But the core fiscal challenge for the country, which remains unaddressed, is the unrelenting growth of entitlement spending -- a problem that will become acute in the next twenty years. Between 1973 and 2012, entitlement spending rose from 7.4 percent of GDP to 13.1 percent of GDP. By 2035, spending on Social Security, Medicare, Medicaid and the health care law's new entitlements is expected to add another 5.4 percent of GDP to the spending side of the federal ledger. Absent serious reform, the budgetary pressures created by this entitlement spending surge will either force massive cuts in the rest of the budget or very large tax increases, or perhaps trigger a debt crisis.

You can read (and vote for!) the rest of my post here.

There was a period when the prospects for a “grand bargain” were on the rise — right after President Obama’s reelection in November 2012. The president was riding high and had campaigned on a “balanced approach” to deficit reduction, by which he meant any deal to reform entitlements and cut spending must also increase taxes, especially on the rich. In the weeks after his reelection, the president might have been able to press a demoralized congressional GOP into agreeing to a large, multiyear budget framework along these lines.

That certainly would have been in his interests. Based on where things now stand, his presidency will be defined in part by the $7 trillion in debt he will run up during his time in office. A “grand bargain” on the budget at the beginning of his second term could have fundamentally altered the legacy of his budgetary performance in office, turning what is sure to be viewed as a rather large failure into perhaps a modest achievement. Moreover, a multiyear budget deal would have taken fiscal issues, including the sequester the administration despises, off the table for the remaining years of the president’s time in office, freeing up his administration to press for agenda items he clearly is more passionate about.

But for some unfathomable reason, the president decided to pursue a different strategic approach. Instead of moving quickly to do what was necessary to create the conditions for a budget deal, he chose instead to pursue a two-part strategy on taxes and spending. That was a huge mistake.

You can read the rest of the column here.

The rest of the session featured comments on the state of health care costs and Medicare by Mark Pauly of the University of Pennsylvania, Chapin White of the Center for Studying Health System Change, and myself, followed by a question and answer session with the audience.

Video of the entire AEI event can be viewed here. In addition, the slides that I used for my presentation are available at the bottom of the same event page.

For starters, Medicare’s unfunded liability remains staggering — a full $43 trillion over the infinite horizon. That’s nearly $7 trillion more than the 2010 report.

Moreover, as was the case in every report from 2010 onward, Medicare’s actuaries have again told us that the real state of Medicare’s financial outlook is far worse than the official projections indicate. That’s because the cuts to Medicare contained in Obamacare are so irrational and blunt that they will almost certainly be reversed. Most especially, the actuaries expect the so-called “productivity improvement factor” will be reversed because of the damage it will do to access to care for seniors. That would be the provision in Obamacare that reduces the inflation update for most non-physician providers of services, especially hospitals. The cuts begin this year and continue every year, in perpetuity. If they are allowed to stand, they will push reimbursement rates for hospitals to levels that are so low they’ll fall below what Medicaid pays by the end of this decade. Medicaid’s rates, meanwhile, are so far below what private insurance pays that the network of hospitals willing to take large numbers of Medicaid patients is quite constrained. The actuaries expect that, by 2030, the cuts would push revenue for 25 percent of the nation’s hospitals below their total costs, leading many of them to withdraw from the Medicare program entirely.

You can read the rest of the post here.

In its latest assessment of the law, released in conjunction with new budget projections, the CBO indicates that the number of uninsured residents in the United States will never fall below 31 million — three million more uninsured people than was estimated for the non-mandate plan President Obama rejected — and that the insured will never be as much as 90 percent of the population.

And even that estimate is highly optimistic. It assumes that 70 percent of the population eligible for the Medicaid expansion will eventually enroll in the program. As of today, however, only 24 states have governors and legislatures that would likely agree to move ahead with expansion, and that number could easily fall as more state policymakers come to the realization that Medicaid is far too often failing its current enrollees. It makes little sense in that context to dramatically expand a program that credible independent observers believe needs significant reform.

You can read the rest of the column here.

For the moment, the future of Obamacare isn’t a question of legislative tactics. It’s a question of political strategy — how to build a wave of public support behind a credible program to repeal Obamacare and replace it with something far better, and how to get that sentiment to prevail at the polls in 2014 and 2016. The excesses and deficiencies of Obamacare will go a long way toward convincing the public that there must be a better way. But the congressional GOP can and should also take steps to build its case and gain the upper hand in the argument. The bill to close down the prevention fund and apply some of the savings to a high-risk pool is one small step in that direction.

You can read the rest of the piece here.

The event was covered live by C-SPAN and can be viewed in its entirety here.

The AAF cost estimates are encouraging. They show that a replacement plan built on a decentralized, market-based reform program can broaden insurance coverage dramatically without the massive federal power grab and mandates of Obamacare. This is an important development. It demonstrates that, contrary to the talking points of the 2010 law’s apologists, there are viable, practical alternatives to Obamacare that have the potential for broad appeal with the American people.

The emergence of AAF’s modeling capacity — the Health Economic Policy Simulation System (HEPSS) — is also an important advance. It means that a new source of credible analytical information is now available to the policy community, and more information about the cost and coverage consequences of various reform plans can only help to improve the caliber of the public debate. Moreover, the estimates produced by HEPSS will almost certainly differ from those produced by the Congressional Budget Office, the Urban Institute, and others because the HEPSS model uses different sources of data in some respects (including more extensive data on the use of high deductible health plans by employers) and because every model requires the use of some assumptions, and there’s no reason to expect the HEPSS assumptions to exactly match those used by CBO and others.

The second paper, written by Robert Coulam of Simmons College and Roger Feldman and Bryan Dowd of the University of Minnesota, examines the benefits of moving toward a competitive bidding approach for the entirety of the Medicare benefit package. Private health plans would submit bids indicating the premium they would require to provide Medicare’s statutory benefits, and those bids would be used, along with the costs of providing Medicare FFS in a region, to determine a fixed government contribution. The authors estimate that this approach would reduce Medicare’s costs by $339 billion over a decade.

The third paper, written by Joe Antos, makes the case for reforming Medicare with a premium support model, including competitive bidding. The paper cites existing models, including the Medicare prescription drug benefit, and other evidence to make the case that harnessing the power of consumer choice and marketplace competition is the only reliable way to discipline costs without harming quality.

The AEI event, which was moderated by Bob Helms, can be viewed in its entirety here. Paul Ginsburg of the Center for Studying Health System Change provided helpful comments.

Today, states try to manage long-term-care costs and quality through regulations and supply controls, but these efforts are never a match for the cost pressures that build when services are “free” to the users — and when rising use of services increases the incomes of those providing the services.

The solution is to enlist the support of those enrolled in the program in a cost discipline effort. The starting point is to calibrate financial assistance for long-term-care services and supports to the level of disability and financial needs of a Medicaid applicant. The most severely disabled applicants — as determined by an independent evaluator — with the lowest level of personal resources should get the maximum “allotment,” set at the level necessary to cover the range of support services needed to stay in the community. Other applicants with lesser disabilities or more personal financial resources would get a percentage of the maximum allotment commensurate with their circumstances.

You can read the rest of the piece here.