Bush Budget Dead On Arrival But It Underscores the Trouble With Entitlements and The Choices That Must Be Made

President Bush is calling for $560 billion in cuts from Medicare over the next decade.

He would make these cuts by reducing the payments doctors and hospitals would have received.

What is amazing about the Bush budget numbers is that the administration is only trying to cut Medicare's annual growth rate from 7% to 5%. At one level, that ought to be easy. After all we aren't talking about reductions in existing payments--just limiting the increase to 5% instead of 7%.

What's a couple of points? In Medicare it is life and death to the bottom line.

Just that two point adjustment will create an incredible political fight in Washington, DC among the health care special interests.

Bush has made a choice here--cut the hospitals and the docs and leave the health insurance company payments for private Medicare programs worth $150 billion over ten years intact.

The Congressional Budget Office (CBO) has said that Medicare's payments to the private HMOs are 13% greater than the traditional government-run Medicare plan gets for the same seniors--the difference is 17% of the Private Fee-For-Service (PFFS) version of the program.

The hospitals and the doctors can be expected to argue that the guys getting the over payments (the insurers) are the ones that need to be on the chopping block. After all, they argue, if private Medicare plans are supposed to be the way to use the market to make Medicare more efficient, why do they need more money? Shouldn't they need less money?

Meantime, the Medicare physicians are already facing an automatic 10% fee cut on July 1 and another 5% cut on January 1. Hospitals regularly point to their Medicare payments as loss leaders needing to be offset by higher private insurance payments.

The Bush budget may be dead on arrival in his "lame duck" year but it does point out the challenges and the choices.

This President has said he will veto any cuts to the private Medicare programs and certainly proved he would in last December's budget battle.

But this President has less than a year to go. The Congress can just keep the budget debate going past inauguration day and look forward to a new President--Democrat or Republican--that they hope is more willing to deal.

The problem is we don't so much need another deal as we need a fundamental restructuring of Medicare if we are going to keep the program solvent in the coming years. The way the program pays providers--hospitals, doctors, insurers, and everyone else--it is not sustainable.

It is the sustainability of Medicare that policymakers need to focus on--not who wins the next battle at the trough.

What President Bush Said in His 2007 State Of The Union Address About Health Care

Here is what President Bush had to say about health care in his January 2007 State of the Union Address:

A future of hope and opportunity requires that all our citizens have affordable and available health care. When it comes to health care, government has an obligation to care for the elderly, the disabled, and poor children. We will meet those responsibilities. For all other Americans, private health insurance is the best way to meet their needs. But many Americans cannot afford a health insurance policy.

Tonight, I propose two new initiatives to help more Americans afford their own insurance. First, I propose a standard tax deduction for health insurance that will be like the standard tax deduction for dependents. Families with health insurance will pay no income or payroll taxes on $15,000 of their income. Single Americans with health insurance will pay no income or payroll taxes on $7,500 of their income. With this reform, more than 100 million men, women, and children who are now covered by employer-provided insurance will benefit from lower tax bills.

At the same time, this reform will level the playing field for those who do not get health insurance through their job. For Americans who now purchase health insurance on their own, my proposal would mean a substantial tax savings — $4,500 for a family of four making $60,000 a year. And for the millions of other Americans who have no health insurance at all, this deduction would help put a basic private health insurance plan within their reach. Changing the tax code is a vital and necessary step to making health care affordable for more Americans.

My second proposal is to help the states that are coming up with innovative ways to cover the uninsured. States that make basic private health insurance available to all their citizens should receive federal funds to help them provide this coverage to the poor and the sick. I have asked the Secretary of health and Human Services to work with Congress to take existing federal funds and use them to create "Affordable Choices" grants. These grants would give our Nation's governors more money and more flexibility to get private health insurance to those most in need.

There are many other ways that Congress can help. We need to expand Health Savings Accounts — help small businesses through Association Health Plans — reduce costs and medical errors with better information technology — encourage price transparency — and protect good doctors from junk lawsuits by passing medical liability reform. And in all we do, we must remember that the best health care decisions are made not by government and insurance companies, but by patients and their doctors.

The President accomplished none of his 2007 proposals in what turned out to be a very bitter and divided Congress.

However, the President's ideas to reform the tax code in order to help Americans pay for health care did find their way into a number of Republican presidential health care plans--albeit not always in exactly the same form.

The Democrats accomplished none of their 2007 health policy objectives as well. Democratic objectives included a $35 billion expansion of the State Children's Health Insurance Program (SCHIP), enabling the federal government to negotiate Medicare Part D drug prices, and cuts to Medicare HMOs in order the fix the 2008 10% Medicare physician fee cuts.

Bush Administration Ducking Its Own Commission on Health Care Reform

Joe Paduda reminds the Bush administration of its obligation to pay attention to its own commission over at "Managed Care Matters" today:

Bush's non-response

Actions, or lack thereof, speak louder than State of the Union addresses.

From California HealthLine comes the news that the Administration has failed to comply with it's legal obligation to respond to the Citizen's Health Care Working Group.

The Group was created by the 2003 Medicare Part D legislation and tasked with creating a national public debate on universal coverage to high quality care. It also produced an action plan that the Congress and President are supposed to consider in their legislative efforts. The President is required by law to respond to the report within 45 days; the deadline passed over four months ago.

Read the rest.

Part D Was “Financially Irresponsible”—The Medicare Part D Drug Plan Liability is Twice That of the Social Security System!

The passage of the Medicare prescription drug benefit—Part D—was a “financially irresponsible” thing to do. Those were the words of U.S. Comptroller General David Walker on CBS’ “60 Minutes" this past weekend.

Amen to that.

The Medicare Trustees, in May of 2006, reported that Medicare’s long-term debt is estimated to be $32.4 trillion dollars (over 75 years). The new Part D drug benefit is a quarter of that—$8 trillion.

This will blow you away: The Part D Medicare drug benefit’s long-term liability alone is almost twice as large as the entire long-term debt of the Social Security System!

President Bush spent a good part of his political capital two years ago trying to reform Social Security when his Medicare Part D drug program added twice the Social Security debt to the national balance sheet all by itself!!!

There is no doubt that seniors deserve good drug coverage inside Medicare. But they, and we, also deserve to see Medicare get the overhaul it will need to sustain the “baby boomer” retirements.

How “conservative” Republicans like George Bush and Tom DeLay could have forced this Part D program through and onto the nation’s troubled books is beyond me.

President Bush Has a Proven Strategy to Fix the Individual Health Insurance System!!!

The Bush administration has already implemented an individual health insurance system that is voluntary, community rated, and excludes no one--no matter what their age or health status.

President Bush's recent proposal to reform the health insurance system (see post) is based upon greater use of the individual health insurance system. He would eliminate the employee tax exemption on employer-provided health care and substitute a standard deduction of $7,500 for individuals and $15,000 for families.

His proposal is a non-starter in the Democratic Congress as it is.

But, now 10 Republican and Democratic Senators are signaling they are willing to work with the White House on a reform plan (see post) that puts the employer health care tax preference on the table. As a result, there may be some long-term hope for the many conservatives who would like to rebuild the U.S. health care system in a way that transfers the ownership of coverage to the individual.

Proponents of an individual-based health insurance system argue that the employer system has too often sheltered consumers from the real cost of health care and that has had a great part in driving costs up.

Others, often Democrats, want to build on the existing employer-based health insurance system and believe the most efficient way to provide care is through the largest risk pools that employers--and existing government programs--generally provide.

Both sides make good points and my own opinion is that both an employer-based system and an individual-based system can work. They can even work together.

However, one of the most legitimate complaints regarding the individual-based system--and the Bush proposal--is that the individual health insurance market is nowhere near where it needs to be to offer affordable coverage (see post).

In the individual market today, a healthy 20-year-old can get coverage for less than $1,000 per year. But a 60-year-old might pay $5,000 per year. If that 60-year-old is sick, they probably wouldn't be able to get coverage at all. These, and other issues endemic to the individual market, make it unusable in its current form as any kind of platform to deal with the large number of uninsured we have.

But, George Bush knows how to fix the individual health insurance market.

In fact, he's been incredibly successful at showing us a model in the individual market that insures more than 10 million Americans.

His administration has successfully launched individual health coverage that charges the same price no matter how old you are--there are people in his system that are a good 30 years apart in age--and the price doesn't vary based upon their health status. In his system, everybody gets coverage no matter how sick they are--as long as they sign up when they are eligible. And, they don't have to buy the coverage--it's completely voluntary and about 10% of the people haven't bought it. It's also an incredibly (and to me surprisingly) competitive market with insurers tripping over each other to participate. In fact, the price for coverage is lower than most of us thought it would be. And, those that have low incomes get direct premium support so they can afford it.

Yep, it's Part D.

In Part D, we have 65-year-olds and we have 95-year-olds--a 30 year spread. We have healthy people who don't take any drugs and we have the sickest and most expensive patients in the country in Part D--all paying the same price for the same policy. We have more insurers than we need all competing on product and price and the number of those offering Part D increased this year.

The individual market can work---------and George Bush knows how to do it!!

Who would have thought!!!

Now if he would just take his tax proposal and fill in the rest of the details.

10 Bipartisan Senators Offer a Health Care Reform Outline

Just a few weeks ago I wrote a post that began, it's a new day in the health care debate. Health care reform is breaking out all over.

My point was that I haven't seen such enthusiasm for reform since the early 90's and the resulting Clinton Health Plan effort. Everyone seems to have a plan--not the least of which are offered by some very powerful bedfellows.

That trend continued this week when five Republican Senators and five Democrats sent President Bush a letter arguing it's time to move forward. They outlined only broad points that included:

• Universal coverage done in a way that protects Medicare and Medicaid.
• Agreeing with Bush that the current tax treatment of employer health benefits needs to be on the table. The value of that tax benefit is almost $200 billion a year--money that can be shifted to pay for new coverage.

These concepts cover the things that many Democrats want--reform built upon existing programs--and something many Republicans favor--moving away from the employer-based system toward one more oriented to individual responsibility.

There isn't a lot of detail here.

What there is--and this is huge--is a bipartisan agreement that we need to find common ground and begin to solve this problem. They are saying the possible is more important than the perfect because this problem just can't continue for the good of our people and our global competitiveness.

The initial White House reaction, to what was merely an invitation to begin a process, was positive.

As I have said before, major health reform will not occur until after the next election and we elect a new President and Congress--in great part based upon what they say about health care reform. This debate needs a great deal more progress beyond the conceptual level it is at.

But the process is under way----for real.

Health reform is breaking out all over!!

The Bush Budget--It's One Thing for People to Call You a "Lame Duck" and Another to Act Like It!

On health care, this Bush budget just tells me this President has given up.

To start with, he would let scheduled Medicare physician fee cuts simply take place. Those cuts, now estimated to be 8.5% on January 1, 2008, will under no circumstances take place at anywhere near that level (if at all) and everyone in Washington, DC knows that.

So why include this in your budget.

The Bush budget calls for more than $101 billion in five-year Medicare and Medicaid savings from not only doctors but also hospitals and nursing homes. His proposals would make a number of provider payment reductions permanent and would never pay providers a full inflation update--meaning they would fall further and further behind. Even members of his own administration are admitting the Democratic Congress is not going to even consider these ideas.

So, why include this in your budget?

The State Children's Health Insurance Program (S-CHIP) is seen as a huge bipartisan success for the 6.5 million kids it covers. What did the President propose? He would fund only part of it going forward--in fact a 4% decrease from 2007 funding. Both Republicans and Democrats in the Congress are not going to go along with that.

So, why include this in your budget?

My sense is that the President has given up on doing anything important on health reform. He is simply giving us a budget proposal that meets the overall objective of leaving office with the budget deficits falling. By creating this make-believe budget he can set overall spending and revenue targets--that contemplate his tax cuts remaining untouched--and say he laid out a workable budget plan.

So he can now sit back and say he hit the broader targets. Later when the Congress does what everyone knows they will do with health care spending he can say it was the "spendthrift" Congress--particularly the Democrats--that pushed the budget off his track toward a balanced budget.

Bush is just really giving up and sending all of these problems over to the Democratic Congress to make the real decisions.

The President is right when he says in his budget that both Medicare and Medicaid can not be sustained at these levels and are really going to be in trouble as the "baby boomers" start to retire in just a few years.

He also told House Democrats, at their retreat this weekend, that he wants to work with them on these hard health care issues before he leaves office.

Then why doesn't he?

You know, it's one thing for people to call you a "lame duck," it's another thing to act like it!

Bush Defends Medicare Advantage Plans--That and Five Bucks Will Get You a Six Pack

President Bush will shortly release his new budget. He will cut $70 billion from Medicare--largely from providers--and leave Medicare Advantage payments unchanged.

President Bush's budget is about as close to irrelevant as it can be. The Democratic Congress will start from scratch.

Doctors and hospitals have enormous clout on the Hill. Just as doctors have been able to protect their Medicare fees from the regular 5% "Sustainable Growth Rate" cuts so many years in a row, they will do so again. Democrats are just as close to the provider lobby as were the Republicans. If Republicans couldn't make these hard Medicare provider choices on the budget how does anyone expect the Dems to do so????

One of the more laughable contentions circulating in Washington today is that the Bush veto is going to protect Medicare Advantage plans from payment cuts. All you have to do is look at how the year-end "omnibus reconciliation" process works to know his veto will do no good once the Dems figure out just how much money they need from Medicare Advantage.

Last December, the Republican Congress wrote one giant "omnibus reconciliation" bill that combined 19 tax cut extensions, three trade bills (Andes, Vietnam, and Sub-Saharan Africa) and I don't know how many hundreds of other items. They also dropped a $7 billion cut to the Medicare Advantage stabilization fund into the final budget bill to override the "Sustainable Growth Formula" 5% cut to Medicare physician doctor fees for one year.

Congressional chairmen have enormous power to decide what is going to be in this last budget reconciliation bill. There were many things in last December's bill that never passed either house of Congress--like the health savings account (HSA) enhancements that became law in this bill.

Last year it was Republican chairman that drove the process. This year it is all Democratic chairman--and some very liberal Medicare Advantage haters at that (Dingell, Rangel, Stark, Kennedy).

My point is that if the Dems want to cut Medicare Advantage "over payments"--and they do--they can get them in the final "omnibus" package. If Bush wants to veto this year's package with this year's tax cuts, trade agreements, and the rest, he can. But the Dems will be smart enough to lard it up with things he has to have in order to protect the things they want.

Would Bush veto the whole final budget bill over Medicare Advantage payments and force a government shutdown-style show-down just to protect the extra Medicare Advantage payments? Dream on.

Get over it, Medicare Advantage payments are going to be cut!!!!

Don't bother to even read the Bush budget. This "lame duck" President is finished.

My post on why the Dems will change Medicare Advantage.
My post on how Medicare Advantage cuts will be used to fund the budget.
My post on why the Bush tax credit proposal will not be enacted anytime soon.

The Individual Health Insurance Market Isn't Ready for Primetime

Julie Appleby has an article on the front page of Monday's USAToday covering an issue I dealt with in an earlier post--insurers using post-claim underwriting to rescind people's health insurance policies.

President Bush's health plan proposal would encourage consumers to buy their own health insurance. The President, and many others, believe that giving individuals more control over their health benefits is a good way to get consumers to more efficiently buy and use their health insurance.

That philosophy has some logic.

However, the individual health insurance market is nowhere near the place it needs to be to carry a major portion of the market:

• Individual health insurance tends to be more expensive than group insurance because the cost of selling one policy at a time is more expensive than group health insurance.
• People who are sick often can't get insurance. Most group health insurance is "guarantee issue" while individual programs need to protect themselves from consumers who delay buying insurance after they become sick.
  
• Group health insurance charges one rate for all of the group's participants irrespective of a person's age. Individual health insurance charges relatively low rates for younger consumers and very high rates for older people.

On top of all of these challenges, the USAToday article reports that a number of individual health insurers have apparently become overly aggressive in administering their anti-fraud provisions.

The Bush health plan would be a big help to the individual health insurance market.

But, if these individual insurance companies don't clean up their act when it comes to "post-claim underwriting," no one is going to be able to help them.

Is the Bush Health Plan Tilted Too Far In Favor of Health Savings Accounts (HSAs?)

Chris Lee has an article in today's Washington Post that raises an important question.

Has President Bush gone too far in tilting his new health care proposal in favor of health savings accounts (HSAs)?

The President would level the health insurance tax preference playing field for consumers whether they get their health insurance at their place of employment or buy it in the individual market.

But because both individuals and employees also get another tax break for their contributions to HSA accounts, some are arguing HSAs get a whole lot more in tax incentives for taking advantage of that kind of health plan.

For example, if an individual has a health plan under the Bush proposal, they would get an automatic tax exemption of $15,000 for family coverage. They would also get another tax deduction if they made a $5,000 contribution to a health savings account. Someone with a conventional plan would get only the first $15,000 in tax benefits under the President's new plan.

Someone in an employer plan today is not taxed on the value of the employer-based plan--no matter how much it costs and whether the employer made an additional contribution to an HSA (to HSA limits). Any additional HSA contributions by the employee, up to the federal limit, would be tax deductible.

Under current rules, it is possible for a person to take advantage of both the unlimited exemption on employer-provided health insurance and the specific HSA tax benefits.

However, under the President's new plan, the federal tax preference for an insurance plan would be capped at the limits and HSA contributions would not come under the $7,500/$15,000 cap on health benefit tax exemptions.

Does this tilt the Bush Plan too far in favor of HSAs?

More on the Bush Health Plan

My good friend Bill Boyles of Health Market Survey offers these comments regarding the President's upcoming health proposal (my own post is below this one):

New Bush Proposal Takes Intriguing Approach

After six years of offering the same old thing, President Bush Tuesday will propose a creative new health reform that is drawing support from both sides of the political spectrum and could be taken seriously on Capitol Hill. Enactment of the plan is probably not doable before 2008, but it could be a serious contender in policy circles.

The problem with all these new proposals to cover the uninsured is they target the low-income children population first, not the low-income chronically ill who need it more. The new Bush plan would also target the low-income chronically-ill first with a new tax subsidy, which is better for the system, better for hospitals and physicians, and better for insurers.

The Bush plan (a regrettable label) is based on an old and generally discredited idea: the old health insurance “tax cap” proposed by Alain Enthoven circa 1979. But instead of merely a cap, the new plan will also give a standard tax deduction to everybody – employer or individual coverage – based on how much they are paying for health insurance. This cap might phase out quickly, but in the short run it seems a good idea.

The plan would basically give 80% of all current taxpayers a small new tax deduction for having health insurance that is not excessive. If their family coverage were the average of an estimated $13,000 in 2007, they would get a $2,000 deduction (the amount is based on a dollar benchmark of $15,000, minus the actual premium of the taxpayer).

By the same token, those whose premiums are excessive (over $15,000) would pay income taxes on the amount over the benchmark. The plan would thus be tax-neutral – the increased taxes on expensive plans would be offset by the new deduction.

If somebody has no insurance they get a full $15,000 tax deduction/credit.

Politically, this is a major shift that might work. Since 80% of taxpayers would get a new tax break for doing nothing, and those who would be taxed have the option of simply changing to a lower-cost plan, the political equation is tremendously more favorable than simply taxing excess health insurance. Lots of Democrats are likely to support it.

There will be a lot more analysis in the next few days, so we’ll give the bottom line:

-- The impact on health plan profitability is probably neutral in the first few years. The increased demand caused by giving the uninsured purchasing power is the key, and might offset the fact that marginal benefits are being taxed on a small percentage of existing enrollees. It looks at first blush like a good deal.

-- The big Enchilada in the details might be adjusting the benchmark. Some will argue it should be regional, by income, by health status, and on and on and on.

-- Because it is indexed to inflation and not average premium increase, within a couple years this would apparently cause the tax deduction to phase out, leaving only a tax cap.

-- We like the idea in general because it was designed by a small private group of market- savvy economists versus the White House eggheads.

-- There would no doubt be a new tax form for all individuals based on plan data. That sounds like a paperwork/admin cost increase but maybe not. For example, when HSAs kicked in banks did not see a big increase in costs despite added tax form reporting.

Stay tuned.

New Bush Health Plan Proposal to Be Announced in State of the Union Address

President Bush is about to announce an interesting health care proposal that would cap the tax benefits on the most generous health benefit plans––often held by higher paid executives and some labor unions and use the revenue to cut the number of uninsured.

Individuals, whether they got their health insurance from work or paid for it themselves, would get a standard deduction of $7,500 for an individual and $15,000 for a family. The new plan would also give this new standard tax deduction to everybody – employer or individual coverage – no matter how much they are paying for health insurance.

About 80% of taxpayers have health insurance that costs less than $7,500/$15,000 and would therefore get an extra windfall tax deduction for the amount their insurance cost is less than the maximum deduction. For example, if their family health insurance costs were average, an estimated $13,000 in 2007, they would get an extra $2,000 deduction (the amount is based on a dollar benchmark of $15,000, minus the actual premium of the taxpayer).

The proposal is expected to be revenue neutral over a ten year period.

He would take any new tax revenue collected from those with generous plans and use it to provide tax credits or deductions that would assist lower-income individuals in getting health insurance. That help could be in the form of federal assistance to state coverage pools, small business assistance, or direct subsidies to low-income people.

This is not an entirely new idea. Various permutations of completely or partially ending the tax preference on health insurance for employers or individuals, or both, and in turn using that money to subsidize individuals as a way to reduce the number of uninsured have been around for a good 20 years.

It is also an extension of his earlier ideas that have pushed the health care system toward one run by individuals rather than employers.

With the Democratic House this year adopting “pay-as-you-go” rules that require any new spending programs also have identified a revenue source (new taxes or spending cuts) it is notable that the President is thinking about targeting the “Cadillac” health care plans as a source of revenue to help pay for new low-income health insurance subsidies.

This is almost a Democratic idea!!

Using the notion of a more progressive tax system should resonate with the new Democratic Congress. Having said that, I doubt it will be popular with the old-line labor unions that have some of the most generous plans. Already, Democrats sound skeptical about the idea complaining it will undermine the employer-based heath insurance system even more.

That Democratic criticism rings hollow, however. Why waste tax preference money on these rich plans when some people have no health insurance?

But Democrats also worry that this is just another attempt to end the employer-based system in favor of one driven by individuals and heavily dependent upon the Republican-favored health savings account (HSA) approach.

I see two other problems.

First, the individual health insurance market is problematic. Getting individual coverage is much more expensive than group coverage and a person has to be healthy to get it. To make this really work we will need to solve that problem.

Second, health insurance premiums have been rising about 8% per year in recent years. Basic inflation has been about 3%. If that kind of gap continues, it won't be long before the average person has a "gold plated" health plan that is on the losing end of things.

Even with the concerns, this is a very constructive way for President Bush to begin working with the new Congress on the health care dilemma.

Let’s see if the Dems really want to make the effort to work with this President on health care.

This could be the first test of just how much both sides really want to work together!