March 24, 2017

Posts on health care

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Tuesday, March 14, 2017 - 8:58 AM

The Congressional Budget Office (CBO) analysis of the American Health Care Act (AHCA) estimates that relative to current law the House Republican health care plan will decrease spending by $1,219.1 billion and decrease revenue by $882.8 billion, leading to a total deficit reduction of $336.5 over the 10-year budget window from 2017 to 2026.

While it is important to consider the projected loss of health insurance for 24 million people, this post will look at the numerous fiscal risks of the legislation.

The biggest of these risks is also the AHCA’s biggest omission: the absence of any provisions to control overall health care costs, and not just federal payments for those costs.

Although the AHCA reduces federal spending on health care, it doesn’t necessarily reduce the “cost curve” of long-term health care inflation. Ultimately that is a problem because if health care inflation isn’t controlled, long-term health care spending growth will continue to drive up the cost of Medicare, make the Medicaid savings assumed in the legislation more difficult to achieve, and decrease the relative value of the tax credits meant to help people find affordable health care insurance in the non-group market.

The AHCA potentially makes long-term cost...

Tuesday, February 21, 2017 - 12:20 PM

In the release of their annual projections for National Health Expenditures (NHE), the federal government's chief health care actuaries see the sector growing to represent one-fifth of the entire economy by 2025 (up from 18 percent in 2016). Understanding this growth and how to moderate it should be front-and-center for newly confirmed Secretary of Health and Human Services Tom Price.

Over the period of 2016-2025, the actuaries expect NHE to grow by an average of 5.6 percent a year, about 1.2 percent faster than the expected growth of the economy over the same time period.

The year 2016 itself actually saw a slight decline in the growth rate. Its 4.8 percent growth was the result of a slowdown relative to the prior two years, when new coverage under the Affordable Care Act (ACA) was phased in and there was a related increase in the usage and intensity of health care services.

However, the actuaries expect the growth rate to pick up over the projection period as the population ages, making more people eligible for Medicare and Medicaid, and as health care prices rise faster than prices in the overall economy. The two pieces of health care spending that will grow the fastest...

Monday, January 16, 2017 - 4:58 PM

While the budget resolution that congressional Republicans approved last week was designed to speed repeal of the Affordable Care Act (ACA), budget analysts and some lawmakers in both parties have expressed understandable concerns about such hasty action before a replacement health care plan is ready.

Over the weekend President-elect Trump raised further questions when he told The Washington Post he was almost finished with a plan designed to guarantee “insurance for everybody” but provided few details on how such an ambitious goal could be met.

As The Concord Coalition said in an issue brief last week: “As a matter of sound fiscal policy, it makes no sense to reverse the many spending and tax policies of Obamacare without knowing what comes next." Concord added that having a replacement plan ready is “the only way to avoid great fiscal uncertainty, showdowns and risk with regard to Obamacare repeal.”

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Tuesday, December 20, 2016 - 10:33 AM

Republican efforts to repeal Obamacare while imposing a delay on replacement plans could prove to be fiscally problematic.

From strictly a budgetary perspective, the “repeal and replace” plan being floated by Republicans can be viewed as simply an immediate $680 billion tax cut bill combined with an uncertain promise to achieve savings down the road.

Furthermore, those savings can only come from reducing the number of people with insurance or dramatically lowering the generosity of that insurance -- both politically unpopular options -- because you can’t keep just the good parts of Obamacare (for instance the ban on exclusion for pre-existing conditions) without the “bad” parts (subsidies for insurance and some type of mandate to keep healthy people in the insurance market).

This combination -- the immediate easy choice of a tax cut and the vague promise to make harder choices in the future -- is the definition of avoiding hard choices. Making it even more toxic is that the delay period itself might unravel the individual insurance market, making any replacement scheme even more costly or unworkable.

There are clearly ways to make Obamacare work better and there are ways to make it align with a more...

Tuesday, December 6, 2016 - 10:20 AM

How the incoming Trump administration handles health care policy is perhaps the most consequential question hanging over the nation’s budgetary outlook.

That’s why policy analysts are scrambling to read the tea leaves on health care amid conflicting signals. Republicans seem to have one foot on the gas pedal and one foot on the brakes.

For example, recent developments have led to intense speculation on whether the new administration will rapidly work to reform Medicare. On the campaign trail, candidate Trump was adamant that he would not touch the program other than by cutting waste, fraud and abuse. However, his selection of a strong Medicare reform advocate, House Budget Committee Chairman Tom Price (R-Ga.), to become secretary of Health and Human Services raises the prospect that something more might be contemplated.

House Speaker Paul Ryan, another strong advocate of Medicare reform, has indicated that he is still planning to push the issue soon, even as senior Senate Republicans have voiced caution. 

So it is understandable if some confusion has arisen as to the direction and pace of Medicare reform.

But the tension between speed and deliberation is best exemplified by the congressional Republicans’ developing strategy for delivering on their campaign promise to “repeal and...

Monday, December 5, 2016 - 2:44 PM

National health expenditures grew by 5.8 percent in 2015, pushing health care spending to 17.8 percent of the economy, up from 17.4 percent in 2014. This marks the second year in a row spending has grown more quickly than the economy, following a stable period from 2009 to 2013. 

The numbers come from a new report by actuaries at the Centers for Medicare and Medicaid Services (CMS). Increased spending had been widely expected, given expanded insurance coverage through the Affordable Care Act (ACA). The insured population rose from 86 percent of the country in 2013 to 90.9 percent in 2015. 

The actuaries said that in addition to spending on the newly insured, faster growth was driven by increased use and intensity of health care services and rapidly increasing spending on prescription drugs -- which grew by 9 percent after even more dramatic growth of 12.4 percent in 2014.

Slow growth in Medicare spending stands out as a bright spot in the report. While overall Medicare spending grew by 4.5 percent, on a per-enrollee basis spending only grew by 1.7 percent because the number of beneficiaries increased by 1.5 million. 

Even with moderate cost growth, more clearly needs to be done to slow health...

Tuesday, November 15, 2016 - 11:01 AM

The Affordable Care Act (ACA) dramatically altered the individual insurance market by forcing insurers to insure anyone regardless of health status or pre-existing conditions. It also eliminated caps on coverage. 

These changes have been popular. When elected officials say they support banning insurance companies from discriminating against individuals with pre-existing conditions, they are supporting this part of the ACA. One of what many people consider the “good parts” of the legislation.

Here is the rub -- you can’t just keep these “good parts” and repeal “the rest” of the ACA.

This is why: Health insurance is expensive. It is more expensive when medical costs are high and less expensive when medical costs are low. Thus, insurance costs can go up or down based on how small and sick the insured population is. (For the moment let’s leave aside that costs are also dependent on how much we pay doctors and hospitals for their work.) 

The big federal government health care programs -- Medicare (about 43 million insured) and Medicaid (62 million) -- tend to have enough people enrolled that there is a predictable mix of the healthy and the sick. For those programs, spending is more dependent on the number of people being provided with health insurance.

You can reduce that spending by...

Monday, May 2, 2016 - 3:44 PM

Health care cost-control efforts in the United States can often be described simply as “changing incentives.” The focus on incentives can be traced to two main circumstances:

1) The majority of politicians have opposed efforts to reduce costs simply through government price-setting, a mechanism widely used around the world to control costs.

2) The incentives in the U.S. health care system have been severely misaligned for decades, with all the actors -- from consumers to employers to insurance companies to physicians and hospitals -- having incentives to increase spending.

The most notable cost-related health care system changes of the past decade have attacked some of this misalignment and those efforts have contributed to historically slow growth rates for health care costs over the last five years.

The one area primarily untouched by those changes, prescription drug costs, is also the one area where inflation is growing rapidly, with 12.2 percent growth in 2014. Yet there appears to be an effort in the House and Senate...

Friday, November 6, 2015 - 11:44 AM

Rep. Scott Rigell (R-Va.) recently offered the America First Act, a bill to replace 75 percent of the sequester cuts scheduled under current law with a mix of reforms in mandatory spending and revenue increases from limiting tax expenditures.

In the aftermath of the bipartisan budget agreement, ideas like those in the Rigell plan could serve as models for long-term, bipartisan fiscal reform efforts in Congress.

The Rigell plan proposes a new framework that would achieve substantial deficit reduction while replacing the sequestration-level spending caps that are in place under current law. The plan comes at a time when a number of fiscal experts and lawmakers have concluded that the sequester caps are unrealistically tight.  

According to Congressional Budget Office (CBO) estimates, the Rigell bill would save $2.5 trillion over the 10-year budget window. It would do so by implementing a three-to-one mix of spending cuts to revenue increases, making major reforms to Social Security and Medicare to improve their long-term finances.

On the...

Monday, October 12, 2015 - 12:30 PM

There has recently been a renewed focus on a key provision in the Affordable Care Act (ACA) -- the so-called “Cadillac tax.” The tax, which will take effect in 2018, attempts to limit the tax-free treatment of employer-provided health insurance benefits by taxing them above a certain amount.

The “Cadillac” terminology arises because only the most expensive, generous insurance plans are initially projected to be hit by the tax. As insurance costs rise along with health care costs, more plans will gradually become partly subject to the tax, and thus the amount of fully tax-free health insurance in the country will fall.

This is good, because the exclusion of health insurance from taxation is widely considered economically inefficient and regressive tax policy. It is very expensive for the government, only provides benefits to some workers, distributes those benefits primarily to those who earn the highest incomes, and encourages higher health care spending. Economists believe that as the tax-based preference for health insurance over employee wages dissipates, employee wages will rise.

The Cadillac tax was always a suboptimal and clunky method through which to limit the health care tax exclusion because it does so indirectly (Concord’s...