Health Care


A Solvent Medicare

October 30, 2008

A new website — Retirement Debate®, sponsored by The Wall Street Journal Online and Allstate Insurance — invites authors to post short essays on Social Security and Medicare issues. I recently posted a piece on what’s needed to restore financial balance to Medicare, available here.

posted by James C. Capretta | 10:41 am
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State-Based Medicaid Reform and “Dual Eligibles”

October 23, 2008

On September 24th, I was at the Heritage Foundation with state Medicaid officials and others discussing what states could do to improve how long-term care services are provided and financed.

The session was organized by Dennis Smith of Heritage. Dennis was, until earlier this year, the head of the Medicaid program at the Centers for Medicare and Medicaid Services. He is a true professional with much valuable experience, having served previously in state government in Virginia and California.

I spent a good portion of my time making the point that the federal government is in no position to put more resources on the table for another elderly health care entitlement (my entire written presentation can be seen here).

But most of the day was spent on the more productive topic of what to do about the so-called “dual-eligibles.” These are the beneficiaries eligible for both Medicare benefits and Medicaid coverage for nursing home and other long-term care services.

As matters stand, it is very difficult for states to improve efficiency in long-term care services because many elderly and disabled beneficiaries needing such services get their Medicare-covered services in an unmanaged, fee-for-service environment.

Chuck Milligan of the Hilltop Institute observed that, ideally, the “duals” get a combined Medicare and Medicaid entitlement paid as capitation to a health plan which would be responsible for providing them the full spectrum of services. There’s plenty of evidence that this coordinated approach to care across settings produces better health outcomes at lower cost than unmanaged fee-for-service.

The main barrier to building such a system is Medicare’s structure and incentives. Four out of five Medicare beneficiaries have access to retiree wrap-around insurance or supplemental coverage that makes fee-for-service Medicare the most attractive option around. Indeed, it is hard to blame Medicare beneficiaries for choosing insurance which offers unlimited choice of providers and no cost to them for using more services.

Unfortunately, by the time these fee-for-service beneficiaries need long-term care, it is often too late to prevent nursing home stays with better care management in the home.

There are many regulatory, political, legal, and financial hurdles to building better coordination between Medicare and state Medicaid programs. Still, the conversation last week revealed widespread recognition of the problem and some possible ways to move forward. For that reason alone, the session was highly valuable.

Details for the full event can be found here. An audio recording is available here, and video below:

 

posted by James C. Capretta | 1:15 pm
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An Epidemic of Faulty “Facts”

October 16, 2008

Last night, Senator Barack Obama looked straight into the camera and told the audience that, if they wanted to keep their employer-sponsored health plans, they could.

A nice selling point for his proposal, that. But it’s not true.

The Lewin Group, an independent health policy consulting firm, estimates that 22 million workers and their families would lose their job-based coverage under the Obama plan.

And then there is Michael Dobbs of the Washington Post, who wrote in his review of the candidates’ claims from last evening that

[T]here is little to support McCain’s charge that Obama would “force families into a government-run health-care system where a bureaucrat stands between you and your doctor.” The Obama plan bears little resemblance to the socialized national health systems in Britain and some other European countries and is based instead on expanding the current U.S. system of privately backed health insurance.

But unfortunately, that’s not a fact at all. Under current law, Lewin expects 172 million Americans would have private coverage and 86 million would have public coverage in 2010. If the Obama plan is enacted, Lewin sees those with private insurance coverage falling to 150 million and enrollment in public insurance increasing to 135 million—nearly 50 million more than expected under current law.

It is hard to see how this can be described as “expanding the current U.S. system of privately backed health insurance.”

Even the Lewin study is probably too easy on the Obama plan in this regard. Neither Mr. Dobbs nor Senator Obama made it clear to their audiences that Obama’s plan includes a new, government-run insurance option which would look a lot like Medicare. For people who enroll in this insurance, the government would decide what to pay doctors and hospitals, just as Medicare does today.

But of course Medicare doesn’t negotiate fees with doctors and hospitals; it presents them on a “take-it-or-leave-it” basis, knowing full well that few providers of care have the market clout to refuse patients in a government-sponsored plan. Lewin makes the generous assumption that the government plan in the Obama proposal would pay fees at the half-way point between Medicare’s current rates and what private insurers typically pay today. But there will be great pressure on Congress to keep the costs of the program down, and the easiest way to do that would be to have the new government plan adopt the Medicare fee schedules without amendment. If the Lewin analysts had made that assumption,they would have projected even more people migrating from private to public insurance under the Obama plan.

posted by James C. Capretta | 2:53 pm
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Obama’s Glass House

October 8, 2008

Of late, Senators Barack Obama and Joe Biden have been throwing rocks at Senator John McCain’s health-care plan. They have called it “risky,” claiming it would destabilize insurance for those workers who have coverage through their jobs. They have also suggested workers would end up paying more under McCain’s plan.

Both of these claims are not true of the McCain plan. But, ironically, they are true of Obama’s. That the theme of this piece, posted yesterday at National Review Online.

posted by James C. Capretta | 11:50 am
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What’s the Real Difference Between the Obama and McCain Plans?

October 8, 2008

In Tuesday’s Washington Post, Ruth Marcus joined a chorus of columnists offering their views in recent days on the health-care plans of the two presidential candidates.

It may surprise some supporters of John McCain to find out her piece was not entirely one-sided. She offered some faint praise for the potential of Senator McCain’s tax credit plan to do some good. But she did make it clear she favored the plan put forward by Senator Obama:

Overall, Barack Obama’s health-care plan is preferable to John McCain’s. Obama’s approach—which would require employers to provide insurance or pay into a fund, subsidize those unable to afford coverage on their own and set up new purchasing pools—would cover more people and would help those who have the hardest time obtaining insurance.

But Ms. Marcus, as well as many others, is focusing on the wrong criteria in judging the plans.

The real question for the candidates is this: what is your theory of health-care cost control?

Rising health-care costs already threaten to overwhelm the federal budget—and family budgets too. If premiums continue to rise at a rate 2 to 3 percentage points above wage growth, there is no way Senator Obama will be able to sustain all of the new subsidies he is promising in his plan. And without the subsidies, enrollment in insurance coverage will decline.

Senator McCain, to his credit, has a vision for what needs to be done. He wants to convert today’s tax preference for employer-paid health insurance into a refundable tax credit in part because a reform of this kind is crucial to building a more effective marketplace for insurance and health care services. Even Jason Furman, a top health-care advisor to Senator Obama, agreed that is the case—at least up until he joined the campaign staff.

So what’s Senator Obama’s vision for cost control? He really doesn’t have one. His plan includes new public investments in information technology, effectiveness research, prevention measures, and disease management. All of these may be helpful, but no credible analyst believes these steps would materially slow cost growth absent a fundamental re-alignment of financial incentives. And the Obama plan offers no such changes.

The Obama health-care plan would never work as drawn up. Cost escalation would overwhelm it. Ms. Marcus and others shouldn’t be so easily swayed by illusory promises of expanded insurance coverage.

posted by James C. Capretta | 11:06 am
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Biden’s Phony Health Care Argument

October 3, 2008

Joe Biden: Distorting the facts.
During the vice presidential debate yesterday between Senator Joe Biden and Alaska Governor Sarah Palin, the Democratic candidate repeated several misleading and outright deceptive arguments about the McCain health care plan that the McCain campaign needs to take on, and soon. At a minimum, Senator McCain needs to be ready to set the record straight during the presidential debate next Tuesday evening.

My EPPC colleague Yuval Levin has already written an excellent piece for National Review Online detailing the numerous deceptions.

But it’s worth repeating the basic accusation and why it is so patently untrue.

Biden and Obama want to leave voters with the impression that they are going to get a $5,000 tax credit from McCain even though health insurance costs $12,000 per family, on average. Where’s the additional $7,000 going to come from?

Here’s how it would really work.

Suppose a worker gets $50,000 in cash wages and $12,000 in health insurance.

Right now, he pays federal income taxes on the wages but not the health insurance. Let’s assume, for reasons of simplicity, that the tax rate he is paying is a flat 25% on his wages. He therefore pays $12,500 in federal income taxes. His after-tax, after-health-care income is $37,500.

Now, under the McCain plan, his employer keeps paying the premium, which is now counted as income to the worker. He therefore pays federal income taxes on $62,000, or $15,500.

But he also gets a tax credit of $5,000 for health insurance, which means that, all in all, he owes $10,500 in federal taxes, or $2,000 less than he does today. His after-tax, after-health-care income is $39,500.

If the worker decides to buy his insurance in the open market instead of through the employer, the result will be the same. His employer is indifferent to how he pays his worker as long as total costs are the same. So instead of paying premiums, the employer pays his worker $62,000 in cash wages and does not pay anything toward insurance. The worker again owes $15,500 in taxes on this compensation, and he also must buy health insurance costing $12,000. So, his pre-tax income is $62,000, he owes $12,000 in health insurance premiums, and he owes $10,500 in federal taxes (after claiming his credit). His after-tax, after-health-care income is the same: $39,500 ($62,000 – $12,000 – $10,500), or $2,000 more than today.


RELATED EARLIER POSTS:
- Dr. Obama (September 5, 2008)
- Governor Palin vs. Certificate of Need (CON) Laws (September 3, 2008)
- The Uber-Regulator (August 27, 2008)
- Employer-Based Health Coverage Threatened (July 1, 2008)

posted by James C. Capretta | 5:41 pm
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Well Worth a Read

September 26, 2008 • Last week, the White House Writers Group, among others, sponsored a health care “summit” in Orlando, Florida. Among the presenters at the meeting was Verizon CEO Ivan Seidenberg, who spoke in his capacity as the Business Roundtable’s lead executive on consumer health and retirement issues (Verizon’s General Counsel, Bill Barr, sits on the Ethics and Public Policy Center’s Board). Seidenberg’s complete remarks are well worth a careful read.

Mr. Seidenberg comes to the health care debate with strong credentials. Like other large employers, Verizon has no choice but to care deeply about the future of health care policy in this country. After all, the company spends $4 billion annually on medical care for its 900,000 employees and their dependents. Verizon is thus one of the largest purchasers of medical services in the country, giving its top executives a perspective few others have on what’s working and what isn’t in today’s system.

Mr. Seidenberg made several interesting observations and proposals in his remarks.

The information technology revolution has transformed the rest of the American economy–but not health care. That must change. Health IT is one of the most important steps needed to bring about greater efficiency, innovation, and consumer satisfaction.

The insurance system would improve with uniform national rules and larger, regional markets instead of today’s reliance on fifty different regulatory regimes run by each of the states.

Medicare must move from paying for volume and activity to buying better health outcomes. That means “paying for performance.”

There are numerous subpopulations of the uninsured that might need solutions tailored to them. Four to five million are college students. More than 10 million are non-citizens. A large number are already eligible for public insurance. And there are a surprisingly large number of uninsured Americans with seemingly sufficient incomes to pay for insurance without additional assistance.

But Mr. Seidenberg’s most important point was this: Health care reform in the U.S. “must emerge from the uniquely American principles that drive our economy: competition, innovation, and choice.”  

He called on policymakers to build a functioning marketplace where vigorous competition and consumer choice can do for health care what they have done for every other sector of the American economy: improve quality and drive down costs at the same time. That’s a message many more people in Washington need to hear.

posted by James C. Capretta | 3:05 pm
File As: Health Care

Reform Medicare First

September 12, 2008 • Robert Samuelson’s September 10th column in the Washington Post should be read by every health care analyst in Washington.

He makes several important points that run counter to conventional wisdom. For starters, he argues that the urgent problem today is cost escalation, not coverage. Samuelson points to new data showing health care spending is already distributed uniformly across income groups. Why? Because health care spending is driven by a relatively small number of expensive conditions which are related mostly to age and genetics. And the poor apparently get care at nearly the same rate as everyone else when faced with these diseases because of existing government policy and entitlement programs.

Samuelson also notes that covering the uninsured would be expensive to taxpayers and would bring little or no improvement in health status.

Samuelson’s most important point, however, was this one: “Medicare is so large and influential that by altering how it operates, government can reshape the entire health care system.”

That’s exactly right. Medicare is a popular program, and understandably so. But the Medicare fee-for-service program rewards volume, not quality, and underwrites fragmentation, not coordination.

So what should be done? Here, Samuelson falls short by limiting his reforms to a familiar list: better electronic records, management of chronic illnesses, and more scrutiny of tests and procedures.

Though helpful, these reforms wouldn’t fix the problem, which is rooted in misaligned financial incentives for hospitals and physicians.

Market-based reform efforts in recent years have focused on “premium support” in Medicare as the answer. And it is still an important part of the answer. But it seems unlikely to be the full answer, given the resistance among providers to insurance-led pushes for more efficient arrangements.

But what if competition went beyond insurance to networks of hospitals and doctors? Medicare beneficiaries could be asked to select each year from among a number of competing “delivery systems,” not just insurance plans. A portion of the Medicare entitlement would go toward an insurance premium, but another portion would go toward paying an enrollment fee for a coordinated system of providing the kinds of non-catastrophic services most seniors need every year.

This kind of competition would finally put hospitals and doctors in charge of re-organizing themselves for efficiency. Successful delivery models would be those that found innovative ways to make their operations more cost-effective, thus allowing them to deliver a better product at a lower enrollment fee.

Obviously, this idea needs much more development and would raise many complex implementation issues. Still, there is no way around the fact that, to fix health care, we must fix Medicare. The reform suggested here would get the incentives right: hospitals and doctors would gain financially if they took the initiative to do their work better and more cheaply.

posted by James C. Capretta | 8:24 am
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The Future of Medicare Advantage

September 11, 2008

The Heritage Foundation sponsored an event yesterday called “The Future of Medicare Advantage,” at which I was invited to make some remarks (video and slides below).

Medicare Advantage allows beneficiaries to get their health coverage through private insurance options, such as HMOs orPPOs, rather than through the traditional, government-administered fee-for-service program. It has grown rapidly in recent years -- about one-in-five Medicare beneficiaries are now enrolled in a Medicare Advantage plan.

But the program has many critics in Congress, especially among those who do not want to build Medicare reform on a model of competition and consumer choice.

My presentation focused on presenting important data relevant to the debate. For instance, few in Congress understand that there is an important spillover effect in markets with large percentages of Medicare beneficiaries enrolled in HMO-based coverage. In those markets, even fee-for-service costs are lower. According to a careful study of eight years worth of data, for every 1 percentage point increase the proportion of Medicare beneficiaries enrolled in an HMO in a market, there is a 0.9 percent decrease in annual spending for beneficiaries who have stayed in the traditional fee-for-service program.

You can watch video of the event below, courtesy of the Heritage Foundation. (You can also just get the audio here in MP3 format.) And the slides I used during my presentation are available in PDF here or in PowerPoint format here.

posted by James C. Capretta | 4:11 pm
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Dr. Obama

September 5, 2008

The Obama health care plan would not work as advertised, as I’ve noted before on this blog.

The Democratic presidential campaign likes to say the Obama plan would build on the employer-based health insurance system. But, in reality, key provisions would swell the ranks of public insurance enrollees and undermine the viability of private insurance. It wouldn’t be long before the federal government was setting prices for health care service provided by every doctor and hospital in the country.

That’s the theme of this article I have in the September 1 issue of National Review.

posted by James C. Capretta | 9:31 am
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