Some Uninspiring Health Proposals

The health proposals put forward so far by President Bush and the Democratic presidential hopefuls haven’t exactly sparked a national debate.

Representative Gephardt’s proposal -- a sweeping employer mandate to provide coverage with heavy behind-the-scenes funding from the government -- is mind bogglingly expensive (over $200 billion a year), paternalistic (why should employers decide what coverage we get?) and inflationary (there’s no incentive to economize if employers and the government are picking up the tab). To be fair, Gephardt’s plan probably would succeed in covering most of the uninsured.

The other Democratic candidates’ health proposals also assume large expansions in coverage. But because those assumptions are based mostly on expansions of public programs -- which may not be possible due to budget constraints, especially at the state level -- those claims are somewhat dubious.

Governor Dean’s main proposal is pretty standard Democratic fare: Federally funded, state-based public coverage for low- and middle-income kids and their parents. This proposal -- sometimes called “family care” -- is popular among Democratic activists in Washington, but it wouldn’t have much impact in the current fiscal environment faced by states. States are cutting, not expanding coverage. And states certainly don’t trust federal promises of future funding. Dean’s second proposal -- tax credits and purchasing pools (like the federal employees’ system) to give everyone a fair deal on coverage -- seems like an excellent combination. However, the structure of Dean’s tax credits -- which could cover 100 percent of premiums if they exceeded 7.5 percent of a taxpayer’s income -- would also be inflationary, rewarding people for choosing the highest-cost coverage.

Senator Kerry’s proposal includes some interesting stuff: Public reinsurance for the highest cost enrollees (those with more than $50,000 a year in health spending) and new federal employees-style purchasing pools. Plus some good ideas on quality improvement and electronic medical records. But Kerry’s “family care” plank is an even worse deal for states. And in general, the Kerry proposal is so convoluted that it may be hard to explain on the campaign trail.

President Bush’s long-standing health proposal -- tax credits for low-income people purchasing health insurance -- is less ambitious. It would not be inflationary, but it could disrupt employer-based health coverage because workers with employer coverage would not be eligible. Therefore, some healthy employees would have an incentive to drop job-based coverage and purchase a plan outside the workplace (and thereby receive the credit). However, that would raise costs for those remaining in the employer’s plan.

And after three years of tax cuts for virtually every other purpose, it’s clear the Bush Administration isn’t pushing its own proposal very hard. In sum, Bush’s proposal wouldn’t cost much, wouldn’t do much, isn’t really on the legislative agenda, and could mess things up if it actually was enacted.

Senator Lieberman hasn’t weighed in yet, and President Bush may modify his old proposal after the primaries are over and the one-on-one campaigning begins.

But so far, the candidates’ health proposals have not captured the public’s imagination. Nor have they inspired a groundswell of support for action on health coverage.

Links:

Gephardt Health Proposal
Dean Health Proposal
Kerry Health Proposal
Bush Health Credits Proposal

CBO's Blurry Medicare Estimates

Look closely at the Congressional Budget Office (CBO) estimates of the Senate's Medicare bill (S. 1). The first estimate, released June 17, was based on early specifications by the Finance Committee. It had a $41 monthly premium (in 2006), $151 billion in total premium collections over 10 years, and $455 billion in total benefit costs.

The second estimate, released a day later, incorporated several changes made to the legislative proposal by the committee. After those changes, the monthly premium in 2006 was reduced to $35 and it remained lower throughout the rest of the 10-year budget period. However, the total amount of premiums collected was unchanged at $151, identical in every year.

How could that be? Well, maybe CBO estimated more beneficiaries would enroll if the premium was lowered, a reasonable assumption. Price times quantity equals cost (or in this case Premium Rate times Number of Enrollees equals Premium Collections). So although it's sort of eerie that the total premium collections were identical in every year, it's mathematically possible that the total could still be $151 billion.

With an increased number of enrollees, surely the total benefit costs would go up, right? Actually, no. CBO estimated that the 10-year benefit costs fell slightly from $455 billion to $452 billion between the June 17 and June 18 estimates.

Hmmm. Maybe the benefit package was made less generous. Actually no, it wasn't, at least not in any easy-to-see way. You could look up the legislative language (I did). Didn't see any benefit reductions.

Could there be some other technical change to the legislative language that could simultaneously explain lower monthly premiums, identical annual premium collections, and slightly lower benefit costs? Some benefit change that is not obvious or apparent? Actually, yes. Chances are, some combination of policies changed enough to cause the strange set of corrections to the CBO estimate.

Has CBO explained any of this? No. Except for the changes to the numbers, the write up of the two CBO estimates is identical.

Should CBO explain such a change? Yes.

In the old days (the early 1990s), CBO produced bound reports on major health care estimates, with detailed tables and chapters explaining the figures and other analysis lawmakers might consider before enacting a bill. More recently, they produced written cost estimates, which explained the estimates thoroughly (although they did not usually contain additional analysis or perspective).

Last year, CBO's estimate of the House Medicare bill dispensed with the "Basis Of The Estimate" section, the part where they (would have) explained how the estimates were done.

This year, we don't even have the crudest explanation of why a major Medicare estimate changed, fairly significantly, from one day to the next.

I know these sorts of estimates are hard, and the pressures are great. I used to help do them.

But the current CBO process smells fishy. Mysterious estimates changing without explanation. No published explanations.

These sorts of problems are just the tip of the iceberg for CBO. When curious minds look into why this year's Medicare bills are structured as premium-based, stand-alone drug plans, administered by risk-bearing private health plans with an unorthodox but tightly prescribed benefit package, they should look to CBO. That's the only sort of market-based Medicare proposal CBO has been willing to even try to estimate over the last several years.

It doesn't matter that many outside analysts believe such a benefit structure is impractical and unworkable. Not to mention costly. Solving the workability problems inherent in this sort of benefit could easily double the stated $400 billion federal cost.

But when Congress decided to make a deal, that's the type of benefit they had to use. No other Medicare reform has been analyzed. Not the Medicare Commission's premium support model. Not the FEHB-style system with a defined contribution/high option drug benefit outlined in the "Breaux-Frist I" bill. Not the Medigap drug option originally favored when the "Breaux-Frist II" bill was being drafted. Each time, Medicare reformers got the same reasons CBO couldn't help: It was too uncertain, too difficult to estimate, there wasn't sufficient time. But without a CBO estimate, those proposals were dead in their tracks.

So we're stuck with a stand-alone, premium-based, unorthodox but highly specified drug benefit delivered (hopefully) by private risk-bearing plans.

Oh well, it's not as if the nation's fiscal future is at stake. Hmmm.

Links:
CBO Estimate of S.1 as modified (June 18, 2003)
CBO Estimate of S.1 (June 17, 2003)
Centrist Policy Network Legislative Resources Page
Centrists.Org Will the Senate's Medicare PPO Program Work? (6/11/2003)

Add Immediate "Catastrophic" Drug Coverage to Medicare

The Grassley-Baucus compromise Medicare proposal passed on a 16-5 vote in the Senate Finance Committee yesterday. Now it heads to the Senate floor for final passage. The House is highly likely to pass a similar bill. Both House and Senate plans will share two features: (1) a prescription drug discount card program that would be implemented in 2004, which seniors could access for a nominal fee, and (2) a complicated, premium-based drug benefit that would begin in 2006.

The premium-based drug benefit in 2006 has several potential workability problems: disincentives for employment-based retiree coverage, gaps in benefits, a potential lack of private plan participation, and, most importantly, adverse selection and possible large premium hikes.

We reckon there's about a 50 percent chance Congress would have to pour more money into the 2006 program (reducing premiums and adding benefits) to solve workability and popularity problems. Alternatively, there's a one-in-four chance Congress will end up just repealing the program, as cost overruns mount and the federal deficit balloons. (To be fair, there's probably a 25 percent chance the proposal would work as designed, without major problems or cost increases.)

By contrast, the 2004 discount card program would be relatively straightforward to implement and administer. It might also be surprisingly popular.

Both the Senate and House should consider building on the 2004 discount card program by adding an "extreme catastrophic" drug benefit for annual drug expenses over $10,000. A $10,000 catastrophic benefit is the core element of the proposal made by a "rump group" of House Commerce Committee members, led by Rep. Richard Burr (R-NC) and others.

By adding catastrophic coverage, seniors would at least get both discounts and "peace of mind" protection right away, long before the 2006 premium-based drug benefit was up and running.

Adding a $10,000 catastrophic benefit to the discount card would add about $12-13 billion to the cost of the Medicare bill over 10 years. That could be paid for by raising the coinsurance on the catastrophic part of the larger 2006 drug benefit from 10% to 15%.

Political compromises are rare in health care, and should be supported. Adding a catastrophic benefit would get a solid program up and running soon, and would give Medicare administrators time to solve the potential problems inherent in the larger drug benefit.

CBO Now Says Deficit Will Be Over $400 Billion

Congressional Budget Office (CBO)
Monthly Budget Report
June 9, 2003

"CBO now projects that the federal government is likely to end fiscal year 2003 with a deficit of more than $400 billion, or close to 4 percent of gross domestic product. The deterioration in the short-term budget outlook stems from continued weakness in revenue collections and from enactment of the Jobs and Growth Tax Relief Reconciliation Act of 2003, which will add an estimated $61 billion to this year’s deficit in the form of tax cuts, refundable credits, and aid to states. The recent extension of unemployment benefits will boost outlays by another $3 billion this year. For the first eight months of 2003, the government ran a deficit of $291 billion, CBO estimates, about twice the shortfall it incurred in the same period last year."

...

Links:
CBO Monthly Budget Report (June 9, 2003)
Centrists.Org No-BS Long-Term Budget Baseline (updated 5/24/2003)

Possible Amendments to the Senate Medicare Compromise

The Senate Finance Committee's compromise Medicare reform and drug benefit package can be gradually improved as it moves through the legislative process. Although the committee's approach is not ideal in some respects, compromises are rare, and any amendment strategy should be supportive of the overall measure, not destructive, or delaying, or "message" oriented. The following suggested amendments deal mostly with the structure of the drug benefit.

In general, the drug benefit should be as close to universal as possible, for clinical reasons and to prevent workability problems. To achieve near-universality, the premium should be lowered, even if that means higher beneficiary payments at the point of drug purchase. Also, the benefit should not cause disincentives for employers to offer prescription benefits to their retirees.

All of the amendments below are intended to be budget neutral. The estimates of budget neutrality are based on rough calculations from the drug benefit "calculator" provided by the Congressional Budget Office (CBO), and semi-educated hunches. CBO is the final judge of budget neutrality, and supporters of these types of amendments should contact CBO as soon as possible.

Option 1. is the preferred approach. It simplifies the benefit structure, reduces the premium, and eliminates disincentives for employer-based retiree coverage.

Option 1. Simplify the Benefit, Lower the Premium, Help Retiree Coverage.
Specifics: Raise the coinsurance rate from 10 percent to 20 percent above the catastrophic level; Eliminate the "upfront" deductible and the "doughnut hole" entirely; Increase the coinsurance rate from 50 percent to 75 percent below the catastrophic level; Allow employer-based retiree coverage to count toward the catastrophic benefit; Lower the monthly premium to approximately $24.

Before: $275 upfront deductible, 50% coinsurance above deductible before "doughnut hole" begins, 10% coinsurance above catastrophic level, retiree coverage does not count toward the catastrophic benefit, $35 premium.

After: No upfront deductible, 75% coinsurance, no "doughnut hole," 20% coinsurance above catastrophic level, retiree coverage counts toward catastrophic benefit, $24 premium.

Note: This option would effectively convert the upfront deductible, the 50 percent benefit range, and the "doughnut hole" zero-benefit range into a simple, 25 percent benefit from the first prescription of the year until a senior's annual drug spending reached the catastrophic level. At that point, an 80 percent benefit (similar to Part B) would kick in.

Option 2. Help Retiree Coverage, Raise Catastrophic Coinsurance.
Specifics: Raise the coinsurance rate from 10 percent to 20 percent above the catastrophic limit; Use the savings to allow employer-based retiree benefits to count toward the catastrophic coverage; (if necessary, boost the catastrophic level slightly).

Before: $275 upfront deductible, 50% coinsurance above deductible before "doughnut hole" begins, 10% coinsurance above catastrophic level, retiree coverage does not count toward the catastrophic benefit, $35 premium.

After: $275 upfront deductible, 50% coinsurance above deductible before "doughnut hole" begins, 20% coinsurance above catastrophic level, retiree coverage counts toward the catastrophic benefit, $35 premium, (possibly) slighly higher catastrophic level.

Note: Under this option, the catastrophic level -- that is, the point where the catastrophic benefit "kicks in" -- could be raised slightly to ensure budget neutrality.

Option 3. Lower the Premium, Raise Upfront Deductible and Catastrophic Coinsurance.
Specifics: Raise the coinsurance rate from 10 percent to 20 percent above the catastrophic level; Raise the "upfront" deductible from $275 to $500; Use the savings to lower the monthly premium from $35 to $22.

Before: $275 upfront deductible, 50% coinsurance above deductible before "doughnut hole" begins, 10% coinsurance above catastrophic level, $35 premium.

After: $500 upfront deductible, 50% coinsurance above deductible before "doughnut hole" begins, 20% coinsurance above catastrophic level, $22 premium.

Option 4. $10,000 Catastrophic Benefit With Discount Cards in 2004.
Specifics: Improve the discount card program that the proposal would initiate in 2004 by adding an extreme catastrophic benefit for total drug spending over $10,000. Pay for this by increasing the coinsurance on the larger drug benefit from 10 percent to 20 percent above the catastrophic limit.

Notes: This option would immediately create a combined discount card/extreme catastrophic option available to seniors for a nominal fee. Then, in 2006, when the fuller benefit was up and running, seniors could purchase that instead if they wished.

This option could be combined with elements of 1. 2. or 3. Like the universal catastrophic benefit proposal by Rep. Dooley and the cosponsors of H.R. 1568, a near-universal extreme catastrophic benefit (as proposed in the House by Reps. Burr, Norwood and others) would have helpful clinical implications far exceeding its apparent insurance benefit. It would provide Medicare with comprehensive information base that could be used to target disease management programs and other efforts to improve chronic care.

Links: Centrist Policy Network Legislative Resources Page (incomplete)
H.R. 1568 The Medicare RX Now Act of 2003 (Dooley)
President Bush's Medicare Framework
Centrists.Org The President's Medicare Framework: Good Ideas, Bad Rhetoric (4/20/2003)