GrandMa Versus ObamaCare: The Coming Political Battle
Over the next 10 years, if left unchanged the Affordable Care Act (ACA) will take $500 billion from Medicare. Medicare beneficiaries will see higher premiums. Doctors, nurses, hospitals, and medical suppliers will get lower payments. Under ObamaCare Medicare reductions will be used to subsidize expanded Medicaid to low income recipients and to fund insurance for the uninsured. This redistribution of funding from old to young is the most controversial part of Health Reform.
In addition to the current beneficiaries, 78 million baby-boomers become eligible for Medicare over the next decade-and-a-half. Because of the ACA, they will get less healthcare so that others will get more. Payment reductions will lower their access to high-quality preventive services, early intervention, and acute care treatments. Is this fair?
Medicare beneficiaries paid for Medicare during their entire working life. They paid for the coverage with Medicare taxes and continue to pay with Medicare premiums. Why should they now be singled out to bear the cost of health reform?
Looming Financial Issues. On December 1, 2010 Medicare doctors face a 20% reduction in fees. On January 1, 2011 doctors face another 6.5% reduction. Neither Republicans nor Democrats want that to happen. The price tag to make a one-time permanent correction is about $250 billion. This is referred to as the “doctor-fix.” These Draconian reductions will dramatically cut access to care and will destroy quality of care for the elderly. If these reductions are allowed to go into effect, 30-40% of doctors will refuse to accept Medicare patients.
In addition, the ACA included $115 billion in reductions to Medicare Advantage, a private insurance option. 11 million Medicare Advantage beneficiaries are now getting notices of coverage reductions, high premium increases, or cancellations. Millions of others covered by company sponsored retirement health plans are seeing them eliminated or benefits lowered.
How can these problems be solved?
Budget Neutral Funding: Restoring & Modernizing Medicare. The $500 billion taken out of Medicare must be restored. Without adding to the deficit, we can restore soundness to Medicare by eliminating the subsidies scheduled for the Health Insurance Exchanges. The $450 billion savings from the elimination of these subsidies would cover the $250+ billion required to solve the “doctor-fix”, keep the Medicare Advantage option, and allow for modernization of Medicare.
Medicare is a 1964 plan design that should be transformed into a modern comprehensive medical plan. By restoring funds to Medicare there would be enough to increase the Medicare hospitalization coverage from 150 days to 365 days (As provided by most Medicare Advantage Plans). Medicare Part A and Part B could be brought in line with pre-65 employer coverages by combining the deductibles into a single amount and implementing a limited Maximum Out-of-Pocket.
Medicare beneficiaries should be allowed to establish or maintain a tax advantaged health savings account (HSA). With Medicare rewards and incentives for following a healthy lifestyle and adherence to physician developed medical treatments, we could see the same 12-20% savings being generated by employer plans.
These changes would free most seniors from the need to purchase Medi-Gap coverages. The $200-300 per month premium savings could then be used to fund a Medicare HSA or pay for other living needs.
Yet, if these steps are taken, what can be done to solve the problems of those not in Medicare? The uninsured due to pre-existing conditions can be covered at a reasonable cost under a federally supported high risk pool. Insurance reform should include restrictions on policy rescissions, improved appeal processes, coverage for dependent children, price and quality transparency, and expanded use of information technology. Many of these changes are already in state laws. These administrative changes do not require government expenditures.
Create Affordable Options. The “economically needy” can also be funded more rationally. Insurance with health savings accounts are 12-20% lower cost than traditional insurance. Allowing the purchase of insurance across state lines could lower costs by an additional 5-10%. Litigation and malpractice reform is estimated to lower premiums at least 5%. Allowing individuals the same tax advantages provided to group plans would lower the net cost of insurance. Premium credits for maintaining health and adherence to standardized medical treatments can lower premiums even more.
Eliminate Broad-based Subsidies. Under the ACA, federal premium subsidies are available to individuals earning up to $88,000 per year for those purchasing coverage from a “Health Insurance Exchange” (HIE). 58% of the population is eligible for a subsidy. Many of those eligible for subsidies can afford to pay their own premiums. In the 10 year budget cycle, these broad-based premium subsidies will cost over $450 billion. This goes way beyond a minimum safety net.
Other Savings. Medicare and Medicaid fraud amounts to between $30-60 billion per year. Over a 10 year period this would amount to $300-600 billion in savings. There are 159 new agencies, departments, work groups, and commissions created by the health reform act. We can eliminate funding for most of these departments that were established to hand out grants, fund research projects, pay for costly studies, and produce intrusive rules and regulations controlling the delivery of healthcare. We could save hundreds of billions over 10 years.
Billions more in administrative costs could be saved if governors united around a rejection of the ACA “Health Insurance Exchanges” in favor of private market “Health Information Exchanges.”
Repeal and Reform. A “New Health Reform” is needed to correct the problems of the ACA and to improve the overall healthcare and insurance system in the United States. Unfortunately, ObamaCare was designed as a vehicle to “Rob Peter to Pay for Paul.” Yet Medicare should not be the Peter to the uninsured Pauls. They both need access to quality care. We need to restore the wealth taken from Medicare and solve the problem of the uninsured in other ways.
I agree with the thesis here. There is going to be a political battle. I think seniors are going to win it.
I agree with Ken. I bet on GrandMa.
The Exchange subsidies for families earning up to $88,000 will cause too many people to drop (or lose) their employer plan – creating labor market distortions. Furthermore, we know seniors cannot retain adequate access to care without a “Doc Fix.” It makes sense to drop the subsidies in favor of a uniform tax credit and restore funding to Medicare Advantage plans.
I really favor the idea of restoring Medicare funding by eliminating the subsidies for the exchanges.
Although the exchanges don’t start running until 2014, it is critical that those who would profit from them (health-IT vendors and consultants, dominant insurers, etc.) do not invest business-development resources in them. Unfortunately, this is already happening.
Starving the future exchanges of money as soon as possible will prevent these interests from combining to defend them and making repeal more difficult.
I was a little dismayed to read I read Mr. Bachman’s statement that “Medicare beneficiaries paid for Medicare during their entire working life. They paid for the coverage with Medicare taxes and continue to pay with Medicare premiums. Why should they now be singled out to bear the cost of health reform?”
Not that I think that there’s anything that politicians can do about seniors’ belief that they paid for their Medicare, but it is not true.
Medicare beneficiaries’ payroll taxes go right out the door immediately to pay for people who are already consuming Medicare benefits. Until recently, more money went in than out. The government called this positive cashflow an addition to a fantastical “trust fund” but that was nonsense: It was immediately spent on other government operations (through buying Treasury debt).
Premiums for Part B cover only one quarter of the cost of physicians’ services; and the premiums for Part D cover only about one eighth of the cost of prescriptions. The taxpayer pays the rest.
I think John Goodman had it right in his NRO editorial on this subject. Restore the cuts in Medicare — or at least push back their start date — and pay for it by pushing back the start date of Obama Care.
John, good comments. I appreciate that Medicare has several sources of income to cover the claims costs and that the sham Trust Fund does not exist. That does not change the fact theat the costs of Medicare have been paid by the beneficiares (during their working years, by forgone salaries due to employer contributions, taxes on other income, or Part B premiums after retirement). It is true that there may not be a direct one to one with current payments, but who do you think pays for any costs – the American worker. To the extent we have deficit financed with unfunded liabilities is as much a failure of the gov’t administrator and the fraud perpetrated on Americans. The public paid for a program that was sold on an actuarially sound basis and we know it is not. Don’t blame the customer if the “company” wastes the premiums and uses the funds for other purposes. In the private world we throw those theives in jail. Americans have bought and paid their way for the program and they will demand the services they contracted for, even if policy wonks believe the public should be happy that they got a good deal and want more blood, taxes, limits or benefits cut down the road.
Folks:
There is a huge disconnect between how Americans perceive their entitlements to Medicare and Social Security, and the way the federal government sees it.
I have links and excerpts to back up these points if anyone is interrsted.
Social Security and Medicare payments are non exchange transactions.
That means, although you pay in, the government decides how to distribute.
If you get benefits from Social Security and Medicare, the government is doing you a favor.
The FICA and SECA taxes pay for the general welfare, not for Medicare and Social Security.
The trust funds do not represent a store of wealth.
The trust funds make it no ewasier to pay beneficiarioes than if the trust funds did not exist.
Please specify which assertion you would like me to back up with governmental excerpts and links.
Don Levit
Medicaid already covers everything at no cost to the user(health,medication,glasses,dentist,hearing,etc.) Medicare covers very little of anything (no:glasses, hearing,dentist,etc.)plus with Medicare their is a co pay and limitations which their is none with medicaid.I have been on both and I would rather be on Medicaid.We get bare coverage now with medicare and need to keep working for the medical coverage.I almost forgot,if you don’t sign up for Medicare as soon as you are eligible, need it or not,you will be penalized.
Thank you for the good writeup. It actually was once a enjoyment account it. Look advanced to far brought agreeable from you! However, how could we keep in touch?