Questions On Medicare For Dr. Tom Price, Our Next Health Secretary

220px-Tom_Price(A version of this Health Alert was published by Forbes.)

It looks like Tom Price, MD, Donald Trump’s nominee for U.S Secretary of Health & Human Services will get his first Senate confirmation hearing on January 18. According to Morning Consult, Democratic Senators are planning to focus on Price’s support for turning Medicare into a system of “premium support.”

Fair enough: It will be a relief from all the arguments and counter-arguments about whether “repealing and replacing” Obamacare means “repeal and delay,” “repeal and de-regulate,” or “delay and delay” (as advocated by some who fear Republican politicians will repeal Obamacare immediately and never get around to a replacement bill.)

Democrats have a superficial advantage here, but only because of their own failed health reform. Obamacare offers premium support for private insurance via tax credits, and it has not worked. Last March, the Congressional Budget updated its estimates for Obamacare enrollment in 2016 to just 13 million people, a decrease of 8 million from the 21 million it had forecast when it published its original estimate in 2010. Premiums for individual health insurance have doubled since 2013 (40 percent in 2014, 5 percent in 2015, 10 percent in 2016, and 25 percent in 2017). Dr. Price should welcome questions from Democrats asking why premium support in Medicare would work better than it does in Obamacare.

The approach to premium support advocated by Dr. Price is a better version of the increasingly popular Medicare Advantage program, whereby seniors’ Medicare Part A (hospital), Part B (physician), and (often) Part D (drugs) are rolled into one package offered by a commercial insurer. Although the Affordable Care Act partially financed Obamacare by reducing the amounts the federal government pays insurers to participate in Medicare Advantage, the opportunity to get out of traditional Medicare had become increasingly popular among seniors.

Recall beneficiaries were offered this choice via the Medicare Modernization Act of 2003, which was passed by a bicameral Republican-majority Congress and signed by a Republican President. To be sure, the law passed both chambers very narrowly. Nevertheless, this is yet another recent example showing Republican leadership on health reform can win public acceptance. (For comparison, the 108th Congress convened in 2003 with 55 Republicans and 44 Democrats in the Senate, and 232 Republicans and 201 Democrats in the House. The current 115th Congress has a similar breakdown in the Senate of 52-46 and 241-194 in the House.)

And Medicare Advantage appears to save taxpayers money, something we cannot say about Obamacare. In 2003, only 13 percent of Medicare beneficiaries chose private plans. By 2010 (the year the Affordable Care Act was signed), 24 percent made the choice, and last year 31 percent did. However, spending on Medicare Advantage accounted for only 27 percent of overall Medicare spending. Further, average annual growth in per capita Medicare spending was only 4.4 percent between 2010 and 2015, versus 9.0 percent in the previous decade (although Medicare Advantage is not responsible for all this improvement).

Fearing political backlash, the Obama Administration has balked at imposing Obamacare’s cuts to Medicare Advantage in their entirety. Nevertheless, the reduced payments to insurers have not harmed beneficiaries’ choices – so far.

However, Obamacare’s cuts to Medicare Advantage phase in fully this year. That means repealing Obamacare reverses future cuts and adds to federal spending. According to a new report by the Committee for a Responsible Federal Budget, the amount would be $400 billion or $450 billion over ten years, a significant factor in the report’s conclusion that repealing Obamacare would increase the deficit.

So, Dr. Price should also be asked how premium support moves beyond Medicare Advantage and would further reduce spending while increasing beneficiaries’ choices. The answer is that premium support gives more control of spending to beneficiaries directly instead of insurance companies (a fundamental problem with Obamacare.) The CBO confirmed premium support works in a 2013 analysis: The most likely type of premium support would reduce federal Medicare spending in 2020 by two percent ($15 billion) and also reduce beneficiaries’ premiums and out-of-pocket spending by six percent.

Dr. Price and beneficiaries concerned about the future of Medicare can look forward with confidence to his confirmation hearings.


Comments (24)

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  1. Paul Nelson says:

    Left untouched is the declining level of equitably available and ecologically accessible Primary Healthcare, community by community. It continues to worsen as the evolving use of high deductible insurance coverage continues to be more prevalent. And, the level of unstable HEALTH for too many citizens at younger ages means that the utilization issues worsen as they age. To coin a phrase, they “move up the Power Law Distribution Curve.”

  2. Bob Hertz says:

    John, you note reasonably that premium support through tax credits has not been very successful in Obamacare, while in Medicare Advantage it has created a stable and vibrant market.

    It is worth noting that premium support in Medicare Advantage is based essentially on the costs of traditional Medicare, and this support goes to absolutely anyone who wants it over age 65. The dollar amount of this premium support is about $11,000 per Med-Advantage enrollee.

    By contrast, the ACA tax credits average about $3000 per person, and are barely available to middle class persons over 300% of poverty — and utterly unavailable to persons over 400% of poverty, which is about $64,000 a year for a couple.

    If the ACA tax credits had been based on the cost of a Gold policy, and if they were granted to anyone at any income level — i.e. like Medicare Advantage — then the ACA would have worked better. Linda Blumberg and John Holohan of the Urban Institute have a long article on this theme.

  3. John Fembup says:


    1. You say “The dollar amount of this premium support is about $11,000 per Med-Advantage enrollee.”

    That would be the Medicare premium that CMS pays for Medicare participants, too – right? If not, where do you get this number? Could you post a link to your source?

    2. You also say ACA would have worked better “If the ACA tax credits had been based on the cost of a Gold policy, and if they were granted to anyone at any income level — i.e. like Medicare Advantage”

    Medicare benefits are not generous. (For example Medicare can run out if one suffers a serious accident, or during the course of a serious illness; ACA requires unlimited benefits on its policies. For example, Medicare deductibles and co-pays are onerous – although broken into so many parts, it’s easy to overlook. For example, Medicare participants must buy Supplement policies and pay the premiums themselves, in order to fill in the large gaps in Medicare coverage). Raising ACA subsidies based on a better plan than Medicare seems to me no more fair than the present arrangement.

    And besides, providing the same subsidy to anyone at any income level seems regressive; Medicare is going in the opposite direction by introducing means-tested premiums.

    3. I think your statement that ACA would have “worked better” with higher subsidies is wishful thinking. Because ACA would still run out of other peoples’ money. And that’s because ACA failed to address the cost of medical delivery. As medical delivery cost continues to rise, so does the cost of medical insurance – private and public insurance both, doesn’t matter – and therefore the cost of federal subsidies also rises. Of course that’s exactly the opposite result promised by the President when he said ACA would bend down the cost curve. ACA may have failed even faster if the Gold plan level ere subsidized at 100%.w

  4. Bob Hertz says:

    The premium subsidy to Medicare Advantage plans was about $10,000 a year back in 2012……

    As to your point in #3 above, I would ask the following:

    if Medicare spending can rise above $600 billion a year and not run out of federal (i.e. other people’s) money, then why would the ACA run out of other people’s money when the exchange plan subsidies are costing the government about $40 billion a year? (I am not counting Medicaid here for the moment.)

    To answer my own question, the persons who receive ACA subsidies are not a coherent voting bloc. They are also minorities disproportionately.

    As a result, deficit hawks can go after the ACA’s spending without great fear of political retribution. Compare this to the third rail effect on anyone who goes after Medicare spending in any open and obvious way.

    • John Fembup says:

      Bob, your source is 5 years old. More importantly, you insist on calling Medicare Advantage premiums that CMS pays to private insurers, a “subsidy”. I asked you to confirm or clarify this, but you didn’t. Here’s my take:

      CMS pays Medicare Advantage insurers a premium – determined by a process dictated by CMS and yes, it’s very complicated – to insure the Medicare liabilities of Medicare Advantage participants under private insurance. That Medicare Advantage insurance removes the Medicare liabilities from CMS’ books. Those Medicare liabilities then belong entirely to Medicare Advantage insurers. It’s no different from any party purchasing insurance – liability is exchanged for payment of a premium. Just as any product is exchanged for the price of the product.

      Another way to look at it: say I bought a new pair of shoes at Nordstrom. I am not “subsidizing” Nordstrom. Well, neither is CMS “subsidizing” Medicare Advantage – it’s paying the premiums for Medicare Advantage insurance.

      Your other comments seem to me not well thought out. You seem to believe Medicare has not and will not run out of other peoples’ money. I think if not for the federales’ power to tax, Medicare is virtually bankrupt today. I say to argue that Medicare has technically not already run out of other peoples’ money, is to raise a distinction without a difference.

      Unfunded future Medicare liabilities amount to tens of trillions of dollars that people today cannot pay. As those unfunded future liabilities come due generations yet unborn must pay them; who knows if they will be able? Meanwhile, today, there’s not even enough of other peoples’ money coming in, or still in the lockbox, to pay current Medicare liabilities for much more than 10 years. Medicare will have to cut benefits or raise taxes because there is nothing left to cover future costs that have already been promised.

      Next, you say “the persons who receive ACA subsidies are not a coherent voting bloc. They are also minorities disproportionately.” C’mon Bob! Minority US voters are among the most coherent voting blocs of all, and have for years.

      “As a result, deficit hawks can go after the ACA’s spending without great fear of political retribution”

      Does that follow? I think you’ve drawn a conclusion based on faulty information. Besides, it makes no sense to argue that coherent blocs of voters who are disproportionally enrolled in ACA, will somehow fail to express themselves if anyone goes after ACA spending. I think we’re gonna see real soon.

  5. Bob Hertz says:

    Thanks for your explanation of the actual CMS transaction. The operation is more sophisticated actuarially than I knew.

    I do not share your alarm about Medicsre liabilities, for two reasons:

    a. Medicare could reduce benefits any time. We are not obligated to offer a $150 deductible on Psrt B to the end of time. We could even cancel Part B and let seniors pay for their own doctor visits and tests. We could give each senior a voucher for $1000 and let them spend that on Part B items.
    (these are all very crude reforms, but I bring them up to illustrate what is possible.)

    b. We could definitely raise taxes.
    The current tax bite is 2.90% of payroll for Part A,
    with an extra tax on wages over $250K and on ‘passive
    income’ for the affluent group.
    This pays for most of Part A today but not all of it.

    Part B is funded about 20% by seniors themselves, and the rest by tapping general revenues. I do not have the ability to translate Part B’s real tax, but I suspect it is about a 5% tax on those persons who pay income taxes.

    In other words, we are collecting a tax of around 8-9% to cover current Medicare.
    As the number of seniors grows in the population, I can certainly imagine the country raising taxes to cover their Medicare.
    This may not be desirable, but it is eminently possible. Your comment seemed to imply that it would not be possible.

    • John Fembup says:

      Bob, I really think you need to read the Medicare Trustees report I linked above.

      No insurance – public or private, Medicare or ACA – is sustainable so long as the growth in medical delivery costs continues. It’s unsustainable because we’ve arrived at the point people can no longer afford insurance. It’s been years since people could afford their medical care without insurance.

      And you suggest continuing to reduce coverage and raise taxes. That would leave taxpayers to pick up even more of the growing costs. (In fact paying for it twice – first thru their own insurance, and second thru their taxes.) You don’t see that’s a hanging on by your fingernails until you fall off the cliff strategy? It’s not a solution.

      More practical fundamental thinking is needed from our so-called health policy leadership. Or maybe what’s needed is entirely new health policy leadership. Regardless, tinkering around with insurance won’t get us anywhere we haven’t already been and we just can’t afford to be there much longer.

  6. Bob Hertz says:

    John, let me go back to your contesting my statement that ACA recipients do not constitute a voting bloc, and thus can be “pushed around” by policy makers.

    You are correct that this may change very shortly.

    I drew my statement from what I saw in Tennessee in about 2005, when the governor took about 200,000 people off Medicaid (then called “TennCare”) and that governor never missed a beat in popularity.

    And what I saw in Texas in the 1990’s, when George W Bush was a very popular governor despite the highest uninsurance rate in the country.

    Look also at the many recipients of Medicaid and ACA subsidies who voted against Obama in places like Kentucky this last election.

    Again, my view may soon be outdated.

    • John Fembup says:

      Bob, you bring up Tennessee of almost 15 years ago and Texas of more than 20 years ago as though they are relevant today. I think you’ve misread them both and besides the US today is a very different political place than it was 15-20 years ago. We’re much more partisan, much more polarized, and much more angry. I think these changes have led to more voters energized by a single issue (or a small number of issues) carefully teed up by their respective political parties. We’re gonna learn a lot more real soon how this plays out in 2017.

      Basides, you missed the point of my earlier objection. Go back and read what you said, and my response to it.

      You asserted ACA enrollees DO NOT form a coherent voting bloc. Then you said ACA enrollees are disproportionately minorities. I reminded you that minorities DO form an important (and unified) voting bloc. You are trying to stand on both sides of this fence. That’s one reason for my comment that you seem not to have a well thought out position.

  7. Lee Benham says:

    I have neither the time or crayons to explain this to you 😱

  8. Bob Hertz says:

    Here is what I was trying to get at, John. The recipients of ACA subsidies and Medicaid make up a substantial number of potential voters.

    Florida had 2.8 million persons cast a ballot in the 2014 elections. The 467,000 persons who missed out on any Medicaid expansion constitute 17.5 per cent of the electorate — if only they voted.

    Because they do not vote, whether from voter ID laws or personal failings, they can be ignored by politicians. See the following by Louise Norris…

    But in 19 states that have refused Medicaid expansion, people who aren’t eligible for Medicaid and whose income is too low for exchange subsidies are in what’s called the coverage gap. Unfortunately, they have little in the way of affordable access to healthcare. In Florida, 467,000 people are in the coverage gap; only Texas has more people in the coverage gap.

    2017 and beyond

    Republicans control Florida’s House and Senate, and Republican Governor Rick Scott has been outspoken in his opposition to the ACA, including Medicaid expansion. Democrats in the Florida legislature have been pushing for Medicaid expansion for years, but the election of Donald Trump means that the future of the ACA is uncertain.

    Under the proposal put forth in 2016 by U.S. House Republicans, the ACA’s Medicaid expansion would be replaced to block grants or per-capita allotments. Reducing Medicaid costs would be a feature of either one, and public health experts warn that the result would likely be fewer people covered and less-robust benefits. But since Florida leaders have rejected federal funding for Medicaid expansion since 2014, the impact of such a change wouldn’t be as pronounced as it would be in states that have expanded Medicaid.

    Medicaid expansion wasn’t on the 2016 ballot

    Although Governor Rick Scott and the legislature have thus far rejected Medicaid expansion (although Scott has flip-flopped on the issue), one lawmaker tried to take the issue to the state’s voters. U.S. Rep. Corrine Brown (D, Florida’s 5th District) worked with the Florida Health Solutions Political Action Committee to push for a ballot initiative to expand Medicaid in Florida starting in July 2017.

    Brown has long been vocal in her support for Medicaid expansion, and has repeatedly called on Scott and the state’s legislature to accept billions of dollars in federal funding to expand Medicaid so that it would cover people with incomes up to 138 percent of poverty.

    To successfully get the measure on the 2016 ballot, supporters of Medicaid expansion needed to gather nearly 700,000 valid signatures by February 1, 2016. But by February 1, supporters only had 2,056 valid signatures — only a tiny fraction of the number they needed. Thus, the measure was not on the 2016 ballot.

  9. Allan says:


    “But by February 1, supporters only had 2,056 valid signatures — only a tiny fraction of the number they needed. Thus, the measure was not on the 2016 ballot.” “Medicaid increased health care utilization, reduced financial strain, and reduced depression, but ***produced no statistically significant effects on physical health or labor market outcomes.***”

    I’m not trying to comment on the efficacy of Medicaid, but take note of the perceived value of Medicaid. Maybe your very heavy focus on coverage is not the answer to the perceived problems.

  10. Bob Hertz says:

    My insurance agency occasionally works with people on Medicaid.
    If your income as a single person in MN is under $15,000 a year, then your life is likely filled with lousy jobs, unemployment periods, undependable cars,
    overdue rent and utility bills, and often a depressing love life or family life.

    Medicaid does remove one big area of stress, since there is no premium, no deductible, tiny co-payments,
    no medical bill collectors, etc.

    However all the other stressors continue, which I suspect is why Medicaid shows no great health improvements.

    I sometimes think that the main beneficiaries of Medicaid are the providers, who used to care for the poor for free.

    • Allan says:

      “However all the other stressors continue, which I suspect is why Medicaid shows no great health improvements”

      Can you explain the meaning behind this comment?

    • Plus there is the stress that if you did get a job you’d lose your Medicaid and actually reduce your net income!

  11. Bob Hertz says:

    When people are stressed by losing their jobs, being in horrible debt, and sometimes with absent or abusive spouses, they probably get sicker than normal and certainly may forget to take their free medications.

    I say this only from personal observations of perhaps 30 Medicaid recipients over time, so it is just an impression.

    • Allan says:

      You wrote: “However all the other stressors continue, which I suspect is why Medicaid shows no great health improvements”

      It seems that according to you Medicaid shows no great health improvement because the stresses cause these people to get sicker and forget their medication. This sounds very strange to me especially since the other half of the Medicaid patients randomly selected for study had the same stressors.

      I can understand how the stressors might cause increased illness, but based on what you are saying what value does Medicaid have since this control group and the Medicaid group didn’t show any difference?

      Based upon your statement I would think that spending money on Medicaid is a waste of time and that it would be better spent if the money was used to enhance the economy. Can you explain?

    • Bart I says:

      From the NBER site:

      We did not detect significant changes in measures of physical health including blood pressure (systolic or diastolic), cholesterol (HDL or total), glycated hemoglobin, or a measure of 10-year cardiovascular risk that combined several of these risk factors. Nor did we detect changes in populations thought to have greater likelihood of changes, such as those with prior diagnoses of high blood pressure of the portion of our population over age 50.

      These metrics are all sort of similar. I imagine the prescriptions that would change these outcomes would consume only a fraction of Medicaid spending.

    • Bart I says:

      I wonder if any insurance plan would show different results, when adjusted for income etc.

  12. Bob Hertz says:

    I used to sell health insurance to public school teachers. Most groups have had Cadillac health insurance for years, yet their health was uniformly lousy in terms of heart disease, cancer,and many other issues. (I had to look at claims summaries to make insurance quotes.)

    But health insurance did have two benefits, in my unscientific observation…..

    1. They probably lived longer, since cancers were caught earlier and bypass surgery was more common…

    2. They seemed to have less debt and bankruptcies.

    Is this worth the spending of $25,000 a family on health insurance? Is Medicaid worth its own massive spending?

    That is one good question.

    • John Fembup says:

      Bob, you ask if Medicaid is “worth its own massive spending”.

      It’s so easy to forget that over 30% of Medicaid spending is for nursing homes and related non-acute services – not medical care, as covered by Medicare or private medical insurance. Looks like you’re counting all the Medicaid spending as medical care.

      Also, you know Medicaid is not health insurance – it’s medical welfare. That is more than semantics – it’s a crucial difference.

      It’s always important to pay attention to the words we use, if having a useful discussion is the objective. It is possible – maybe even likely – that a majority of Americans would really prefer a medical welfare system that applies to everyone regardless of age or incomes. If that is so, then that is what we shall eventually have. But it is impossible to have that discussion intelligently unless and until our leaders begin to talk to us using correct terms. Instead they have insisted on talking about “health insurance”. So we have something called “health insurance” yet the problems of cost, affordability and access to services continue to grow and the general health of Americans continues to decline.

      “If language is not correct, then what is said is not what is meant; if what is said is not what is meant, then what must be done remains undone; if this remains undone, justice goes astray; if justice goes astray, the people will stand about in helpless confusion. Hence there must be no arbitrariness in what is said. This matters above everything.”’

      –Confucius, about 2500 years ago.

      I think if Confucius were alive today, he would readily grasp why ACA failed. He would point out that the federales designed ACA as “Health insurance” but the immediate problem was – and remains – the cost of medical care; two entirely different things. As a result, what must be done remains undone. And are we not standing around in helpless confusion?

  13. Allan says:

    1) “was more common…”

    More is not necessarily better.

    2) “They seemed to have less debt and bankruptcies.”

    A teacher’s job is more secure and pays a higher than average wage while leaving time (school out of session) to work an additional job to further increase income. Perhaps teachers, more frequently than others, have two income earning spouses. There are many more variables so I don’t think this conclusion has any merit what so ever.

  14. Bart I says:

    Must be some of John’s Canadian fans commenting above.