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A Comparison Of The Health Care Sections In All 3 Deficit Reduction Proposals

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"A Comparison Of The Health Care Sections In All 3 Deficit Reduction Proposals"

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Earlier today, the Bipartisan Policy Center released a new set of recommendations to offer a “comprehensive plan to dramatically reduce America’s deficits and debt and strengthen our economy, enabling the nation to reclaim its future.” The report, titled, “Restoring America’s Future,” is now the third proposal that tries to balance the deficit by purportedly making the kind of difficult decisions that elected officials usually try to avoid. Earlier, the two chairmen of the President’s Fiscal Commission — former Sen. Alan Simpson and former White House Chief of Staff Erskine Bowles — released their draft recommendations for how Congress can achieve “nearly $4 trillion in deficit reduction through 2020″ while reducing “the deficit to 2.2% of GDP by 2015” and Rep. Jan Schakowsky (D-IL) — a member of the committee — issued her own progressive alternative. White House Budget Director and Federal Reserve Vice Chair Alice Rivlin, who helped author the BPC proposal, is also a member of the President’s Fiscal Commission.

What follows is a partial comparison of the health care sections in the three available proposals: the Simpson/Bowles report, Rep. Jan Schakowsky’s (D-IL) progressive proposal, and the Bipartisan Policy Center’s latest report:

Simpson/Bowles Proposal Schakowsky’s Proposal Bipartisan Policy Center’s Proposal
Cost Sharing in Medicare Replace existing cost-sharing rules with universal deductible, single
coinsurance rate, and catastrophic cap for Medicare Part A and Part B.
Does not specify. Increase Medicare B premiums from 25 to 35 percent.
Building on ACA Expansion of successful payment reforms, stronger Independent Payment Advisory Board (IPAB), tort reform, inserting a public option into the exchanges and all-payer rate setting. Robust public option tied to Medicare rates, reduce exclusivity period for biologics from 12 to 17 years, Medicare price negotiation for drugs, establish a Medicare-administered drug plan to compete with private plans. Tort reform to cap non-economic and punitive damages. Federal government will provide grants to states to test other models.
Doc Fix Replace cuts required by SGR through 2015 with modest reductions while directing CMS to establish a new payment system, beginning in 2015, to reduce costs and improve quality. Does not specify. The Task Force plan “accommodates a permanent fix” to the sustainable growth rate (SGR) mechanism, but does not provide additional details.
Tax Exclusion for ESI Capping the tax exclusion “for employer-provided health care at the amount of the actuarial value of FEHBP standard option. Does not specify. Cap the exclusion of employer-provided health benefits in 2018, and then phase it out by 2028.
Long Term Savings

Places a “global target” for total federal health expenditures after 2020 (Medicare, Medicaid, CHIP, exchange subsidies, employer health exclusion),” keeping growth at GDP plus 1%. Does not specify. Beginning in 2018, would limit the rate of increase of federal spending per beneficiary to 1% above the growth rate. Medicare beneficiaries would be charged higher premiums if costs rose faster. Also in 2018, begin reduce the amount by which Medicaid is growing faster than the economy.

By far the biggest disappointment of the BPC proposal is this idea of transitioning Medicare into a “premium support” program. Not only does that undermine the entire concept of social insurance, but it also transfers the entire cost of coverage to the individual. That is, if your costs exceed GDP plus 1%, you are on the hook for paying for the remaining health care expenditures.

Compare that with the more tame Simpson/Bowles approach. First, Simpson/Bowles considers the growth of Medicare, Medicaid, CHIP, exchange subsidies, and employer health exclusion in setting their target. BPC, only looks at Medicare. Simpson/Bowles triggers various policy options if costs increase faster than the GDP+1 target. Under the BPC proposal, the only option is higher premiums. The former requires the President to submit and Congress to consider reforms to lower spending like increasing premiums, overhauling the fee-for-service system, developing premium support for Medicare, adding a robust public option, and/or expanding IPAB.

The BPC’s Medicaid proposal is more interesting. The committee feels that states are gaming the shared financing arrangement between states and the federal government — by finding creative ways to increase their federal matching rate — and proposes an alternative that would allocate a complete component of the Medicaid program to each payer. Under the arrangement, the state, for instance, would fully finance and administer CHIP or long-term care, while the federal government would pay for all disabled beneficiaries in the program. This, BPC believes, would encourage both the state and the federal government to control spending in their respective section and thus lower spending. This idea has been around since the 1990s but it’s unclear that it would save money since each payer would still have to deal with rising costs in their particular section of the Medicaid program.

Update

Merrill Goozner catches an important oversight in my analysis and argues that the Simpson/Bowles proposal is worse:

The Bowles-Simpson plan would cap Medicare expenditures at GDP+1 percent after 2020, which leaves no room for the increase in the number of beneficiaries that is expected in future decades. The number of elderly will rise from 13 percent of the population today to 22 percent in 2050. Rivlin-Domenici, on the other hand, will increase spending PER BENEFICIARY by GDP+1, which is much less onerous. Still, as you point out, it is essentially privatization of Medicare, as will be explained tomorrow in my piece in The Fiscal Times. Nice chart otherwise, though.

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