Thursday, November 11, 2010

Deficit Commission--Health Portions

I have had a chance to read the Bowles/Simpson 'Chairman's mark' of the Deficit Commission. This isn't the final report. The 18 members of the Commission will have to vote on what they can agree on. There had been a previous commitment that any parts that 14 of the 18 members agreed upon would be submitted as a piece of legislation into the lame duck Congress. 14 of 18 would mean that at least several Republicans would have to sign on to anything.

The Chairman's mark is a serious and comprehensive proposal. In early twitter chatter, it seems that most can find things they really like and really hate. This is in one sense the best test of whether the Chairman's mark is balanced, broad ranging and actually addresses the issues of long term sustainability. It everyone loved it, it would mean that it didn't really address the issue with hard choices.

Here are my thoughts on the health policy provisions.
  • It is a broad proposal, that not only addresses long term health care issues, but even offers a detailed 'doc fix' which is of course an immediate issue that must be dealt with in the next few weeks. Their proposed doc fix: (1) provides payment cuts; (2) introduces what they call a comprehensive medmal reform, I think along the lines of what the CBO scored last Fall that they said would reduce the deficit by around $54 Billion over 10 years. Key in this provision is capping non economic damages; (3) expand Medicare beneficiary cost sharing, by ending first dollar coverage in Medigap plans [note: updated 9:10pm, 11/11, earlier I wrote erroneously, Medicare Advantage plans here], and to have a unified deductible across parts A and B of Medicare. In return for expanded co-pay there is a cap on catastrophic or max out of pocket expenses for beneficiaries; (4) expand the authority of the Independent Medicare Payment Advisory Board (IPAB). They propose allowing IPAB to address all types of providers (incl hospitals: good idea, see Willie Sutton), and include benefit design issues and payment decisions. Further, they want to further preference the recommendations of IPAB by saying if Congress rejects them, other automatic cuts of equal value would be made. I totally support this idea. Medicare is really the only payer that can lead the way on this. It seems paradoxical to most, but Medicare has lead with most of the insurance innovations of the past 30 years or so. (5) Medicare would create a replacement for the current payment schedule by 2015.
  • On balance, this is a plausible doc fix, especially given that Congress has been kicking the can down the road for over a decade on dealing with the SGR. Politically, medmal seems inevitable and a good thing. There are non cost saving reasons to address this issue, not the least of which are that it could lead to better quality improvement efforts that are harmed by an adversarial system. I have written about the role of medmal being important above and beyond cost savings (cost savings will be modest, but we need what we can get).
  • The proposal asks for large scale tax reform that would begin by repealing all tax expenditures and then 'adding back' any ones that Congress and the President can agree upon. I totally support this process; these are hidden and silent spending that even the folks benefitting don't often understand. These tax expenditures are worth around $1.1 Trillion next year according to the report and reforming the tax exclusion of employer paid health insurance is the policy option with the best hope of slowing health care cost inflation in the private portion of the system. Slide 24 is one of the most important in this document. It provides the direct trade off between what the marginal tax rates would have to be in order to achieve $80 Billion in deficit reduction over 10 years with no tax expenditures (this would make employer paid premiums totally taxable as income, no Earned Income Tax Credit, Child Credit, cannot deduct mortgage deduction, etc) and then if you add back certain tax expenditures. I favor capping the tax exclusion of employer paid insurance and moving to ending it eventually. I hope that slide 24 will help draw attention to the concept of tax expenditures and how they create to the budget deficit.
  • They suggest $200 Billion of further health cuts over the next 10 years (what they call medium term) and provide a laundry list that are a mix of relatively small cuts who together add up to a consequential amount.
  • They discuss moving dual eligibles into Medicaid managed care programs. The dual eligible population (around 8.5 Million people or so) are elderly and have become impoverished due to disability, long term poverty, and/or spending down to Medicaid eligibility via paying for nursing home care. An issue that should be considered is federalizing the LTC portion of Medicaid. I will write more about this later, but Medicaid is essentially two programs: pregnant women, children and young adults via PPACA and then elderly and disabled persons. The more numerous persons are the young and they are much cheaper as compared to the elderly and disabled. Shifting responsibility for LTC financing to Medicare would help states and allow for better care for these most vulnerable citizens since it would make one payer responsible (Medicare) instead of having Medicare and Medicaid shifting costs back and forth.
  • Long term cost control growth targets (starting in 2020) would set overall federal health spending at GDP growth +1%. This is much slower than costs have grown the past 40 years. I think setting this (or some) capped target or goal makes sense, but the real key is the heavy lifting necessary to implement PPACA and do something along the lines of what is outlined here.
My bottom line is that the health aspects of the 'Chairman's mark' are tough, good and balanced policies. I like the health aspects more than I like the Social Security aspects of the plan (which I will write about later...getting on a plane now). The most important aspect of the chairman's mark for health policy is that it provides a route to a doc fix in the very short run and draws bright attention to the role of tax expenditures generally, and the tax preference of employer paid insurance, particularly. It also moves to expand the IPAB in ways that will allow for the nitty gritty of health policy to move out of Congress, and into a more expert driven model. I think this is good. I also think the notion of some sort of cap in growth rate in health care is good (not sure if GDP + 1% realistic in 10 years) and is the type of thing that Congress should be doing.

Update: The proposed doc fix they put forth is lacking on important details...it doesn't say how much doc payments should drop, for example. However, it is a route to a political deal on the doc fix that is paid for: some payment schedule cuts in return for medmal that is very important to doctors.

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