The Commonwealth Fund Alliance for Health Reform Washington

The Commonwealth Fund Alliance for Health Reform Washington DC Medicare as a Building Block for Health Reform: Should Americans Buy In? June 6, 2008 Steven Lieberman Consulting LLC

Contents 1. Assessing “Building Blocks” Proposal – – Many Issues Need More Specification Questions about “Cost Estimate” 2. Fiscal Pressures: “Excess Cost Growth” 3. Key Choices: – – – “Part D” (Bidding) or “FFS” (Gov’t Prices) Other Strategies (HIT, Comparative Effectiveness, EHR/EMR, Public Health) Benefit & Coverage Expansions? 4. Conclusions 2 Lieberman Consulting LLC

Assessing “Building Blocks” Proposal Many “Open” Issues • Are tax rates sufficient? • Revenues & costs balanced over time? • Would employers drop worker coverage? • Early retiree costs shifted to taxpayers? • How would private (at risk) plans compete with government plan(s)? Selection issues? • How are plan costs & premiums set? • What are mechanisms for controlling costs? 3 Lieberman Consulting LLC

Assessing “Building Blocks” Proposal Not Credible “CBO” Cost Estimate • Assumes savings from unproven approaches & unspecified mechanisms • Costly Medicare expansion & offset unlikely • Long range costs could skyrocket: Federal subsidies linked to health care costs • Tax rate may be too low: maximum tax of $2600/employee could induce employer’s dropping of coverage 4 Lieberman Consulting LLC

Fiscal Pressures: Excess Cost Growth 5 Lieberman Consulting LLC

Revenues as a Percentage of GDP Under CBO’s Long-Term Budget Scenarios Percent 6 Lieberman Consulting LLC

Fiscal Pressures: Excess Cost Growth Historical growth averaged 3+% > GDP/capita • For 2018 - 2082, CBO now projects: – 1. 7% for Medicare & 0. 9% for Medicaid – CBO assumes gradual slowing from historical levels under current law • “Most of the [Medicare & Medicaid] increase that CBO projects will result from rising costs per beneficiary rather than rising numbers of beneficiaries [or their aging]. ” (May 28, 2008 CBO Issue Brief) 7 Lieberman Consulting LLC

Key Choices: Part D or FFS? • Is Part D Viable Model for Health Plans? – Vigorously competing, at risk plans – Strong “price signals” to beneficiaries – Regulation by RFP • Is FFS Viable for Medicare Extra? – Complexity & information requirements – Interest groups & Congress intervention? – Regulation by “command & control” 8 Lieberman Consulting LLC

Key Choices: Other Strategies • Evidence that HIT, EHR/EMR, Public Health & Comparative Effectiveness: – Improve health & health care? – Save money? • Important policy goals may be worthwhile, even if they increase costs, but – Key challenge for maintaining/expanding coverage remains lowering growth in health care costs 9 Lieberman Consulting LLC

Key Choices: Expand Benefits & Coverage • Expanding Coverage Will Increase Costs – Covering more people will add costs – Subsidizing coverage will add costs – Shifting retiree costs will save companies but cost taxpayers money • Enhancing Benefits Will Increase Costs – Proposed Medicare expansions expensive • Certainty about How to Spend More – Uncertainty about how to reduce costs! 10 Lieberman Consulting LLC

Conclusions 1. Building Blocks has Many Key Parts, but – Costs don’t add up – Many open questions 2. Critical to Lower Actual Cost Growth – CBO projections already assume “success” – Better at spending money than lowering costs 3. Part D “Bidding” Better Model than FFS? 4. Critical to Invest in More Government Capacity (CMS, Med. PAC, FEHB, etc) 11 Lieberman Consulting LLC