Over the next 10 years, if left unchanged, Obamacare will take $500 billion from Medicare. Medicare beneficiaries will see higher premiums. Doctors, nurses, hospitals, and medical suppliers will get lower payments. Under Obamacare, Medicare reductions will be used to subsidize expanded Medicaid to low-income recipients and to fund insurance for the uninsured. This redistribution of funding from Medicare to other programs is the most controversial part of health reform.
Health and wellth
Seventy-eight million baby boomers become eligible for Medicare over the next decade. For them, reform is more than a redistribution of “wealth.” It is a redistribution of their “health and wellth.” They will get less healthcare, others will get more. Payment reductions lower their ability to access quality preventive services, early intervention, and acute care treatments. Many seniors believe Obamacare threatens their health and wellbeing.
Medicare beneficiaries paid for Medicare during their entire working lives. For them, it is not an argument of healthcare as a right or a privilege. Medicare is a solemn contract with the federal government. They paid for the coverage with Medicare taxes and continue to pay Medicare premiums. They expect that contract to be upheld. For Medicare beneficiaries, healthcare is not a political game, it is a matter of life and death.
The ignored “doctor fix”
Obamacare ignored Medicare’s biggest financial issue. On December 1, 2010, Medicare doctors face a 20% reduction in fees. On January 1, 2011, doctors face another 6.5% reduction. Neither Republicans nor Democrats want that to happen. The price tag to make a one-time permanent correction is about $250 billion. This is referred to as the “doctor-fix.” These draconian reductions will dramatically cut access to care and will destroy quality of care for the elderly. If these reductions are allowed to go into effect, 30-40% of doctors will refuse to accept Medicare patients.
Obamacare included $115 billion in reductions to Medicare Advantage, a private insurance option. Eleven million Medicare Advantage beneficiaries are now getting notices of coverage reductions, high premium increases, or cancellation. Millions of others covered by company-sponsored retirement health plans are seeing them eliminated or benefits lowered.
In November 2010, voters sent a message to lower spending, reduce the deficit, and eliminate wasteful government spending. The lame-duck Congress and the new 2011 Congress will face an early challenge. Congress must find a way to fix the wrongs of Obamacare and stay true to voters demanding fiscal responsibility. We cannot fund these Medicare changes with more debt.
Medicare cuts subsidize others
Medicare beneficiaries don’t want their program slashed to subsidize others who already have government-subsidized alternatives or could pay their own way. Low-income citizens have access to government-subsidized Medicaid, Federally Qualified Healthcare Clinics, community services, county health departments, and free clinics. About 60% of uninsureds are under age 35. The fastest growing population of uninsureds are young persons earning above $50,000 per year who choose not to purchase health insurance.
Help the uninsured
Americans are generous and believe in a reasonable safety net. They believe in helping those in need, but do not want a system that ignores personal responsibility or eliminates the cost of bad adult decisions. The principle held by most is to provide a hand up not a handout. The “economically needy” can be funded more rationally. The uninsured due to pre-existing conditions can be covered at a reasonable cost under a federally-supported high risk pool. Insurance reform should include restrictions on policy rescissions, improved appeal processes, coverage for dependent children, price and quality transparency, and expanded use of information technology. Many of these changes are already in state laws. These administrative changes do not require government expenditures.
Create affordable options
There are low-cost insurance options and alternatives available. Insurance with health savings accounts are 12-20% lower cost than traditional insurance. Allowing purchase of insurance across state lines could lower costs by an additional 5-10%. Litigation and malpractice reform is estimated to lower premiums at least 5%. Allowing individuals the same tax advantages provided to group plans would lower the net cost of insurance. Premium credits for maintaining health and adherence to medical treatments can lower premiums even more.
Eliminate broad-based subsidies
Under Obamacare, federal premium subsidies are available to individuals earning up to $88,000 per year for those purchasing coverage from a “Health Insurance Exchange” (HIE). Fifty-eight percent of the population is eligible for a subsidy. Many of those eligible for subsidies can afford to pay their own premiums. In the 10-year budget cycle, these broad-based premium subsidies will cost over $450 billion. This is more than a safety net. Instead of focusing on those in need, these subsidies are viewed by many as going to the “politically favored.”
Medicare and Medicaid fraud amounts to between $30-60 billion per year. Over a 10-year period this would amount to $300-600 billion in savings. There are 159 new Obamacare agencies, departments, work groups, and commissions. We can eliminate funding for most of the departments that were established to hand out grants, research projects, costly studies, and produce intrusive rules and regulations controlling the delivery of healthcare. Doing so would save hundreds of billions over 10 years.
Billion more in administrative costs could be saved if governors united around a rejection of the Obamacare “health insurance exchanges” in favor of private market “health information exchanges.”
Budget-neutral funding: restoring and modernizing Medicare
The $500 billion taken out of Medicare must be restored. Without adding to the deficit, we can restore soundness to Medicare by eliminating the subsidies scheduled for the health insurance exchanges. The $450 billion savings from the elimination of HIE subsidies would cover the $250+ billion required to solve the “doctor-fix,” keep the Medicare Advantage option, and allow for modernization of Medicare.
Medicare is a 1964 plan design that should be transformed into a modern comprehensive medical plan. By restoring funds to Medicare, there would be enough to increase the Medicare hospitalization coverage from 150 days to 365 days (As provided by most Medicare Advantage Plans). Medicare Part A and Part B could be brought in line with pre-65 employer coverages by combining the deductibles into a single amount and limiting maximum out-of-pocket costs.
Medicare beneficiaries should be allowed to establish or maintain a tax-advantaged health savings account (HSA). With Medicare rewards and incentives for following a healthy lifestyle and adherence to physician-developed medical treatments, we could see the same 12-20% savings being generated by employer plans.
These changes would free most seniors from the need to purchase Medi-Gap coverages. The $200-300 per month premium savings could then be used to fund a Medicare HSA or pay for other living needs.
Health reform “re-do”
In 2010, all sides agreed on the need for healthcare and insurance reform. There were clear differences in what that meant and the process to achieve it. With the power shift in Washington, we may be able to get a “re-do” on correcting some fatal flaws in Obamacare.
Republicans may need to put forth a “repeal and replace” bill to better identify those Democrats willing to begin work toward new health reform. Taking control of the House of Representatives does not give Republicans the power to “repeal and replace” Obamacare. Senate Democrats can block any repeal with a filibuster, and even if that fails, there is not a two-thirds majority vote in both chambers to override a presidential veto.
A good start: corrective Medicare reform
A “new health reform” is needed to correct the problems of Obamacare and improve the overall healthcare and insurance system in the United States. This is especially true for the Medicare program. Unfortunately, Obamacare was designed as a vehicle to “rob Peter to pay for Paul.” Seniors need healthcare more than most. There are other solutions to the uninsured problem. Medicare should not be the Peter to the uninsured Pauls. They both need access to quality care. We need to restore the wealth taken from Medicare, but mainly we need to restore its value for the “Health and wellth” it will otherwise deprive Grandma.
Ronald E. Bachman FSA, MAAA, is a Senior Fellow at the Center for Health Transformation, an organization founded by former U.S. House Speaker Newt Gingrich. Nothing written here is to be construed as necessarily reflecting the views of the Foundation or the Center for Health Transformation or as an attempt to aid or hinder regulations or the passage of any bill before the U.S. Congress.