state insurance markets suffer from two flaws: Many markets are uncompetitive, with up to 70 percent of metropolitan areas considered “highly concentrated,”[19] and costly benefit mandates raise health insurance premiums. A prior Heritage Foundation analysis found that each benefit mandate raises costs by an average of approximately $0.75 per month.[20] Another study found that states have imposed a total of 2,271 benefit mandates—or approximately 45 per state.[21] Taken together, these two studies suggest that the cumulative effect of these mandates could raise premiums by $20–$40 per month, or hundreds of dollars per year.

Congress can help to mitigate these problems by removing federal barriers to interstate commerce in health insurance products. Individuals should have the ability to purchase insurance products across state lines, choosing the health plan that best meets their needs regardless of the location of its issuer.

Pooling Mechanisms. Another way to improve patient choice and make insurance markets more competitive would involve new purchasing arrangements and pooling mechanisms. Small businesses, individual membership associations, religious groups, and fraternal organizations should be able to sell health insurance policies through new group purchasing arrangements. The federal government’s role should be to remove the barriers to such arrangements.

By extending the benefits of group coverage beyond the place of work, these new purchasing arrangements would also encourage portability of health insurance coverage. These reforms would allow individuals to obtain their health plan from a trusted source—one with which they would be likely to have a longer association than they have with their employer—thereby creating a form of health coverage that Americans could truly own.

Medicare Private Contracting. Seniors could also benefit from patient-centered Medicare reforms, one of which should help to restore the doctor–patient relationship. Congress should eliminate the anti-competitive restrictions that prevent doctors and patients from contracting privately for medical services outside of traditional Medicare.[22] Congress can also restructure the Medicare benefit, modernizing the design of a program that has remained largely unchanged since its creation nearly 50 years ago.[23] These changes would enhance patient choice while preserving the program’s solvency for future generations of Americans.

Medicare Reform. Regrettably, Obamacare imposes many its most harmful effects on senior citizens.[24] According to the Medicare actuary, the Medicare reimbursement reductions in Obamacare will make 15 percent of all hospitals unprofitable within the decade and 40 percent unprofitable by 2050.[25] As a result, seniors may face significant obstacles to obtaining health care in the future.

There is a better way. Specifically, Congress should provide seniors with a generous subsidy to purchase a Medicare plan of their choosing. Seniors who choose a plan costing less than the subsidy would pay less, while seniors who choose a plan costing more than the subsidy would pay the difference in price.[26 ]

Consumer Choice and Competition. As part of its system of government control, Obamacare hinders patients’ ability to choose their own health plan. One survey found that the mandates and requirements in the law mean that more than half of all insurance policies purchased directly by individuals will not qualify as “government-approved” under Obamacare.[27] As a result, many Americans are finding that they will not be able to keep the health plan they have and like[28]—despite President Obama’s repeated promises.[29]

True patient-centered reform would bolster HSAs and other consumer-directed health products—such as health reimbursement arrangements and flexible spending accounts—that have the ability to transform American health care. One study published in the prestigious journal Health Affairs in 2012 found that expanding market penetration of consumer-driven health plans from 13 percent to 50 percent of all employers could reduce health costs by as much as $73.6 billion per year—a reduction in health spending of 9.1 percent.[30]

In other words, expanding consumer choice and competition could reduce health care costs and spending—the opposite of Obamacare, which restricts consumer choice and increases health costs and spending.

Principle #3: Encourage employers to provide a portable health insurance benefit.

Because most Americans traditionally have received health insurance from their employers, many individuals have few, if any, choices when selecting a health plan. According to the broadest survey of employer plans, nearly nine in 10 firms (87 percent) offer only one plan type, and only 2 percent offer three or more plan types.[31] As a result, employees have only a very limited ability to choose the plan that best meets their needs.

Defined Contribution. An ideal solution would convert the traditional system of employer-provided health insurance from a defined benefit model to a defined contribution model. Rather than providing health insurance directly, employers instead would offer cash contributions to their workers, enabling them to buy the plans of their own choosing. Combined with changes in the tax treatment of health insurance and regulatory improvements to enhance portability, moving to a defined contribution model for health insurance would allow workers to buy a health insurance policy in their youth and take that policy with them from job to job into retirement. These changes would also enable workers and families to negotiate contributions from multiple employers rather than having just one employer foot the bill.

Principle #4: Assist those who need help through civil society, the free market, and states.

While some health reforms—such as changing the tax treatment of health insurance and reforming the Medicare program—remain fully within the purview of the federal government, states also play a critical role in enacting reforms that can lower costs, improve access to care, and modernize state Medicaid programs. By serving as the “laboratories of democracy,” states can provide examples for other states—and the federal government—to follow. Because many state-based reforms do not rely on Washington’s involvement or approval, states can move ahead with innovative market-based solutions even as federal bureaucrats attempt to implement Obamacare’s government-centric approach.

State Innovation. If given proper time and space by an all-too-intrusive federal government, states can act on their own to open their insurance markets. A few states have already acted to open their insurance markets. In 2011, Georgia enacted legislation allowing interstate purchasing of health insurance, and Maine passed legislation allowing carriers from other New England states to offer insurance products to its citizens.[32] Just before Obamacare was enacted in 2010, Wyoming acted to permit out-of-state insurers to offer products.[33] While it may take some time before a critical mass of states creates a true interstate market for insurance, these nascent efforts demonstrate the nationwide interest in expanding health insurance choice and competition.

Medicaid Premium Assistance. Among various forms of health coverage, the Medicaid program is known for its poor quality and outcomes for patients. Numerous studies have found that Medicaid patients suffer worse outcomes than other patients suffer.[34] A recent study from Oregon concluded that after two years, patients in Medicaid did not achieve measurable health benefits from their insurance coverage.[35] Even participants—recognizing that many physicians, because of the program’s low reimbursement rates, will not treat Medicaid patients—complain that the program is not “real insurance.”[36]

Obamacare makes Medicaid’s problems worse, consigning millions more Americans to this poor government-run program. True reform would instead subsidize private health insurance for low-income Medicaid beneficiaries. The Heritage Foundation has previously promoted such a solution as part of its comprehensive reform of the Medicaid program.[37] Congress should take steps to encourage states to provide premium assistance. Such programs would promote health care ownership and provide beneficiaries with better access to care than the traditional Medicaid program does.

Medicaid Reforms. Despite the looming presence of Obamacare, states should continue wherever possible to seek opportunities to reform their Medicaid programs, moving toward more personalized care and including strong incentives for personal responsibility. States can also seek additional flexibility from Washington to modernize care; many governors have already made such requests.[38]

Congress also should act to reform and modernize Medicaid. Efforts in this vein would include comprehensive reforms—such as a block grant or per capita spending caps—that trade additional flexibility for states in exchange for a fixed spending allotment from Washington.[39] Other reforms could incentivize and subsidize Medicaid beneficiaries to move to private insurance policies that they can own and keep. All of these reforms would focus on modernizing Medicaid to provide better quality care, reduce costs, and promote personal responsibility and ownership.

Reducing Fraud. Regrettably, many government health programs are riddled with fraud. Some estimates suggest that as much as $60 billion in Medicare spending may involve fraud.[40] Similar problems plague many state Medicaid programs. A 2005 New York Times exposé on Medicaid fraud quoted James Mehmet, a former chief investigator in New York State, as saying that 10 percent of the state’s Medicaid spending constituted outright fraud, with another 20 percent to 30 percent comprising “unnecessary spending that might not be criminal.” Overall, Mehmet estimated that “questionable” Medicaid spending totaled $18 billion in New York State alone.[41]

Congress and the states should do more to crack down on the waste, fraud, and abuse that plague America’s health entitlements. Reforms should end the current “pay and chase” model, under which investigators must attempt to track down fraudulent claims and providers after they have already received reimbursement. Other solutions would enhance penalties for those who engage in fraudulent activity—for instance, buying or selling personal patient information, which is often used to perpetrate fraud schemes. These and other reforms would save taxpayer dollars, helping to preserve Medicare and Medicaid for future generations.

Removing Barriers to Care. With studies indicating that America faces a doctor shortage in future years, policymakers should focus on removing barriers that discourage institutions from assisting those who need health care.[42] Regrettably, America’s litigious culture has resulted in the widespread practice of defensive medicine by doctors and other health practitioners. In response, some states have changed their medical liability laws to discourage frivolous lawsuits, prompting doctors to move to those states to practice medicine. Were other states to adopt such reforms, this would encourage doctors—a majority of whom believe the practice of medicine is in jeopardy[43]—to remain in practice and would encourage students to join the profession.

In addition, reforms that improve the liability system could reduce the prevalence of defensive medicine practices and thereby help to reduce health costs. One government estimate found that reasonable limits on non-economic damages could reduce total health spending by as much as $126 billion per year by reducing the amount of defensive medicine practiced by physicians.[44] More recently, the Congressional Budget Office concluded that enacting comprehensive liability reform would reduce health care spending by tens of billions of dollars per year, reducing the federal budget deficit by tens of billions over the next decade.[45]

To help to eliminate barriers to care and reduce health costs, states should reform their liability systems, capping non-economic damages and taking other steps to reduce the incidence of frivolous lawsuits and ensure proper legal protections for health care providers.[46] However, because liability reform and torts in general are properly a state issue, Congress should not impose liability reforms except where the federal government has a clear, constitutionally based federal interest. Examples might include liability reforms with respect to medical products approved by the federal Food and Drug Administration or when the federal government is a payer of health care services, as it is with Medicare and Medicaid.[47]

Reforming Scope-of-Practice and Certificate of Need. State governments control the licensure of both medical professionals and medical practices. By removing artificial obstacles that restrict the supply of medical providers, states can expand access to health services across populations while unleashing new competition that can work to reduce costs.

States can reform their health care systems by re-examining scope-of-practice laws, which frequently limit the ability of nurse practitioners and other health professionals to care for patients. In 2010, the Institute of Medicine concluded that “state regulations often restrict the ability of nurses to provide care legally” and that policymakers should remove “barriers that limit the ability of nurses to practice to the full extent of their education, training, and competence.”[48] Many states have begun to reform their scope-of-practice laws to allow physician assistants, nurse practitioners, and others to treat more patients even as entrenched interests have fought to preserve their preferential treatment.[49] States should follow the recommendations of the Institute of Medicine in reforming their scope-of-practice laws to allow all medical professionals to practice to the full extent of their training.

A total of 36 states also impose certificate-of-need requirements, which impede the introduction of new hospitals and medical facilities. These laws require organizations seeking to build new medical facilities to obtain a certificate from a state board that the facility is “needed” in a particular area.[50] As with scope-of-practice requirements, reforming or eliminating certificate-of-need restrictions would encourage the development of new medical facilities, expanding access to care and giving patients more choices.

Principle #5: Protect the right of conscience and unborn children.

Government should not compel individuals to undertake actions that violate their deeply held religious beliefs. Regrettably, Obamacare imposes just such a requirement on Americans, forcing many employers to offer, and individuals to purchase, health coverage that violates the core tenets of their faith regarding the protection of life.[51]

Congress should ensure that individuals never again are required to violate their religious beliefs to meet a government diktat.

Rights of Conscience. Congress should protect the rights of consumers, insurers, employers, and medical personnel to refrain from facilitating, participating in, funding, or providing services contrary to their consciences or the tenets of their religious faith. Enacting these protections would prevent Americans from facing the moral dilemma presented by Obamacare, which has forced individuals, employers, and religious organizations to choose between violating the law and violating their faith or consciences.

Permanent Prohibition on Taxpayer-Funded Abortion. Congress should make permanent in law the existing annually enacted prohibitions on the use of federal taxpayer funds to finance abortions or health insurance coverage that includes elective abortions. These protections, enacted as the “Hyde Amendment” every year since 1976, prevent the use of taxpayer dollars to fund elective abortions.[52] After nearly 40 years of renewing these protections on an annual basis, Congress should finally make them permanent in law.

A New Vision for Health Reform

Obamacare moves American health care in the wrong direction. Not only does the law raise health costs rather than lowering them, but it creates new bureaucracies that will erode the doctor–patient relationship.[53] The trillions of dollars in new spending for Obamacare will place a massive fiscal burden on future generations of taxpayers.[54] For these reasons and more, Congress should repeal the law in its entirety.

Once this has been done, policymakers should then advance health reforms that move toward patient-centered, market-based health care. Such reforms would promote personal choice and ownership of health insurance; enable the free market to respond to consumer demands; encourage portability of coverage for workers; help civil society, the free markets, and the states to assist those in need; and protect the rights of faith, conscience, and life.

 

 


[1] According to the most recent census data, 86.2 percent of Americans with private health insurance coverage obtained that coverage through an employer. Carmen DeNavas-Walt, Bernadette D. Proctor, and Jessica C. Smith, Income, Poverty, and Health Insurance Coverage in the United States: 2011, U.S. Census Bureau, September 2012, p. 65, Table C-1, http://www.census.gov/prod/2012pubs/p60-243.pdf (accessed September 20, 2013).

[2] Alyene Senger, “Obamacare’s Impact on Today’s and Tomorrow’s Taxpayers: An Update,” Heritage Foundation Issue Brief No. 4022, August 21, 2013, http://www.heritage.org/research/reports/2013/08/obamacares-impact-on-todays-and-tomorrows-taxpayers-an-update.

[3] Joint Committee on Taxation, “Estimated Revenue Effects of a Proposal to Repeal Certain Tax Provisions Contained in the ‘Affordable Care Act (“ACA”)’,” June 15, 2012, and Congressional Budget Office, “Table 2: CBO’s May 2013 Estimate of the Budgetary Effects of the Insurance Coverage Provisions Contained in the Affordable Care Act,” http://www.cbo.gov/sites/default/files/cbofiles/attachments/44190_EffectsAffordableCareActHealthInsuranceCoverage_2.pdf. The total amount of tax revenue collected from the individual mandate, employer mandate, and 40 percent excise tax on high-cost health plans comes from the CBO’s May 2013 estimate. For all other taxes, the amount of tax revenue totaled comes from the Joint Committee on Taxation’s June 2012 estimation.

[4] Nina Owcharenko, “Saving the American Dream: A Blueprint for Putting Patients First,” Heritage Foundation Issue Brief No. 3628, June 6, 2012, http://www.heritage.org/research/reports/2012/06/saving-the-american-dream-a-blueprint-for-putting-patients-first.

[5] The White House, “Affordable, Accessible, and Flexible Health Coverage,” 2007, http://georgewbush-whitehouse.archives.gov/stateoftheunion/2007/initiatives/healthcare.html (accessed September 20, 2013). Recently, the House Republican Study Committee included a standard deduction in its proposal for health reform. See U.S. House of Representatives, Republican Study Committee, “The American Health Care Reform Act,” September 18, 2013, http://rsc.scalise.house.gov/solutions/rsc-betterway.htm (accessed September 25, 2013).

[6] Congressional Budget Office, Key Issues in Analyzing Major Health Insurance Proposals, December 2008, pp. 84–87, http://www.cbo.gov/sites/default/files/cbofiles/ftpdocs/99xx/doc9924/12-18-keyissues.pdf (accessed September 20, 2013).

[7] John D. Shatto and M. Kent Clemens, “Projected Medicare Expenditures Under Illustrative Scenarios with Alternative Payment Updates to Medicare Providers,” Centers for Medicare and Medicaid Services, Office of the Actuary, May 31, 2013, pp. 8–10, http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/ReportsTrustFunds/Downloads/2013TRAlternativeScenario.pdf (accessed September 20, 2013).

[8] Anna Wilde Mathews, “Many Health Insurers to Limit Choices of Doctors, Hospitals,” The Wall Street Journal, August 15, 2013, http://online.wsj.com/article/SB10001424127887323446404579010800462478682.html (accessed September 20, 2013; subscription required).

[9] America’s Health Insurance Plans, Center for Policy and Research, “January 2013 Census Shows 15.5 Million People Covered by Health Savings Account/High-Deductible Health Plans (HSA/HDHPs),” June 2013, http://www.ahip.org/HSACensus2013PDF/ (accessed September 20, 2013).

[10] America’s Health Insurance Plans, Center for Policy and Research, “Health Savings Accounts and Account-Based Health Plans: Research Highlights,” July 2012, http://www.ahip.org/HSAHighlightsReport072012/ (accessed September 20, 2013).

[11] Devenir, “Health Savings Accounts Surpass $12.4 Billion in 2011,” January 31, 2012, http://www.devenir.com/2012/devenir2011yearendsurvey (accessed September 20, 2013).

[12] For the definition of “qualified medical expenses,” see 26 U.S. Code § 223(d)(2). HSA funds can be used to purchase health insurance only for COBRA continuation health coverage, health insurance purchased during periods of unemployment, Medigap supplemental coverage, or long-term care insurance (within certain limits).

[13] U.S. Department of Health and Human Services, Office of Planning and Evaluation, “At Risk: Pre-Existing Conditions Could Affect 1 in 2 Americans,” November 2011, http://aspe.hhs.gov/health/reports/2012/pre-existing/index.shtml (accessed September 20, 2013).

[14] Edmund Haislmaier, “HHS Report on Obamacare’s Preexisting Conditions Impact: Say What???” The Heritage Foundation, The Foundry, January 19, 2011, http://blog.heritage.org/2011/01/19/hhs-report-on-obamacare’s-preexisting-conditions-impact-say-what/.

[15] Centers for Medicare and Medicaid Services, Center for Consumer Information and Insurance Oversight, “Covering People with Pre-Existing Conditions: Report on the Implementation and Operation of the Pre-Existing Condition Insurance Plan Program,” January 31, 2013, http://www.cms.gov/CCIIO/Resources/Files/Downloads/pcip_annual_report_01312013.pdf (accessed September 24, 2013).

[16] Douglas W. Elmendorf, letter to Senator Mike Enzi (R–WY), June 21, 2010, http://cbo.gov/sites/default/files/cbofiles/ftpdocs/115xx/doc11572/06-21-high-risk_insurance_pools.pdf (accessed September 20, 2013).

[17] National Association of State Comprehensive Health Insurance Plans, “Pool Membership—2011,” September 2012, http://naschip.org/2012/Quick%20Checks/Pool%20Membership%202011.pdf (accessed September 20, 2013).

[18] Chris Jacobs, “Obamacare: Taking Away Americans’ Health Coverage,” The Heritage Foundation, The Foundry, August 6, 2013, http://blog.heritage.org/2013/08/06/obamacare-taking-away-americans-health-coverage/.

[19] Press release, “New AMA Study Finds Anticompetitive Market Conditions Are Common Across Managed Care Plans,” American Medical Association, November 28, 2012, http://www.ama-assn.org/ama/pub/news/news/2012-11-28-study-finds-anticompetitive-market-conditions-common.page (accessed September 20, 2013).

[20] Michael J. New, “The Effect of State Regulations on Health Insurance Premiums: A Revised Analysis,” Heritage Foundation Center for Data Analysis Report No. 06-04, July 25, 2006, p. 5, http://www.heritage.org/research/reports/2006/07/the-effect-of-state-regulations-on-health-insurance-premiums-a-revised-analysis.

[21] Council for Affordable Health Insurance, “Health Insurance Mandates in the States 2012: Executive Summary,” April 9, 2013, http://www.cahi.org/cahi_contents/resources/pdf/Mandatesinthestates2012Execsumm.pdf (accessed September 24, 2013).

[22] Chris Jacobs, “Medicare’s Sustainable Growth Rate: Principles for Reform,” Heritage Foundation Backgrounder No. 2827, July 18, 2013, http://www.heritage.org/research/reports/2013/07/medicares-sustainable-growth-rate-principles-for-reform.

[23] Robert E. Moffit and Rea S. Hederman, Jr., “Medicare Savings: Five Steps to a Down Payment on Medicare Reform,” Heritage Foundation Issue Brief No. 3908, April 11, 2013, http://www.heritage.org/research/reports/2013/04/medicare-savings-5-steps-to-a-downpayment-on-structural-reform.

[24] Alyene Senger, “Obamacare’s Impact on Seniors: An Update,” Heritage Foundation Issue Brief No. 4019, August 20, 2013, http://www.heritage.org/research/reports/2013/08/obamacares-impact-on-seniors-an-update.

[25] Shatto and Clemens, “Projected Medicare Expenditures Under Illustrative Scenarios,” pp. 8–10.

[26] Owcharenko, “Saving the American Dream: A Blueprint for Putting Patients First.”

[27] Jon R. Gabel, Ryan Lore, Roland D. McDevitt, Jeremy D. Pickreign, Heidi Whitmore, Michael Slover, and Ethan Levy-Forsythe, “More Than Half of Individual Health Plans Offer Coverage That Falls Short of What Can Be Sold Through Exchanges as of 2014,” Health Affairs, May 2012, http://content.healthaffairs.org/content/early/2012/05/22/hlthaff.2011.1082 (accessed September 20, 2013; subscription required).

[28] Jacobs, “Obamacare: Taking Away Americans’ Health Coverage.”

[29] For instance, see a 2008 campaign document answering the question “Will I have to change plans?” under the Obama proposal: “No, you will not have to change plans. For those who have insurance now, nothing will change under the Obama plan—except that you will pay less.” Obama for America, “Background Questions and Answers on Health Care Plan,” 2008, http://www.scribd.com/doc/191306/barack-obama-08-healthcare-faq (accessed September 20, 2013).

[30] Amelia M. Haviland, M. Susan Marquis, Roland D. McDevitt, and Neeraj Sood, “Growth of Consumer-Directed Health Plans to One-Half of All Employer-Sponsored Insurance Could Save $57 Billion Annually,” Health Affairs, May 2012, http://content.healthaffairs.org/content/31/5/1009.abstract (accessed September 20, 2013; subscription required).

[31] Kaiser Family Foundation and Health Research and Educational Trust, Employer Health Benefits: 2013 Annual Survey, August 2013, p. 56, Exhibit 4.1, http://kaiserfamilyfoundation.files.wordpress.com/2013/08/8465-employer-health-benefits-20131.pdf (accessed September 23, 2013).

[32] National Council of State Legislatures, “Out-of-State Health Insurance—Allowing the Purchase (State Implementation Report),” updated September 2012, http://www.ncsl.org/issues-research/health/out-of-state-health-insurance-purchases.aspx (accessed September 23, 2013).

[33] Ibid.

[34] For a summary of many of these studies, see Kevin D. Dayaratna, “Studies Show: Medicaid Patients Have Worse Access and Outcomes than the Privately Insured,” Heritage Foundation Backgrounder No. 2740, November 7, 2012, http://www.heritage.org/research/reports/2012/11/studies-show-medicaid-patients-have-worse-access-and-outcomes-than-the-privately-insured. See also Scott Gottlieb, “Medicaid Is Worse Than No Coverage at All,” The Wall Street Journal, March 10, 2011, http://online.wsj.com/article/SB10001424052748704758904576188280858303612.html (accessed September 23, 2013).

[35] Annie Lowrey, “Study Finds Health Care Use Rises with Expanded Medicaid,” The New York Times, May 2, 2013, http://www.nytimes.com/2013/05/02/business/study-finds-health-care-use-rises-with-expanded-medicaid.html (accessed September 23, 2013).

[36] Vanessa Fuhrmans, “Note to Medicaid Patients: The Doctor Won’t See You,” The Wall Street Journal, July 19, 2007, http://online.wsj.com/article/SB118480165648770935.html (accessed September 23, 2013; subscription required).

[37] Nina Owcharenko, “Medicaid Reform: More Than a Block Grant Is Needed,” Heritage Foundation Issue Brief No. 3590, May 4, 2012, http://www.heritage.org/research/reports/2012/05/three-steps-to-medicaid-reform.

[38] Republican Governors Public Policy Committee, Health Care Task Force, “A New Medicaid: A Flexible, Innovative, and Accountable Future,” August 30, 2011, http://www.rga.org/homepage/gop-govs-release-medicaid-reform-report/ (accessed September 23, 2013).

[39] Owcharenko, “Medicaid Reform: More Than a Block Grant Is Needed.”

[40] CBS News, “Medicare Fraud: A $60 Billion Crime,” 60 Minutes, September 5, 2010, http://www.cbsnews.com/8301-18560_162-5414390.html (accessed September 23, 2013).

[41] Clifford Levy and Michael Luo, “New York Medicaid Fraud May Reach into Billions,” The New York Times, July 18, 2005, http://www.nytimes.com/2005/07/18/nyregion/18medicaid.html (accessed September 23, 2013).

[42] Nisha Nathan, “Doctor Shortage Could Cause Health Care Crash,” ABC News, November 13, 2012, http://abcnews.go.com/Health/doctor-shortage-health-care-crash/story?id=17708473 (accessed September 23, 2013).

[43] Deloitte, “Deloitte 2013 Survey of U.S. Physicians: Physician Perspectives About Health Care Reform and the Future of the Medical Profession,” 2013, p. 3, http://www.deloitte.com/assets/Dcom-UnitedStates/Local%20Assets/Documents/us_chs_2013SurveyofUSPhysicians_031813.pdf (accessed September 23, 2013).

[44] U.S. Department of Health and Human Services, Office of the Assistant Secretary for Planning and Evaluation, “Addressing the New Health Care Crisis: Reforming the Medical Litigation System to Improve the Quality of Health Care,” March 2003, p. 16, http://aspe.hhs.gov/daltcp/reports/medliab.pdf (accessed September 23, 2013).

[45] Douglas W. Elmendorf, letter to Senator Orrin Hatch (R–UT), October 9, 2009, http://www.cbo.gov/sites/default/files/cbofiles/ftpdocs/106xx/doc10641/10-09-tort_reform.pdf (accessed September 23, 2013).

[46] Randolph W. Pate and Derek Hunter, “Code Blue: The Case for Serious State Medical Liability Reform,” Heritage Foundation Backgrounder No. 1908, January 17, 2006, http://www.heritage.org/research/reports/2006/01/code-blue-the-case-for-serious-state-medical-liability-reform.

[47] Hans von Spakovsky, “Medical Malpractice Reform: States vs. the Federal Government,” The Heritage Foundation, The Foundry, March 19, 2012, http://blog.heritage.org/2012/03/19/medical-malpractice-reform-states-vs-the-federal-government/.

[48] Institute of Medicine, “The Future of Nursing: Focus on Scope of Practice,” Report Brief, October 2010, http://www.iom.edu/~/media/Files/Report%20Files/2010/The-Future-of-Nursing/Nursing%20Scope%20of%20Practice%202010%20Brief.pdf (accessed September 23, 2013).

[49] Melinda Beck, “Battles Erupt over Filling Doctors’ Shoes,” The Wall Street Journal, February 5, 2013, http://online.wsj.com/article/SB10001424127887323644904578271872578661246.html (accessed September 23, 2013), and Melinda Beck, “Nurse Practitioners Seek Right to Treat Patients on Their Own,” The Wall Street Journal, August 15, 2013, http://online.wsj.com/article/SB10001424127887323455104579013193992224008.html (accessed September 23, 2013; subscription required).

[50] National Conference of State Legislatures, “Certificate of Need: State Laws and Programs,” updated March 2012, http://www.ncsl.org/issues-research/health/con-certificate-of-need-state-laws.aspx (accessed September 23, 2013).

[51] The Heritage Foundation “Obamacare Anti-Conscience Mandate: An Assault on the Constitution,” Fact Sheet No. 103, February 17, 2012, http://www.heritage.org/research/factsheets/2012/02/obamacare-anti-conscience-mandate-an-assault-on-the-constitution.

[52] Chuck Donovan, “Obamacare: Impact on Taxpayer Funding of Abortion,” Heritage Foundation WebMemo No. 2872, April 19, 2010, http://www.heritage.org/research/reports/2010/04/obamacare-impact-on-taxpayer-funding-of-abortion.

[53] Alyene Senger, “Obamacare’s Impact on Doctors—An Update,” Heritage Foundation Issue Brief No. 4024, August 23, 2013, http://www.heritage.org/research/reports/2013/08/obamacares-impact-on-doctors-an-update.

[54] Alyene Senger, “Obamacare’s Impact on Today’s and Tomorrow’s Taxpayers: An Update,” Heritage Foundation Issue Brief No. 4022, August 21, 2013, http://www.heritage.org/research/reports/2013/08/obamacares-impact-on-todays-and-tomorrows-taxpayers-an-update.

Medicare’s Sustainable Growth Rate: Principles for Reform

A PDF of this Backgrounder can be found on the Heritage Foundation website.

Congress may soon revisit the issue of Medicare physician reimbursement payment. Much of the legislative discussion will focus on the sustainable growth rate (SGR) formula. The SGR was enacted as part of the Balanced Budget Act in 1997 as a mechanism to update yearly Medicare physician reimbursements. Under that formula, the federal government computes an annual target for Medicare physician spending based in large part on annual changes in economic growth as measured by gross domestic product (GDP). Physician spending exceeding the growth in GDP in any given year will result in a proportional and automatic cut in Medicare physician reimbursement the following year.

In theory, the SGR was a major improvement over the volume control updates that Congress enacted in 1989. In practice, the SGR mandated deep and politically unacceptable cuts in future years’ Medicare payments. The reason: Physician spending routinely exceeded annual targets. It was quickly becoming clear that the SGR was unworkable. Since 2003, majorities in Congress have routinely blocked the fundamentally flawed SGR formula from going into effect because the applicable cuts would threaten seniors’ access to care. For 2014, the formula calls for a Medicare physician reimbursement cut of almost 25 percent. Not surprisingly, many policymakers have concluded that the SGR must be repealed or replaced.

A Chance for Real Reform. The House Energy and Commerce Committee recently released a revised discussion draft of legislation regarding physician payment,[1] on the heels of a statement of principles initially released by the House Ways and Means and the Energy and Commerce Committees in February.[2] Likewise, the chair and Ranking Member of the Senate Finance Committee recently issued a request for “stakeholder” comment about the future of physician payment.[3]

While Congress’s immediate focus on the SGR is right and proper, it should not be shortsighted. The SGR is merely representative of a much larger problem: Medicare’s outdated system of administrative pricing, price controls, and inefficient central planning. This system both underpays and overpays doctors and other medical professionals, encourages cost shifting and gaming among providers, distorts the medical market, and undercuts the delivery of efficient and effective care. The overriding policy issue is whether Congress will view the SGR narrowly, as something to be “fixed”; or whether the debate can be the platform for a broader discussion of the need for a much better Medicare future, where administrative pricing is replaced by price competition, central planning is replaced by market-driven innovation, and the delivery of high-quality patient care is the product of the best professional judgment of members of the medical profession.

The ultimate policy objective, therefore, should be to transform Medicare into a defined-contribution (“premium support”) system, based on the free-market principles of consumer choice and competition—a system where medical services are priced through private negotiations between plans and providers, reflecting the true market conditions of supply and demand. In the meantime, as part of a transition to such a program, Medicare physician payment should be frozen at current levels for three to five years. Any additional costs to the taxpayer should be offset by savings from well-vetted reforms of the current program, plus a lifting of existing payment caps, a requirement for transparent pricing, and expanded options for doctors and patients.

A Crude and Clumsy Attempt to Break Spending

The SGR mechanism, as noted, links aggregate Medicare payment to changes in the general economy as measured by GDP. If spending exceeds the GDP target, the SGR adjusts physician reimbursements downward; if spending remains below target, the SGR increases physician reimbursements accordingly.[4]

By linking specific Medicare payments to the general performance of the economy, Congress established a fiscal target bearing little resemblance to the actual cost of medical goods and services. Other targets, such as the consumer price index (CPI) or the medical economic index, provide a clearer link to price inflation and general health cost growth. Moreover, the SGR’s explicit link to the size of the economy means that in economic downturns, the target—and thus physician reimbursement levels—will actually decline.

The fact that the SGR remains an aggregate spending target also presents a collective action problem for the Medicare program. Because the SGR targets physician spending as a whole, and not the spending patterns of individual physicians or physician practices, individual doctors have a strong incentive to maximize their own volume of services performed, and thus their own reimbursement levels.[5]

For all these reasons, Congress has consistently modified the SGR targets over the past decade. While the slowdown in health costs surrounding the move to managed care plans in the late 1990s prevented the SGR targets from being hit in the program’s first few years, spending soon exceeded the statutory targets. Although Congress allowed the SGR’s reimbursement cuts to take effect in 2002, in 2003 (and each year since) Congress overrode the statutory reductions with a series of freezes, or modest payment increases, in SGR target levels.[6]

The annual, albeit temporary, payment increases mandated by Congress since 2003 have resulted in a series of fiscal cliffs for physicians and the Medicare program. Because prior Congresses overrode the SGR targets only for short periods, doctors have faced the prospect of increasingly large reimbursement cuts should Congress not forestall the reimbursement cuts.[7] For instance, should Congress not act before January 1, 2014, the SGR will reset at its lower, statutory target, resulting in an immediate reduction in reimbursement levels of over 24 percent, with additional cuts in succeeding years.[8] According to the Congressional Budget Office (CBO), permanently freezing SGR target levels would cost $139.1 billion over 10 years[9]—a significant sum, but about half the $273.3 billion that the CBO estimated an SGR freeze would cost in July 2012.[10]

As a mechanism to contain costs, therefore, the SGR has fallen short. While physicians have received below-inflation updates in Medicare payment levels since 2003, evidence strongly suggests that doctors have compensated for these lower reimbursement levels by increasing the volume of services provided. According to data from the Medicare Payment Advisory Commission, while physician updates grew by less than 10 percent between 2000 and 2011, overall physician spending per beneficiary grew by more than 70 percent over the same period, largely because the volume of services provided to beneficiaries rose rapidly.[11]

However, as a mechanism to control overall spending on Medicare, the SGR has provided an impetus for re-examining spending priorities within other portions of the Medicare program. While generally ineffective at controlling physician spending, the annual SGR target has nonetheless forced Washington policymakers continually to re-examine overall Medicare spending, and encouraged continued debate on structural Medicare reform as well as generated intense discussion on incremental but meaningful reforms in the current program.

Members of Congress have generally insisted on paying for the annual “fixes” to the SGR, as such legislation would otherwise raise Medicare spending and increase the deficit. In 2009, the Senate considered legislation that would have permanently increased Medicare physician reimbursements without offsetting spending reductions.[12] When confronted with an unpaid “doc fix,” a bipartisan majority of 53 Senators rejected this legislation,[13] which would have increased federal deficits by $247 billion over 10 years,[14] and up to $1.9 trillion over 75 years.[15]

Over and above the basic principle that Congress should not increase Medicare spending at a time of record deficits, the SGR has provided a vehicle to enact modest reforms to the Medicare program on an annual basis. For instance, legislation addressing the “fiscal cliff” expanded Medicare competitive bidding to diabetes supplies, and enacted new anti-fraud measures, to help finance a one-year “doc fix” for 2013.[16]

When considering SGR legislation this year, Congress must balance the competing interests of the physician community and the Medicare program as a whole. While the SGR has not slowed cost growth, and the annual “doc fix” exercise has caused uncertainty for physicians, the Medicare program as a whole faces massive deficits—the Medicare trust fund lost $105.6 billion over the past five years, deficits that are expected to continue and accelerate as the baby-boom generation retires.[17] Simply repealing the SGR without fundamentally reforming Medicare would have significant unintended consequences for future taxpayers and beneficiaries alike.

More or Less Government Control Over Medical Practice?

Designing a replacement for the SGR formula brings with it many of its own problems. Proposals to replace the SGR with a system of reimbursing doctors based on quality measures—“pay for performance,” for example —will necessitate an even stronger role for the Medicare bureaucracy in dictating physician behaviors than the current flawed system.

Well before the creation of the SGR mechanism for updating reimbursement, Medicare physician payment has, over the past 25 years, been defined by the heavy hand of bureaucratic micromanagement. In 1989, Congress enacted a resource-based relative value system (RBRVS) for determining physician payments, which focused on determining the “right” payment for a particular service by calculating the cost of performing that service when compared to other services.[18]

Based on a “social science” measurement, the RBRVS attempted to quantify the “value units” of providing medical services, such as the time, energy, and effort that goes into providing a medical service, adjusted by geographic costs and malpractice expenses. A patient with a simple ear infection would require different amounts of a physician’s time than a patient with chronic heart failure, for example, and the RBRVS intended to compensate doctors “fairly” for each service. Organized medicine, particularly the American Medical Association, initially endorsed the new fee schedule as a way of redistributing income from high-priced specialists to lower-paid general practitioners.

In theory, the RBRVS was widely hailed by its proponents as a “scientific” answer to the perennial problem of physician payment.[19] In practice, the result has been a highly politicized process of rent-seeking, as lobbyists of different provider groups feverishly scrambled to secure higher reimbursements through the political process. However well-intentioned, the past quarter century has demonstrated the failure of the RBRVS as an accurate method of compensating physicians who participate in Medicare. Even as the federal government attempts to find the “right” price of every physician service, it has seemingly failed to remember the value of any of them. Unsurprisingly, the creation of more than 7,000 separate procedure codes has not ensured that nearly 850,000 Medicare providers are being compensated fairly for their services.[20] Indeed, the RBRVS has failed in one of its central goals: Created 25 years ago to help increase the relative value of allegedly underpriced primary care services, the RBRVS system has only exacerbated price disparities between primary and specialist care.[21]

In the aftermath of this failure, some in Congress have proposed a new system no less audacious—and no less reliant on the hand of government. Instead of the RBRVS method of pricing services partially based on the archaic labor theory of value—that compensation for physician services should be determined by the amount of time and resources put into the work—the new proposals attempt to quantify the “value” to patients of a particular service by measuring its “effectiveness.”

Pay for Performance or Compliance? Generally speaking, the new theory of pay-for-performance medicine attempts to determine physicians’ “value” and thus reimbursement through compliance with, and performance on, a series of metrics and guidelines determined by federal bureaucrats, medical societies, or a combination of the two. For instance, the House’s discussion draft discusses an “update incentive program” under which the Secretary of Health and Human Services (HHS) would be required to publish a “competency measure set” of quality measures, and then “develop and apply…appropriate methodologies for assessing the performance of fee schedule providers” on those measures.[22]

The language in the House discussion draft—linking Medicare physician pay to compliance with government-established guidelines—accelerates a troubling trend reinforced by Obamacare itself. The national health care law, with 165 provisions affecting Medicare,[23] not only retains the SGR, but, like the SGR, it also imposes a hard cap on the growth of all Medicare spending. It creates an Independent Payment Advisory Board (IPAB), which will have the power to enforce the cap, and recommend even more Medicare reimbursement cuts for physicians and other medical professionals. It creates new institutions to change Medicare payment and delivery through administrative action, such as the Center for Medicare and Medicaid Innovation, with demonstration programs designed to end traditional fee-for-service (FFS) payments. Beyond these new institutions, the health law creates new Medicare “quality” programs and extends the Physician Quality Reporting Initiative (PQRI), which will enforce new bonus and penalty payments for physician compliance. As the Congressional Research Service (CRS) reported in its first evaluation of the statute, the new law “makes several changes to the Medicare program that have the potential to affect physicians and how they practice in ways both small and large, immediately and over time.”[24]

For example, Obamacare mandates a 2 percent reduction in Medicare physician payments for doctors that do “not satisfactorily submit data” to Washington officials,[25] and a 1 percent reduction for physicians who fail to follow bureaucrat-defined “cost” metrics.[26] In separate legislation also signed by President Obama, the Administration received the authority to reduce payments to physicians by a further 3 percent if they do not follow Washington-imposed guidelines for electronic health records.[27]

To their credit, the authors of the House discussion draft emphasize the role of medical specialty societies in determining quality metrics, thereby hoping to assuage concerns about federal bureaucrats’ direct involvement in the practice of medicine. This does not, however, solve the fundamental problem. The entire premise of a Medicare pay-for-performance regime—which is really a payment for compliance—directly contradicts the opening verbiage of the original Medicare statute:

Nothing in this title shall be construed to authorize any federal officer or employee to exercise any supervision or control over the practice of medicine or the manner in which medical services are provided, or over the selection, tenure, or compensation of any officer or employee of any institution, agency, or person providing health services; or to exercise any supervision or control over the administration or operation of any such institution, agency, or person.[28]

The threshold question is this: Should government officials “exercise any supervision or control” over the practice of medicine? It matters not whether some physicians choose to comply with Washington’s mandates on their practices, or whether some leaders of some specialty societies see value in serving as arbiters of some new Medicare pay-for-performance structure. Under the original Medicare statute, all physicians should have the freedom to practice medicine using their own professional judgment in treating a patient, without meddling—whether in the form of new federal mandates, “quality” metrics, or other bureaucratic criteria—from either the federal government or its intermediaries.

The flaws in Medicare’s pay-for-performance approach have been well defined elsewhere.[29] The myriad regulations and mandates that such criteria spawn interfere in the practice of medicine, placing an invisible barrier amid the already attenuated relationship between doctor and patient. Worse, the one-size-fits-all methodologies imposed by Washington-enforced mandates directly contradict the great promise of the growing movement toward personalized medicine.[30]

Despite its inherent flaws, a bureaucracy-driven compliance regime remains a shibboleth of leftist health policy analysts who believe that a new system of federal micromanagement can fix the flaws of the old one. Former Senator Tom Daschle (D–SD), President Obama’s first choice for Secretary of HHS, wrote in 2008 that government interference in medical care was not the problem, it was the solution:

We won’t be able to make a significant dent in health-care spending without getting into the nitty-gritty of which treatments are the most clinically valuable and cost effective. That means taking a harder look at the real costs and benefits of new drugs and procedures.[31]

Obamacare epitomizes this governing philosophy of administrative control, giving the Secretary almost 2,000 separate orders with which to micromanage the health care system.[32] Members of Congress who rightly criticized Obamacare for granting the Secretary nearly unprecedented discretionary authority over the financing and delivery of medical care should be greatly concerned with enacting SGR replacement legislation that would further expand the Secretary’s control.[33]

Principles for Congressional Action

As it has since 2003, Congress likely will consider legislation later this year addressing the deep cut mandated by the SGR formula. Absent changes in current law, a cut of nearly 25 percent will take effect on January 1, 2014.

Based on the proposals released to date, leaders on key committees intend to use this year’s legislation to construct a permanent replacement for the SGR, with a new reimbursement model heavily focused on quality metrics. The goal of securing a higher quality of services for taxpayer dollars is clearly laudable. But Congress should remain mindful of the consequences of additional intrusion in the doctor–patient relationship, and of the fact that the SGR constitutes merely one piece of a larger entitlement structure in need of fundamental reform.

When considering Medicare physician payment legislation, Congress should:

  • Reject any provisions that micromanage the doctor–patient relationship. Whether under the name of pay-for-performance, clinical guidelines, or quality metrics, programs emphasizing physician compliance with government-imposed standards are inconsistent with the original intent of the Medicare statute, which safeguards the professional independence and integrity of the medical profession and sacrosanct character of the doctor–patient relationship. Placing additional authority in the hands of government bureaucrats to dictate the practice of physicians undermines these principles as well as patient trust.
  • Restore balance billing and the right to private contracting. Consistent with a return to free-market principles, Congress should remove the current statutory prohibitions on balance billing—when doctors bill patients for the part of the health-service charge not reimbursed by Medicare—while also repealing the oppressive restriction that prohibits doctors who engage in any transactions with beneficiaries outside Medicare’s parameters from receiving Medicare reimbursements for two years.[34] Keeping the heavy hand of government out of the doctor–patient relationship requires removing regulatory restrictions that prevent senior citizens from engaging physicians on financial terms that both find fair and advantageous. When coupled with transparency guidelines ensuring that seniors clearly understand the prices and the terms of these contractual arrangements, balance billing and private contracting can remove many of the financial pressures imposed by Medicare’s top-down, government-dictated pricing system.
  • Insist that fundamental, long-term SGR reform be paired with fundamental, long-term Medicare reform. Experts on all sides of the political spectrum agree that the flawed SGR mechanism should be replaced. The best replacement for the SGR and the entire system of current Medicare financing lies in a defined-contribution (premium support) system that fundamentally reforms and enhances the entire Medicare program. In the short term, Congress can take several important incremental steps to re-structure the traditional Medicare program as part of a transition to a premium support system.[35] However, Congress should not attempt to enact a fundamental change to the SGR coupled solely with incremental reforms to the larger Medicare program. To do so would remove an impetus for the major structural reforms that Medicare needs in order to ensure its solvency for future generations.

Conclusion

Congress once again appears poised to grapple with a problem of its own making—namely, the SGR formula for physician reimbursement. Members in both the House and Senate have solicited proposals for alternatives, and have committed to considering SGR proposals this year.

However, when constructing alternatives to the SGR, Congress should heed the lessons of experience. The system of administrative pricing for Medicare physician payment, in effect for nearly 25 years, has proven cumbersome, bureaucratic, and unworkable. Moving further in the direction of pay-for-performance medicine, as some proposals have suggested, would merely substitute medical societies for the role currently played by omnipotent government bureaucrats, attempting to impose one-size-fits-all medical care from Washington.

Conversely, while the SGR has not succeeded in its initial goal of containing Medicare physician spending, the perennial “doc fix” bills have forced Congress to enact changes in the Medicare program, many of which constituted real progress in reforming entitlement spending. Completely repealing or replacing the SGR, without first ensuring fundamental reform of the entire Medicare program, would actively subvert attempts to make the program sustainable for future generations.

The SGR debate presents Members of Congress with both an opportunity and a challenge. The opportunity lies in enacting reforms that can expand market forces in Medicare and enhance the program’s viability. The challenge lies in resisting the siren call that yet another form of federally micromanaged health care can succeed when all past iterations have failed. Seniors and future generations should hope that Congress chooses to embrace the opportunity and rise to the challenge.

 



[1] House Energy and Commerce Committee discussion draft of Medicare physician payment legislation, June 28, 2013, http://energycommerce.house.gov/sites/republicans.energycommerce.house.gov/files/BILLS-113hr-PIH-SGRreform.pdf (accessed July 11, 2013).

[2] House Energy and Commerce Committee and Ways and Means Committee joint framework for Medicare physician payment reform, “Overview of SGR Repeal and Reform Proposal,” February 7, 2013, http://energycommerce.house.gov/sites/republicans.energycommerce.house.gov/files/20130207SGRReform.pdf (accessed July 11 2013).

[3] News release, “Baucus, Hatch Call on Health Care Providers to Pitch in and Provide Ideas to Improve Medicare Physician Payment System,” U.S. Senate Committee on Finance, May 10, 2013, http://www.finance.senate.gov/newsroom/chairman/release/?id=fba99c75-981f-4917-9836-ae49d47453a1 (accessed July 11, 2013).

[4] Mark Miller, “Moving Forward from the Sustainable Growth Rate (SGR) System,” testimony before the Finance Committee, U.S. Senate, at a hearing on “Advancing Reform: Medicare Physician Payments,” May 14, 2013, p. 2, http://www.finance.senate.gov/imo/media/doc/MedPAC%20SGR%20testimony%20with%20attachments_SFC_5%2014%202013.pdf (accessed July 11, 2013).

[5] Ibid., p. 3.

[6] The full list of statutory adjustments to the SGR conversion factor enacted by Congress since 2003 can be found in amendments to the United States Code, 42 U.S.C. 1395w-4(d)(5) et seq.

[7] Beginning with the Tax Relief and Health Care Act of 2006 (P.L. 109–432), Congress provided that temporary payment increases overriding the SGR cuts would not be used in setting the SGR targets for future years—thus ensuring a “cliff” when the target re-sets at the lower level.

[8] The Centers for Medicare and Medicaid Services has estimated a preliminary SGR conversion factor update of 24.4 percent for calendar year 2014. Centers for Medicare and Medicaid Services, “Estimated Sustainable Growth Rate and Conversion Factor for Medicare Payments to Physicians in 2014,” April 2013, p. 8, Table 5, http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SustainableGRatesConFact/Downloads/sgr2014p.pdf (accessed July 11, 2013).

[9] Congressional Budget Office, “Medicare’s Payments to Physicians: The Budgetary Impact of Alternative Policies Relative to CBO’s May 2013 Baseline,” May 14, 2013, http://cbo.gov/sites/default/files/cbofiles/attachments/44184_May_2013_SGR.pdf (accessed July 11, 2013).

[10] Congressional Budget Office, “Medicare’s Payments to Physicians: The Budgetary Impact of Alternative Policies Relative to CBO’s March 2012 Baseline,” July 31, 2012, http://cbo.gov/sites/default/files/cbofiles/attachments/43502-SGR%20Options2012.pdf (accessed July 11, 2013).

[11] Miller, testimony before Finance Committee, U.S. Senate, Figures 1 and 2, p. 4.

[12] Medicare Physician Fairness Act of 2009, S. 1776 (111th Congress).

[13] Senate Roll Call 325 of 2009, October 21, 2009, http://www.senate.gov/legislative/LIS/roll_call_lists/roll_call_vote_cfm.cfm?congress=111&session=1&vote=00325 (accessed July 11, 2013).

[14] Congressional Budget Office, cost estimate for S. 1776, October 26, 2009, http://cbo.gov/sites/default/files/cbofiles/ftpdocs/106xx/doc10674/s1776greggltr.pdf (accessed July 11, 2013).

[15] Andrew Rettenmaier and Thomas Saving, “How the Medicare ‘Doc Fix’ Would Add to the Long-Term Medicare Debt,” Heritage Foundation WebMemo No. 2695, November 13, 2009, http://www.heritage.org/research/reports/2009/11/how-the-medicare-doc-fix-would-add-to-the-long-term-medicare-debt.

[16] American Taxpayer Relief Act of 2013, Public Law 112–240, Sections 636 and 638.

[17] Centers for Medicare and Medicaid Services, 2013 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds, May 31, 2013, p. 58, Table II.B4, http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/ReportsTrustFunds/Downloads/TR2013.pdf (accessed July 11, 2013).

[18] Section 6102 of the Omnibus Budget Reconciliation Act of 1989, Public Law 101–239, established a Medicare physician fee schedule based on the RBRVS, effective in January 1992.

[19] Robert E. Moffit, “Back to the Future: Medicare’s Resurrection of the Labor Theory of Value,” Regulation (Fall 1992), pp. 54–63.

[20] Medicare Payment Advisory Commission, Report to the Congress: Medicare Payment Policy, March 2013, p. 79, http://medpac.gov/documents/Mar13_EntireReport.pdf (accessed July 11, 2013).

[21] Ibid., p. 95.

[22] House discussion draft, pp. 3–5.

[23] Centers for Medicare and Medicaid Services, 2013 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds, p. 2.

[24] Patricia A. Davis et al., “Medicare Provisions in PPACA (P.L. 111–148),” Congressional Research Service Report for Congress No. R41196, April 21, 2010, http://assets.opencrs.com/rpts/11-148_20100421.pdf (accessed July 12, 2013).

[25] Patient Protection and Affordable Care Act, Public Law 111–148, Section 3002(b).

[26] Ibid., Section 3007.

[27] American Recovery and Reinvestment Act, Public Law 111–5, Section 4101(b).

[28] 42 U.S.C. 1395.

[29] Richard Dolinar and Luke Leininger, “Pay for Performance or Compliance? A Second Opinion on Medicare Reimbursement,” Heritage Foundation Backgrounder No. 1882, October 5, 2005, http://www.heritage.org/research/reports/2005/10/pay-for-performance-or-compliance-a-second-opinion-on-medicare-reimbursement.

[30] Ibid.

[31] Tom Daschle, Scott Greenberger, and Jeanne Lambrew, Critical: What We Can Do about the Health Care Crisis (New York: Thomas Dunne Books, 2008), pp. 172–173.

[32] Michael Leavitt, “Health Reform’s Central Flaw: Too Much Power in One Office,” The Washington Post, February 18, 2011, http://www.washingtonpost.com/wp-dyn/content/article/2011/02/17/AR2011021705824.html (accessed July 11, 2013).

[33] For further information on the HHS Secretary’s powers, see John S. Hoff, “Implementing Obamacare: A New Exercise in Old-Fashioned Central Planning,” Heritage Foundation Backgrounder No. 2459, September 10, 2010, http://www.heritage.org/research/reports/2010/09/implementing-obamacare-a-new-exercise-in-old-fashioned-central-planning.

[34] Section 4507 of the Balanced Budget Act, Public Law 105–33.

[35] Robert E. Moffit, “The First Stage of Medicare Reform: Fixing the Current Program,” Heritage Foundation Backgrounder No. 2611, October 17, 2011, http://www.heritage.org/research/reports/2011/10/the-first-stage-of-medicare-reform-fixing-the-current-program.