Efforts to Combat Waste, Fraud, and Abuse in the Medicare Program

Comments for the Record

United States House of Representatives

Committee on Ways and Means

Subcommittee on Oversight

Hearing on Efforts to Combat Waste, Fraud, and Abuse

in the Medicare Program

Wednesday, July 16, 2017, 10:00 A.M.

By Michael G. Bindner

Center for Fiscal Equity

Chairman Buchanan and Ranking Member Lewis, thank you for the opportunity to submit these comments for the record to the Oversight Subcommittee.  As usual, we will preface our comments with our comprehensive four-part approach, which will provide context for our comments.

• A Value Added Tax (VAT) to fund domestic military spending and domestic discretionary spending with a rate between 10% and 13%, which makes sure very American pays something.
• Personal income surtaxes on joint and widowed filers with net annual incomes of $100,000 and single filers earning $50,000 per year to fund net interest payments, debt retirement and overseas and strategic military spending and other international spending, with graduated rates between 5% and 25%.  
•  Employee contributions to Old Age and Survivors Insurance (OASI) with a lower income cap, which allows for lower payment levels to wealthier retirees without making bend points more progressive.
• A VAT-like Net Business Receipts Tax (NBRT), which is essentially a subtraction VAT with additional tax expenditures for family support,  health care and the private delivery of governmental services, to fund entitlement spending and replace income tax filing for most people (including people who file without paying), the corporate income tax, business tax filing through individual income taxes and the employer contribution to OASI, all payroll taxes for hospital insurance, disability insurance, unemployment insurance and survivors under age 60.

We will leave it to the administration witnesses to confirm what has been widely reported about the success of the anti-Medicare fraud provisions in the Affordable Care Act. It seems that finally we have refomrs that have made a differece. Please do not mess them up. Tax evasion and fraud are not conservative values, although you would never guess that given some of the rhetoric coming out of the Freedom Caucus. We will confine ourselves to comments about how future plans may lessen fraud.

Under our proposal, Medicare’s non-premium funding (assuming we decide to keep this feature), will be through the Net Business Receipts Tax (or Subtraction VAT). This would also include the unearned income payroll taxes passed as part of the Affordable Care Act.

Unlike a VAT, an NBRT would not be visible on receipts and should not be zero rated at the border – nor should it be applied to imports. While both collect from consumers, the unit of analysis for the NBRT should be the business rather than the transaction. As such, its application should be universal – covering both public companies who currently file business income taxes and private companies who currently file their business expenses on individual returns.

The key difference between the two consumption taxes is that the NBRT should be the vehicle for distributing tax benefits for families, particularly the Child Tax Credit, the Dependent Care Credit and the Health Insurance Exclusion, as well as any recently enacted credits or subsidies under the ACA. In the event the ACA is reformed, any additional subsidies or taxes should be taken against this tax (to pay for a public option or provide for catastrophic care and Health Savings Accounts and/or Flexible Spending Accounts).

The NBRT would replace disability insurance, hospital insurance, the corporate income tax, business income taxation through the personal income tax and the mid-range of personal income tax collection, effectively lowering personal income taxes by 25% in most brackets.

Note that collection of this tax would lead to a reduction of gross wages, but not necessarily net wages – although larger families would receive a large wage bump, while wealthier families and childless families would likely receive a somewhat lower net wage due to loss of some tax subsidies and because reductions in income to make up for an increased tax benefit for families will likely be skewed to higher incomes. For this reason, a higher minimum wage is necessary so that lower wage workers are compensated with more than just their child tax benefits.

If in the future a single payer or public option plan is adopted, the Medicare anti-fraud provisions of the Affordable Care Act would be extended to the public option or to Single Payer insurance, which should also be given enhanced baragaining power over run-away hospital and drug costs. Free market mechanisms simply do not work when drug makers have monopoly pricing for new drugs, as enhancned by out of control patent protections. Additionally, the closure of perfectly good hospitlas and their purchase by monopolists is big capitalism, not free markets.

The NBRT can provide an incentive for cost savings if we allow employers to offer services privately to both employees and retirees in exchange for a substantial tax benefit, either by providing insurance or hiring health care workers directly and building their own facilities. Employers who fund catastrophic care or operate nursing care facilities would get an even higher benefit, with the proviso that any care so provided be superior to the care available through Medicaid. Making employers responsible for most costs and for all cost savings allows them to use some market power to get lower rates, but no so much that the free market is destroyed.

This proposal is probably the most promising way to arrest health care costs from their current upward spiral – as employers who would be financially responsible for this care through taxes would have a real incentive to limit spending in a way that individual taxpayers simply do not have the means or incentive to exercise. While not all employers would participate, those who do would dramatically alter the market. In addition, a kind of beneficiary exchange could be established so that participating employers might trade credits for the funding of former employees who retired elsewhere, so that no one must pay unduly for the medical costs of workers who spent the majority of their careers in the service of other employers.

This provision would also eliminate large scale fraud, as employers would have the incentive to guard against it and seek immediate restitution. The burden would be taken off of any Medicare or Single-Payer program.

Thank you for the opportunity to address the committee.  We are, of course, available for direct testimony or to answer questions by members and staff.