President Obama’s health care summit is set to begin at 10 AM and end at 4 PM. Throughout the summit, Heritage experts will provide their analysis. We will keep this post at the top of the Foundry, so check back often for our latest reaction to the summit.
3:42 - In response to Congressman Paul Ryan’s presentation on the deficits and the rapidly rising health care spending under the health legislation, the President responded by focusing on Medicare advantage. But in his reply to Rep. Ryan, the President has gotten his facts wrong. He insisted that the focus of the cuts, approximately $500 billion, would be payment reductions to Medicare Advantage, but in fact the bulk of the cuts (depending on whether one uses the House or the Senate health bills) amount to cuts in other Medicare reimbursements, including Medicare payment updates. As CBO and others have argued the cuts to Medicare advantage will result in cuts to benefits. On the wisdom of Medicare Advantage itself, there is no doubt that the payment system should be improved, as Heritage and others have long insisted. But the President indicates that the extra money is going to insurance companies. In fact, the additional payments are going to Medicare beneficiaries in additional benefits, and they are getting, as enrollees, superior value for the dollars in an integrated system that includes preventive care, wellness and prescription drug coverage, as well as routine physical examinations, eye and hearing exams (a description of this system, here). Moreover, under current law, any additional government payment to Medicare Advantage plans, over a benchmark payment, is to be returned to Medicare beneficiaries in the form of additional benefits or savings to the taxpayer. The current breakdown is 75 percent to the beneficiaries and 25 percent to the taxpayers. – Bob Moffit
3:31 - President Obama in discussing the mandate states that “It makes sense to us to have everyone purchase insurance.” His reasoning is that the mandate is necessary to prevent healthy people from dropping out of health insurance pool and collapsing the market. Unfortunately the mandate will leave young people with an unpleasant choice between expensive, comprehensive coverage and a government fine. As Senator Grassley pointed out this would be the first time in our nation’s history that the government will fine individuals for failure to purchase something. – Brian Blase
3:11 - Senator Coburn makes the salient point often missing from the political discussion – benefits must be paid for with current or future taxes. The Democrats talk about filling the “donut hole” in Medicare prescription drug coverage. They fail to mention that filling the “donut hole” will require increased taxes or deficit spending. In the current environment of trillion dollar deficits, Senator Coburn makes a valid point that instead of expanding entitlements, we should focus on improving the efficiency of the entitlements that we already have. Many seniors do not want to personally benefit at the expense of their children and grandchildren. – Brian Blase
3:00 - Paul Ryan just read the President chapter and verse on why his deficit reductions claims are completely fraudulent. James Capretta also details Obamacare’s shenanigans here. – Conn Carroll
2:46 - Biden is wrong. Senate bill does not cut health care costs. According to the President’s own Centers for Medicare and Medicaid Services (CMS), the Senate bill increases total national health expenditures by $234 billion by 2019. -Conn Carroll
2:25 - Tom Harkin re-iterates his claim that we need to have affordable and comprehensive coverage for all. Does he not realize that these two goals are in direct conflict with each other? Providing comprehensive coverage with no lifetime annual caps, low deductibles, low co-payments, mandates for certain procedures that insurance must cover, and community rating systems will not lead to lower health care costs and will lead to higher premiums for most families. The first session of the health care summit was focused on controlling health care costs. The second session of the health care summit is focused on insurance reform, with the ultimate Democratic goal of universal health coverage. If they are serious about reconciling these two goals, the bias in the tax code that subsidizes comprehensive coverage at the expense of catastrophic coverage has to be removed. If the Senate health bill passes, individuals will get more comprehensive coverage through mandates, but costs and premiums will continue to explode. – Brian Blase
1:00 - The President just got his facts wrong again on the insurance regulation issue. When Rep. Cantor pointed out that the Sec. of HHS would define the minimum benefit package for health insurance, the President responded that those provisions would only apply to coverage in the exchange. Not true. The House and Senate bills would impose those minimum benefit standards on all plans, including self-insured employer and union plans. – Ed Haislmaier
12:35 - All sides of the debate are interested in reducing cost and expanding coverage. Many of Obama’s proposals use government policies to force companies to reduce price, which is not the same as reducing costs. Obama wants to mandate companies to provide government-approved insurance, and mandate that individuals buy insurance, and controls the price at which they can provide it; in other words, government has created a “market” by forcing the buyer to buy and the seller to sell, and has set the price. If real costs fall, and competition is expanded, prices will fall too. On the other hand, if the market is replaced by a government controlled exchange costs will only rise but prices will be fixed low. Like any price control this will mean shortages – and waiting lists. At that point the government will be forced to introduce rationing and targets to direct health care providers that have no interest in serving their customers. The NHS in the England provides clear evidence of what happens when you go down this road. – Guinevere Nell
12:25 - Whoa! The President just shot himself in foot on the mandated benefit issue — repeatedly! He said the reason that coverage would be more expensive under the bill is because the coverage would offer more benefits. That is true. But then he almost (but not quite) said that people could still choose something else if they wanted too. He stopped mid-sentence probably because he realized what he was about to say wasn’t true. He then pivoted to state that the coverage Congress has includes a minimum benefit package and doesn’t have high-deductible plans. Both of those things are untrue.
The Federal Employee Benefits Program that covers federal workers (including Congressmen) does not have a minimum benefit package but it does offer high-deductible HSA plans. A little while later he said you could keep you existing “grandfathered” coverage, only to have Sen. Kyl immediately correct him by pointing out that the legislation only allows for “grandfathered’ plans for a limited time, and imposes new requirements on those plans as well. – Ed Haislmaier.
12:19 - Chuck Schumer argued that “we should reward doctors for quality not quantity” – but this is exactly the same struggle that the NHS has with trying to guide doctors, hospital administrators, and other health care providers. It is impossible for the government to guide any supplier of goods and services to serve the customer – they can only provide targets, price controls, mandates and other regulations on behavior. Profit and loss, in conjunction with competition, is the system that can ensure an enterprise serves its customers. This is why it is so important to introduce competition back into the health care industry, rather than adding new regulations, targets and controls in hopes of making insurance companies serve customers better. – Guinevere Nell
11:56 - According to a report released today by the Joint Committee on Taxation (JCT), President Obama’s health care plan will raise taxes by $414 billion between 2010 and 2019. But, as James Capretta pointed out yesterday, the President’s proposal would cost over $1 trillion over the next ten years. That leaves a deficit of over $600 billion. The President has said repeatedly that his plan would not add one dollar to the deficit. If that is so, where does the remaining $600 billion come from to make the plan revenue-neutral?
The biggest revenue raisers in the Obama plan are the excise tax on “Cadillac” insurance plans costing more than $10,200 for individuals and $27,500 for families and a wrong-headed increase of the Hospital Insurance (HI) portion of the payroll tax for taxpayers earning more than $250,000. Together they account for more than half of all the revenue increases in the President’s plan. The President’s plan would also for the first time apply the HI tax to investment income, breaking long-held policy and setting a dangerous and economically harmful new precedent. Combined, these proposals cover less than half the cost of the bill. Perhaps there are spending cuts in the plan nobody has found yet. We’ll keep looking. – Curtis Dubay
11:51 - Here’s another example of how the two sides have completely different approaches. Democrats are touting how their bills have provisions to crackdown on waste and fraud in government programs and noting that Republicans agree with those provisions. From the Republican side Sen. Coburn points out that fraud in private insurance is around one percent while fraud in government programs is estimated at 15%. So by inference, the better way to eliminate fraud would be by giving Medicare and Medicaid beneficiaries the money and let them pick the private plan of their choice. – Ed Haislmaier
11:27: – Will health insurance premiums increase from the Senate bill? As usual the president is playing fast and loose with the facts. The Congressional Budget Office (CBO) says that premiums would go down in the individual market from the Senate bill for the kinds of insurance offered today. The problem is that the President’s bill also makes it impossible for people to get that kind of insurance. They would be forced into more expensive plans, with higher premiums. 27% to 30% higher according to the CBO report because of the mandates. And so, overall, premiums in the individual market would go up, not down.
Moreover, there are several studies showing why CBO is wrong about premiums declining for current policies.
Here’s one. Oliver Wyman Inc., a respected actuarial firm, did a careful study for the Blue-Cross Blue Shield Association. They found that premiums in the individual market would be 54 percent higher in five years’ time if the Senate bill were enacted, and 20 percent higher for those insured through small businesses.
Why the difference with CBO? The reason is that CBO thinks the individual mandate will be effective in bring people into the market. That is not at all the view of many, many experts who understand the insurance business. Almost uniformly, they say the mandate in the Senate bill is too weak and won’t work. Consequently, the risk pool will become much less healthy over time, thus driving up premiums.
So, no, Senator Alexander should not at all concede the point. He’s right. If the Obama plan were enacted, premiums in the individual market would go up, a lot. – James Capretta
10:49 - The overriding reality behind this summit is that both the public and the politicians come to the table divided not over the details but rather over the basic approach to health reform. The things to look for today are any indications of a willingness by the President or the Congressional leadership to alter their basic approach. In his comments Sen. Lamar Alexander highlighted three of those major divisions — comprehensive legislation versus incremental legislation, starting over versus pressing ahead with the bills passed in House and Senate in December, and a decentralized approach versus a centralized federal solution. – Ed Haislmaier
10:40 - Lamar Alexander said that if you took all the profits from insurance companies it would only cover 2 days worth of the costs of health care. What he could have added if he had more time, was that if you take away the profits of a business, it will have no incentive to produce, and no ability to invest and expand. This is important because many of the provisions of the Senate health care bill aim to curb profit in the health care industry, rather than introduce more competition. Liberals in Congress often blame the profit motive for the ills they see in the industry, for example for insurance denials, high prices, lack of insurance for those with pre-existing conditions, and so forth. But these ills are more likely caused by government mandates, protections, subsidies and price controls that kill competition and socialize loss, distorting the behavior of insurance companies, so that they act like monopolies and no longer serve their customers. – Guinevere Nell
10:18 – President says his plan sets up exchange that brings “choice and competition” to health care. His plan does no such thing. Heritage fellow Bob Moffit explained yesterday: “The Health Exchanges in Congress’ health bills and the President’s proposals are not structured to serve as a real competitive marketplace for insurance, in the sense of anything that would resemble real free market competition; rather these institutions would primarily serve as the federally designed mechanism to impose strict federal regulation on private insurers. By contrast, in the FEHBP, the federal government does not standardize the health benefits of private health plans for its employees. For federal employees and retirees, there are a wide variety of health benefit offerings and combinations of benefit packages, ranging in price from expensive health plans (like the Blues Standard Option) to low cost plans (like the Mail handler’s Value Plan, a union plan), and a variety of health plan types, ranging from comprehensive plans to health savings accounts and high deductible plans, plus a wide range of premiums and co-payments.” – Conn Carroll
Forget the President’s rhetoric about bending the health care cost curve.
The House of Representatives will soon vote on legislation (H.R. 3961) that effectively repeals the cost control mechanism included in the Medicare physician payment update formula back in 1997.
Passage of H.R. 3961 would add another $210 billion to the Federal government’s ballooning deficit — and even more importantly — it would demonstrate that Congress is not serious about actually enforcing any new Medicare spending cuts included in its pending health care bills.
The result could be another half-a-trillion dollars — or more — added to the federal deficit over the next ten years if Congress passes new health care legislation. The experience with Medicare physician payment “reform” perfectly illustrates why the spending cuts that finance much of the new health legislation are likely to never happen.
In 1997 Congress included in the formula for calculating Medicare physician payments a provision — called the “sustainable growth rate” (SGR) — designed to limit the growth of spending on physician services in Medicare. The SGR was designed to work as follows:
Medicare set the per-service fees it would pay doctors. However, if doctors provided more services to Medicare patients — thereby increasing Medicare spending above Congressionally set targets — the per-service fees paid by Medicare would be cut to keep total Medicare physicians spending in line. Furthermore, by embedding this arrangement in the physician payment formula, Congress made the future cuts automatic so as to insulate itself from political pressure to keep increasing entitlement spending.
The only problem was that it didn’t work.
As soon as the “automatic” cuts threatened to actually take effect Congress faced political pressure to rescind them. The result is that year after year Congress has enacted single-year “doc fixes” to prevent the cuts occurring.
Thanks to compounding spending growth, over time the gap between the original spending targets and actual spending grew wider and wider. The difference this year now stands at 21 percent — meaning that if Congress now allowed the SGR provision to take effect Medicare’s physician payment rates would be automatically slashed by 21 percent. Of course, this ever-growing gap between theory and reality has translated into ever-growing political pressure on Congress to abandon the theory of restraining spending and instead surrender to the reality of unchecked Medicare growth.
Enacting H.R. 3961 would mean that Congress has thrown in the towel on its previous attempt to control Medicare spending. It will also mean that no rational person can believe that Congress will actually enforce any new Medicare spending cuts included in pending health care legislation. That, in turn, would mean that new health care legislation would actually result in further, massive increases in either Federal borrowing or taxes.
Case in point. The Congressional Budget Office estimates that the health care legislation passed last Saturday in the House would result, over ten years, in $1.3 trillion in new spending, plus $29 billion in tax cuts (mostly new tax credits to small business that offer coverage), offset by $767 billion in new taxes and fees, and $693 billion in spending cuts, mainly in Medicare.
But if Congress won’t enforce its previous Medicare cuts, how realistic is it that they will actually enforce these new Medicare cuts?