Op-Ed in Raleigh, News and Observer

I have an op-ed in the Sunday Raleigh (N.C.) News and Observer offering a bipartisan way forward on health reform that I think makes sense regardless of what the Supreme Court says about the Affordable Care Act. If you are a reader of this blog, it will be familiar fare.

If you are coming here from the op-ed, here are some related posts:

Taylor v. Feldstein: comparing catastrophic plans

(cross posted at samefacts)

I have been blogging about the path to a health reform deal that I offer in my book: universal catastrophic coverage implemented via Medicare. Martin Feldstein, chair of the Council of Economic Advisors under President Reagan, offered a universal catastrophic coverage proposal in October, 2009, that would:

  • provide tax credits to purchase a catastrophic private health insurance policy, with catastrophic defined as costs above 15% of income (financed by ending the tax exclusion of employer paid insurance; people could purchase additional coverage with after tax dollars)
  • issue each person/family a “health care credit card” that could be used to purchase care in the deductible amount

A few quick comments about Prof. Feldstein’s proposal and how it compares to mine.

  • Defining catastrophic as a percentage of income makes conceptual sense, but introduces some technical challenges. All of the issues related to timing, what happens if your income changes, and perverse incentives related to loss of subsidy if your income increases that have been raised with respect to the income-based subsidies in the ACA apply to Prof. Feldstein’s proposal as well (and to just about any public policy that provides a differential government expenditure/subsidy based on income).
  • Prof. Feldstein’s proposal provides a guaranteed means of financing needed care if someone makes a bad choice in choosing catastrophic coverage only, while mine does not. A huge concern under my proposal is what will persons who choose to only have catastrophic insurance, but who get sick, actually do? Will some avoid the care they need? If so, this will likely increase the catastrophic costs that Medicare will incur down the road if they spend through the catastrophic coverage amount.

Which of these approaches is preferable? It depends upon what aspect of our current system bothers you the most. My plan could provide true universal coverage. Prof. Feldstein’s op-ed claims his plan would create universal coverage, but that is unlikely without a mandate or auto-enroll procedure of some sort that he does not mention, leaving us with the question of what happens to people who didn’t sign up? Aggressive auto-enroll could likely get close to universal coverage. Medicare is the largest risk pool around, so would be the most efficient means of providing catastrophic coverage and would therefore be my preference as the catastrophic insurance vehicle, but others will prefer using private insurance. His proposal is preferable if you most worry about people making a bad choice in level of insurance coverage and being unable to finance care.

Achieving catastrophic health insurance coverage will not fix all of the inter-related problems of coverage, cost and quality of care. However, if we could manage an agreement to provide a clear route to how all persons could be guaranteed at least basic coverage, we could remove one variable from the mix and focus on other aspects of the health care system. A step like this seems politically impossible given the nature of our nation’s discourse, but at some point we will have to return to serious public policy making to address our many problems, and it will take compromise. The recent news stories about the lack of a coherent and unified Republican “replace” strategy shows they very much need a health reform deal and are unlikely to drive toward a plan on their own. Health reform remains a key interest for Progressives.

I continue to think the route to the needed deal goes through universal, catastrophic insurance coverage of some sort. If we could agree on that as a goal, the details should be tractable.

High deductible plans in the ACA

Yesterday I speculated about what form a health reform deal between Progressives and Conservatives might look take (Universal catastrophic coverage implemented via Medicare).

Like many of the complaints about the ACA, the idea that everyone is forced to purchase the same plan is untrue–it does not mandate a one size fits all policy. Below are actuarial estimates produced by 3 insurance companies commissioned by Kaiser Family Foundation of what various insurance options to be sold in ACA exchanges would look like.

The Actuarial value column shows the percentage of total costs to be borne by a person (there are a series of assumptions made to produce these estimates, that are meant to be illustrative) covered by the mandated benefit package; Plan A, 60% corresponds with the so-called Bronze level package that represents the minimum coverage that persons would have to purchase in 2014 to generally comply with the ACA. You can see that there are other levels of coverage stated in actuarial value terms, 70%, up to 94% that people could choose. Obviously, a higher actuarial value means higher premiums and less out of pocket exposure during the period of insurance, and under the ACA the premium subsidy amount provided to individuals and families varies by income.

Also of note are the different ways to attain the same actuarial value and corresponding out of pocket maximum. Sticking with the Bronze plan (row A) in the Table, Actuarial Research Corporation designed a plan with a deductible of $6,350 and no coinsurance, while Aon Hewitt achieved the same actuarial value with a deductible of $4,350 and coinsurance of 20%. It is true that all of the plans cover the same benefit package.

Several points/questions:

  • The ACA allows catastrophic plans (the max out of pocket allowed in 2014 will be $5950 for individuals, $11,900 for families). I suggested larger deductibles/maximums, but personally I would trade a higher catastrophic deductible/out of pocket max for universal coverage.
  • It is unclear to me how the price charged for care while someone is in their deductible will be set? Presumably that will be an aspect of the plan offered on an exchange in the ACA, but this is an important question, especially for catastrophic plans, and I realize that I am unsure. Under my suggestion, Medicare payment rates could be used.
  • There are different mixes of premiums, deductibles, and coinsurance through which to achieve the same actuarial value. Adding the premium side to this adds more complexity and choices, but you can generally achieve the same premium-side actuarial outcome by a set deductible/out of pocket maximum and income based premium subsidy, or you could modify the deductible/out of pocket maximum by income, probably implemented via a maximum amount of income that could be spent on health care.
  • You have to set a benefit package in some way if you claim to be interested in people making informed choices. Under my suggestion, everything covered by CMS would count toward spending through the catastrophic deductible, and would be covered by Medicare once the maximum out of pocket amount was reached.

What would a health reform deal look like?

A central claim of my book Balancing the Budget is a Progressive Priority is that slowing the rate of health care cost inflation is a necessary, but not a sufficient condition to our ever achieving a sustainable budget down the road (it will also take a tax increase). Further, it will be virtually impossible to take the very hard steps to address health care cost inflation without both political parties coming up with a set of health care reform strategies that we will actually try, and which make both sides responsible for seeing to the hard work this will take. Health reform is far more difficult than Social Security reform (in a technical sense), for example, because mailing checks is much easier than purchasing health care. We will never be done with health reform and there will be many mid course corrections.

Even though we don’t know what all the steps will be, we desperately need to take some initial ones, and we will soon know what the Supreme Court will say about the ACA. This will be a landmark decision that will have profound political and policy consequences, but in one sense, regardless of what the Supremes say, the next step is to identify a bipartisan way forward on health reform (stop laughing; we have to do it).

Central to my book is a set of health reform policies that I claim represent the type of deal that would emerge if the two sides actually negotiated with one another. For such a deal to emerge, it would take both sides being clear about what their primary interest was in health policy. For Progressives, universal coverage has always been the holy grail and dream deferred, not just of health policy, but really of all social policy. As I noted in this debate with Jim Capretta, I don’t thinkConservatives have an interest that is so clear and heartfelt as universal coverage is for Progressives, but if I had to take a stab, I would claim that it is their belief that people don’t have enough “skin in the game.” As an aside, this makes little sense to me and when I look at empirical data on cost sharing with my more conservative friends, we see different things. In a similar way, when I say that I think the lack of a predictable, universal health insurance coverage scheme is an existential mark against our nation, they don’t get my degree of feeling.

Accepting such differences is an important step, because reaching a deal will mean abiding with one other to reach a compromise.

The essence of the deal I suggest in the book is this:

  • Universal catastrophic coverage implemented through Medicare, with gap insurance available to persons wanting it (no mandate!) via state based exchanges (with subsidy for low income persons)
  • With a massive deductible (I suggest $10,000/persons; $15,000/family to maintain a key role for private insurance; far larger out of pocket exposure than Bronze level cover in the ACA)

There are many legitimate ‘yeah buts’ that both sides will have, and I am not even getting into the other parts of the health policy deal I propose, and that are detailed in the book, in this post. However, a compromise health reform deal will have to capture the ‘big idea’ for both sides. I think step one of such a deal looks something like this if we ever manage to do it. And if we don’t, we will never again have a sustainable budget.

My book is published

My book Balancing the Budget is a Progressive Priority has been published by Springer. It is also available from Amazon, itunes and other places. It should be available in kindle format within several days (I self published a direct to kindle version in August 2011; this is updated).

The crux of my argument is that Progressives need a balanced federal budget more than Conservatives, both to provide room for new government action when needed (economic stimulus, infrastructure, education, energy), as well as to protect the key programs of Medicare, Medicaid and Social Security.  For this reason, developing a long term plan to balance the federal budget should be at the top of the Progressive agenda, because without doing so, the ability to address Progressive priorities via government action will be rendered moot.

We cannot and should not get to a sustainable budget immediately, but we need a credible long term plan. Such a plan might even make short term investments more plausible. Balancing provides such a plan that will require an increase in taxes compared to historical levels and a reduction in federal spending as compared to future default spending over the next several decades. Specifically, the book suggests:

  • Next steps on health reform that will hold up regardless of what the Supreme Court rules. The heart of the proposal is federally-guaranteed catastrophic insurance implemented via Medicare, with gap insurance available in state-based exchanges. Without profound health reform, we will never have another balanced budget.
  • Reform of Social Security sooner rather than later with Progressive goals such as increasing the minimum benefit at the fore. Social Security should be taken off the table by fixing its long range fiscal imbalance.
  • Proposals for how the mix of taxes used by the federal government might be changed to bring in enough revenue to fund a plausible level of spending.
  • A way to think about Military spending as compared to the rest of the budget.

The CBO noted last week that delay of hard decisions only leaves of us with few options. I agree, and the federal budget will one day be overhauled substantially; the premise of the book is that Progressives should drive this agenda to best represent our long term policy interests and goals.

Simpson-Bowles in the Senate

Ezra Klein’s take is about right. It is very possible behind the scenes people feel differently, but before the election given what has transpired, it just seems impossible for any bipartisan budget absent an economic calamity. An obvious strategy is to let Taxmageddon go off, and then passing something like Simpson-Bowles (or just about anything else) in Jan. 2013 could be declared to be a tax cut…..it just depends on the baseline used to keep track.

One key point is Sen. Session’s criticizing Sen. Conrad’s Chairman’s mark as raising more in taxes than the House version of Simpson-Bowles. That is true, but mostly because they Cooper-LaTourette, which was labelled Simpson-Bowles, really was not, and raised far less revenue.

I am left wondering what might be different if President Obama would have embraced Simpson-Bowles immediately when released in Decmeber 2010, and put that forward as his next budget? Many Liberals and Progressives hated it, especially the Social Security aspects (my least favorite part of the plan at first glance; and after more consideration). I understand the argument that the most likely outcome of President Obama embracing this in his budget would have been a Republican move to redefine the plan as the new practical definition of socialism, etc. However, I don’t think that charge would hold up over time. And it is also the case that the initial Simpson-Bowles plan is the MOST LIBERAL plan put forth that had any modicum of bipartisan support in the sense of raising taxes; (this rightward drift viz. tax increases v. budget cuts of all the plans can be seen in the House v. the Senate versions of “Simpson-Bowles”). Further, Simpson-Bowles quite clearly assumed the implementation of the Affordable Care Act and moved on to the next steps; this would have been a powerful rhetorical argument in the health reform wars of the 16 months since the report was issued, had the President embraced Simpson-Bowles as the hard medicine the country needed.

This doesn’t mean I don’t support the President, I do. My take simply flows out of my belief that Progressives and Liberals need a sustainable federal budget more than Conservatives do, given our view of the role of government in society. My thoughts are more fully fleshed out on this in my e book on the subject; a fuller version will come out in May 2012 published by Springer (Balancing the Budget is a Progressive Priority).

Tax Based Fail Safe

Washington appears ready to attempt walking (jump start jobs/economy) and chewing gum (developing a long range plan for a sustainable budget) at the same time. Both are needed.

The Super Committee must identify $1.5 Trillion in deficit reduction over 10 years to avoid automatic budget cuts. Any plan addressing the long range deficit must focus on health policy since health care costs are the biggest long term budget problem.

Last week I suggested is a tax-based health care “fail safe” as one of several policy options to move toward a sustainable system. A fail safe is a mechanism that is triggered if expected savings from policy changes do not emerge. The President’s Fiscal Commission proposed a health care fail safe that required Congress to enact additional programmatic cuts if growth in total federal health spending was not constrained to GDP growth + 1 percentage point by 2020. Total federal spending included Medicare, Medicaid, ACA exchange subsidies, VA, and tax expenditures related to private health insurance. Everything.

A study by the University of Maryland School of Public Policy provides evidence that the public has more trouble making cuts and trade offs in health care as compared to other budgetary items. This is borne out in this table on Medicare options, showing nothing (tax increases, benefit cuts, pay docs less) had majority support as as acceptable way of addressing the deficit that is due to the Medicare program.

There was more consensus on how to address the budget deficit due to Social Security and the discretionary budget (incl. Defense), suggesting that the public views health care as different from other budget items. It is legitimate in a democracy for people to express such preferences. We can devise all sorts of policy efforts to slow health care inflation that could work. However, the biggest barrier to their doing so is cultural acceptability and not actually trying. For example, a recent RWJ brief outlines many ways to slow Medicare cost inflation via coverage decisions while potentially improving the quality of care, but they will of course all be controversial, and much easier to demagogue than to enact.

Instead of a fail safe that calls on Congress to enact unspecified cuts if health care cost inflation does not slow, I suggest a payroll tax imposed on the top half of the income distribution if total federal health care spending remains above GDP growth plus 1 percentage point at some future point. If policy changes designed to slow cost inflation are not tried or are insufficient, then a tax based fail safe would provide us with a clear choice. We can devise more/stronger policy approaches, or we can decide we don’t like any of them and pay higher taxes for the federal government’s share of health care.

update: this is one of several policy ideas from my book seeking a political compromise to move ahead on health reform. By “suggestion” I mean to signify this is not the only way to do it. The Fiscal Commission had some bipartisan support and has a fail safe. There is some evidence people have a harder time with trade offs in health care (though the table above is only for Medicare; the fail safe suggested by Fiscal Commission is all federal spending; the Univ. of Maryland study didn’t even discuss Medicaid). Hence, a tax based fail safe provides a choice: seek to reduce spending growth via a tax based fail safe or pay more. There are many types of tax that could provide such a choice.