Medicare Advantage Program

Comments for the Record

United States House of Representatives

Committee on Ways and Means

Health Subcommittee

Hearing on the Medicare Advantage Program

Tuesday, May 8, 2018, 10:00 AM

By Michael G. Bindner

Center for Fiscal Equity

Chairman Roskam and Ranking Member Levin, thank you for the opportunity to submit these comments for the record to the House Ways and Means Health Subcommittee. Please allow me to offer comments as a plan participant, especially the plan selection tool as well as how Medicare Advantage fits in with health care reform, particularly the proposal for Medicare for All by Senator Sanders, as well as our thinking on Medicare reform as submitted in 2013 and 2016. We will remind you of the nature of social insurance, funding levels and Medicare premium increases and funding options through tax reform.

Selection Tool Experience

Last Summer, due to gaining assets from a divorce, I was no longer eligible for Medicaid, so was on an Affordable Care Act policy that I still owe bills on for a fall and broken rib. I am disabled (not from the rib) and started Medicare in September. I had intended to select Medicare Advantage, but could only find Medicare Plus (Cost) plans. Whether this is an Advantage Plan or if I am even eligible is beyond me, and I was pretty sure I knew this stuff. The tool never told me I was not eligible for Part C, it just gave me A, B and D coverage. I chose my Medicaid provider for the ACA policy and for Medicare. So far, the medicine has not changed, although access to mental health services as decreased, although that could be because I am doing well, but I suspect this is due to decreased access to services in the program at large, largely due to the smaller provider pool allowed in Medicare.

Medicare for All, Do We Already Have It?

Medicare for All is a really good slogan, at least to mobilize the base. One would think it would attract the support of even the Tea Partiers who held up signs saying ”Don’t let the government touch my Medicare!” Alas, it has not. This has been a conversation on the left and it has not gotten beyond shouting slogans either. We need to decide what we want and whether it really is Medicare for All. If we want to go to any doctor we wish, pay nothing and have no premiums, then that is not Medicare.

There are essentially two Medicares, a high option and a low one. One option has Part A at no cost (funded by the Hospital Insurance Payroll Tax and part of Obamacare’s high unearned income tax as well as the general fund), Medicare Part B, with a 20% copay and a $135 per month premium and Medicare Part D, which has both premiums and copays and is run through private providers. Parts A and B also are contracted out to insurance companies for case management.

The other option is the Medicare Advantage (Part C) HMO. You pay a premium and copays, but there is much more certainty, while ABD are more like a PPO, but costs can go much higher. So much higher that some seniors and the disabled get Medicap coverage for the copays. Which is high and which low, I am not sure. They are both now managed care.

Medicaid lingers in the background and the foreground. It covers the disabled in their first two years (and probably while they are seeking disability and unable to work). It covers non-workers and the working poor (who are too poor for Obamacare) and it covers seniors and the disabled who are confined to a long-term care facility and who have run out their assets. It also has the long term portion which should be federalized, but for the poor, it takes the form of an HMO, but with no premiums and zero copays.

Obamacare has premiums with income-based supports (one of those facts the Republicans hate) and copays. It may have a high option, like the Federal Employee Health Benefits Program (which also covers Congress) on which it is modeled, a standard option that puts you into an HMO. The HMO drug copays for Obamacare are higher than for Medicare Part C, but the office visit prices are exactly the same.

What does it mean, then, to want Medicare for All? If it means we want everyone who can afford it to get Medicare Advantage Coverage, we already have that. It is Obamacare.

The reality is that Senator Sanders wants to reduce Medicare copays and premiums to Medicaid levels and then slowly reduce eligibility levels until everyone is covered. Of course, this will still likely give us HMO coverage for everyone except the very rich, unless he adds a high-option PPO or reimbursable plan.

Either Medicare for All or a real single payer would either require a very large payroll tax (and would eliminate the HI tax) or an employer paid subtraction value added tax (so it would not appear on receipts nor would it be zero rated at the border, since there would be no evading it), which we discuss below, because the Health Care Reform debate is ultimately a tax reform debate. Too much money is at stake for it to be otherwise, although we may do just as well to call Obamacare Medicare for All and agree to leave it alone.

Social Insurance

It is always important to note that the whole purpose of social insurance, including Medicare, is to prevent the imposition of unearned costs and payment of unearned benefits for not only the beneficiaries, but also their families.  Cuts which cause patients to pick up the slack favor richer patients, richer children and grandchildren, patients with larger families and families whose parents and grandparents are already deceased, given that the alternative is higher taxes on each working member.  Such cuts would be an undue burden on poorer retirees without savings, poor families, small families with fewer children or with surviving parents, grandparents and (to add insult to injury) in-laws.

Recent history shows what happens when benefit levels are cut too drastically.  Prior to the passage of Medicare Part D, provider cuts did take place in Medicare Advantage (as they have recently).  Utilization went down until the act made providers whole and went a bit too far the other way by adding bonuses (which were reversed in the Affordable Care Act). 

Funding Levels and Premium Increases

Shifting to more public funding of health care in response to future events is neither good nor bad.  Rather, the success of such funding depends upon its adequacy and its impact on the quality of care – with inadequate funding and quality being related.

One form of increased funding could very well be higher Part B and Part D premiums (or Part C).  This has been suggested by both the Fiscal Commission and the Bipartisan Policy Center.  In order to accomplish this, however, a higher base premium in Social Security would be necessary.  Our proposal is that to do this, the employee income cap on contributions should actually be lowered to decrease the entitlement for richer retirees while the employer income cap is eliminated, the employer and employee payroll taxes are decoupled and the employer contribution credited equally to each employee at some average which takes in all income.  If a payroll tax is abandoned in favor of some kind of consumption tax, all income, both wage and non-wage, would be taxed and the tax rate may actually be lowered.

Ultimately, fixing health care reform will require more funding, probably some kind of employer payroll or net business receipts tax – which would also fund the shortfall in Medicare and Medicaid (and take over most of their public revenue funding), regardless of whether Part B and D premiums are adjusted.  If the same consumption tax pays both retirement income and government health plans, the impact on the taxpayer is exactly nil in the long term. 

Funding Options Through Tax Reform

We will now move to an analysis of funding options and their impact on patient care and cost control.

The committee well understands the ins and outs of increasing the payroll tax, so we will confine our remarks to a fuller explanation of Net Business Receipts Taxes (NBRT). Its base is similar to a Subtraction Value Added Tax (VAT).

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.

If employer-provided care to retirees is not included, the best funding mechanism is a Value Added Tax with border adjustment, but at a higher rate to cover the loss.

The key difference between the two 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 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.

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.

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.