The Commonwealth Fund Alliance for Health Reform Washington DC

1. The Commonwealth FundAlliance for Health ReformWashington DC Medicare as a Building Block for Health Reform: Should Americans Buy In? June 6, 2008 Steven Lieberman

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

3. 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? Lieberman Consulting LLC

4. 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 Lieberman Consulting LLC

5. Fiscal Pressures: Excess Cost Growth Lieberman Consulting LLC

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

7. 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) Lieberman Consulting LLC

8. 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” Lieberman Consulting LLC

9. 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 Lieberman Consulting LLC

10. 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! Lieberman Consulting LLC

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