Solving the Problem of Medicare Parts B and D
Bruce Bartlett wrote in the New York Times on May 17 on the nature of the Medicare financial problem and how to fix it. The information he imparted is invaluable, however I disagree with his solution, which is to stop doing the Doc Fix.
He relates that the Affordable Care Act (ACA) expansion of funding brought the Hospital Insurance Trust Fund (Part A) into balance, with parts B (doctor visits) and D (Drug coverage) responsible for most of the unsustainable cost growth, as patient premiums have declined from 50% of spending to 25% and with Drug coverage not at all close to covering program costs.
Stopping doctor bills from going up on the demand side will not work. We know that because it did not work for Medicaid - since restricting payments have stopped most doctors from taking Medicaid).
As the Center for Budget and Policy Priorities reports, allowing the Bush/Obama tax cuts to expire on schedule will rather automatically cut the deficit to net interest costs - essentially stopping the need for any cuts at all - although many doubt the President has the intestinal fortitude or the desire to do this, since he listens to donors as much as the GOP does. This solution will happen only if Obama does not cave.
Frequent readers know that my solution is to consolidate all funding for health care, child tax subsidies and other support to individuals and families into a net business receipts tax, which would work like a no-visibility value added tax (VAT) with offsets for employers who provide services rather than having the government do it - up to and including retiree health care. Because of the option to provide private sector care, I believe it to be the most libertarian of plans possible - aside from simply cutting benefits and hoping everyone copes (which to my view is faux libertarianism, even though it is mainstream in that community).
Premium support is an oft mentioned alternative, although this will only work if the ACA is left in place, which Ryan does not do for partisan reasons, even though the pre-existing condition reforms and exchanges under it would gaurantee that seniors will be covered and repealing them will not.
The issue with the pre-existing condition reforms, which no one is talking about, is that the mandates under the ACA may be inadequate to keep people from dropping insurance - and will certainly not work if the mandate is rejected altogether (which is now Dogma in the GOP). This will lead to either the collapse of private insurance or the need to repeal pre-existing condition reforms and replace them with a subsidized public option for those who cannot get insurance. Of course, since seniors would be in that group in a premium support reform, such a solution would ultimate do nothing to fix Medicare.
The problem with Medicare Part B is that increases cannot keep up with costs, like they do in the private market, because doing so violates the commitment to not cut Social Security benefit checks. The cost of living adjustment must be high enough to cover the premium increase each year - although for many that is all it does. Further cuts brings up the spectre of seniors eating cat foot to make ends meet, hence the reason that the Fiscal Commission was called the Cat Food Commission by progressives.
Premium support and not patching doctor fees are attempts to make doctors restrict their costs - both to seniors and overall. Prices naturally rise more quickly than inflation because these services are subsidized, so any copay must be increased to slow demand from users in exactly the same way the market would without subsidies or insurance. The desire to make doctors pay more is a recognition that the main impact of both insurance and subsidies (and subsidies for insurance) is higher income for doctors and a larger medical care sector than would otherwise occur in a free market.
Our hybrid system is the most expensive option - either going to much less comprehensive insurance for everyone or an entirely governmental system would be cheaper, but is politically untenable (at least until private insurance collapses or is eventually supplanted by an ever expanding public option).
Going after doctors still won't work, however, as the Medicaid experience clearly shows. Premium support is a way to have insurance companies go after doctors instead, but that will likely yield the same result. Shifting the financial obligation to employers and past employers, as I have suppested previously, would likely control doctor costs, however I don't see the establishment stomaching such a reform just yet, even though it is the most likely to save money. Irregardless, some employers are too small to support a medical staff or support retiree health care, so some kind of public program is still necessary, with reform all the more crucial.
Making patients more conscious of their care might do the trick, both with more realistic premiums for Part B and Part D, with both rising to absorb half the cost - although premiums could be lowered by increasing copays and providing seniors with Flexible Spending and/or health savings accounts. The problem is that this is untenable when dealing with a population with largely fixed incomes. That problem, however, is not unsolvable.
The obvious solution, which no one has yet suggested, is to change how COLAs are calculated, moving from the wage index to an index based on what seniors actually buy - especially health care. If premiums were increased quickly, COLA changes would have to be as rapid.
Such a proposal would hasten the date that the Old Age and Survivors Insurance fund needs rescue. It also impacts lower income seniors to a greater extent than higher income seniors, since they have less left over after any mandatory copay. Either bend points would have to be reset or the entire complicated system of bend points would have to be replaced a new method of crediting contributions, where employer contributions are credited equally rather than as a match to the employee contribution - thus moving redistribution from the benefits side to the revenue side.
An average employer contribution would provide even more incentive for increasing the amount of income subject to benefits - or even eliminating the cap altogether. Of course, if you do the latter, we might as well simply use a Net Business Receipts Tax or a VAT to replace the employer contribution (which captures all income with the latter burdening imports as well) - unless of course we adopted Personal Retirement Accounts.
Before my fellow liberals get all upset, the accounts I suggest are not the kind the Cato Institute, with backing from Wall Street, want - but instead accounts which hold insured employer voting stock - which would instead diminish both Wall Street and the financial sector until they can be drowned in the same bathtub Grover Norquist wants to use to drown government.
He relates that the Affordable Care Act (ACA) expansion of funding brought the Hospital Insurance Trust Fund (Part A) into balance, with parts B (doctor visits) and D (Drug coverage) responsible for most of the unsustainable cost growth, as patient premiums have declined from 50% of spending to 25% and with Drug coverage not at all close to covering program costs.
Stopping doctor bills from going up on the demand side will not work. We know that because it did not work for Medicaid - since restricting payments have stopped most doctors from taking Medicaid).
As the Center for Budget and Policy Priorities reports, allowing the Bush/Obama tax cuts to expire on schedule will rather automatically cut the deficit to net interest costs - essentially stopping the need for any cuts at all - although many doubt the President has the intestinal fortitude or the desire to do this, since he listens to donors as much as the GOP does. This solution will happen only if Obama does not cave.
Frequent readers know that my solution is to consolidate all funding for health care, child tax subsidies and other support to individuals and families into a net business receipts tax, which would work like a no-visibility value added tax (VAT) with offsets for employers who provide services rather than having the government do it - up to and including retiree health care. Because of the option to provide private sector care, I believe it to be the most libertarian of plans possible - aside from simply cutting benefits and hoping everyone copes (which to my view is faux libertarianism, even though it is mainstream in that community).
Premium support is an oft mentioned alternative, although this will only work if the ACA is left in place, which Ryan does not do for partisan reasons, even though the pre-existing condition reforms and exchanges under it would gaurantee that seniors will be covered and repealing them will not.
The issue with the pre-existing condition reforms, which no one is talking about, is that the mandates under the ACA may be inadequate to keep people from dropping insurance - and will certainly not work if the mandate is rejected altogether (which is now Dogma in the GOP). This will lead to either the collapse of private insurance or the need to repeal pre-existing condition reforms and replace them with a subsidized public option for those who cannot get insurance. Of course, since seniors would be in that group in a premium support reform, such a solution would ultimate do nothing to fix Medicare.
The problem with Medicare Part B is that increases cannot keep up with costs, like they do in the private market, because doing so violates the commitment to not cut Social Security benefit checks. The cost of living adjustment must be high enough to cover the premium increase each year - although for many that is all it does. Further cuts brings up the spectre of seniors eating cat foot to make ends meet, hence the reason that the Fiscal Commission was called the Cat Food Commission by progressives.
Premium support and not patching doctor fees are attempts to make doctors restrict their costs - both to seniors and overall. Prices naturally rise more quickly than inflation because these services are subsidized, so any copay must be increased to slow demand from users in exactly the same way the market would without subsidies or insurance. The desire to make doctors pay more is a recognition that the main impact of both insurance and subsidies (and subsidies for insurance) is higher income for doctors and a larger medical care sector than would otherwise occur in a free market.
Our hybrid system is the most expensive option - either going to much less comprehensive insurance for everyone or an entirely governmental system would be cheaper, but is politically untenable (at least until private insurance collapses or is eventually supplanted by an ever expanding public option).
Going after doctors still won't work, however, as the Medicaid experience clearly shows. Premium support is a way to have insurance companies go after doctors instead, but that will likely yield the same result. Shifting the financial obligation to employers and past employers, as I have suppested previously, would likely control doctor costs, however I don't see the establishment stomaching such a reform just yet, even though it is the most likely to save money. Irregardless, some employers are too small to support a medical staff or support retiree health care, so some kind of public program is still necessary, with reform all the more crucial.
Making patients more conscious of their care might do the trick, both with more realistic premiums for Part B and Part D, with both rising to absorb half the cost - although premiums could be lowered by increasing copays and providing seniors with Flexible Spending and/or health savings accounts. The problem is that this is untenable when dealing with a population with largely fixed incomes. That problem, however, is not unsolvable.
The obvious solution, which no one has yet suggested, is to change how COLAs are calculated, moving from the wage index to an index based on what seniors actually buy - especially health care. If premiums were increased quickly, COLA changes would have to be as rapid.
Such a proposal would hasten the date that the Old Age and Survivors Insurance fund needs rescue. It also impacts lower income seniors to a greater extent than higher income seniors, since they have less left over after any mandatory copay. Either bend points would have to be reset or the entire complicated system of bend points would have to be replaced a new method of crediting contributions, where employer contributions are credited equally rather than as a match to the employee contribution - thus moving redistribution from the benefits side to the revenue side.
An average employer contribution would provide even more incentive for increasing the amount of income subject to benefits - or even eliminating the cap altogether. Of course, if you do the latter, we might as well simply use a Net Business Receipts Tax or a VAT to replace the employer contribution (which captures all income with the latter burdening imports as well) - unless of course we adopted Personal Retirement Accounts.
Before my fellow liberals get all upset, the accounts I suggest are not the kind the Cato Institute, with backing from Wall Street, want - but instead accounts which hold insured employer voting stock - which would instead diminish both Wall Street and the financial sector until they can be drowned in the same bathtub Grover Norquist wants to use to drown government.
posted by Michael Bindner at 1:34 PM
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