Wednesday, November 10, 2010

Deficit Commission Co-Chairs’ Draft Recommendations on Health Care

As you may have seen, the co-chairs of the deficit commission – Erskine Bowles and former Sen. Alan Simpson – released their draft recommendations earlier today.  Recommendations on mandatory spending can be found in this Powerpoint; a longer list of potential discretionary spending cuts are found here.  (The discretionary cuts document largely avoids health care, except for two proposals to re-structure defense and veterans’ health spending, including potential inflation increases in cost-sharing, saving a total of $6.7 billion in 2015.)

For mandatory spending on health care, slides 31-36 include several proposals.  To pay for the estimated $276 billion cost of a long-term “doc fix,” the proposal would:

  • Modify the sustainable growth rate mechanism with a new system based on value and quality (savings of $24 billion);
  • Restructure Medicare cost-sharing, coupled with a limitation on cost-sharing coverage in Medigap (savings of $135 billion); CBO formerly outlined this proposal in its December 2008 budget options (Option 83);
  • Expand drug rebates to Medicare Part D (savings of $59 billion); and
  • Enact liability reform (savings of $64 billion).

Longer term, the proposal includes suggestions to expand the Independent Payment Advisory Board (IPAB) included in the health care law by strengthening savings targets, allowing the IPAB to submit cost-cutting recommendations in years where spending is BELOW the target, extending the IPAB’s reach to Exchange health plans, and setting a global cap on federal health expenditures equal to GDP plus 1%.  (Budget wonks may recall that it was the Clinton health bill’s global caps on spending, coupled with the individual and employer mandates, that led CBO to designate health insurance as a largely federal function under the measure and place the entire bill on-budget.)  The proposal includes a series of reforms to physician payments and cost-sharing, including a conversion of the Medicaid long-term care program into a capped allotment (i.e., block grant).  The Powerpoint report suggests converting Medicare to a premium support mechanism only if the global caps on spending prove ineffective.

On taxes, there are a variety of options discussed that would reduce or eliminate tax expenditures, potentially limiting, or eliminating entirely, the employee exclusion for group health insurance.  Option 1 also discusses the impact of eliminating all tax expenditures in reducing tax rates across the board; however, it is unclear whether or not this model classifies the $464 billion in insurance subsidies included in the health care law as “tax expenditures.”  The very last slide contains Social Security options that would subject employer-sponsored health insurance to payroll taxes “in the same manner as 401(k) plans” are taxed for FICA benefits currently.

Two final points worth noting: First, the chart on slide 11 of the Powerpoint claims $733 billion in savings over the 2012-2020 period from mandatory spending programs, compared to twice that amount – $1.46 trillion – from the discretionary side of the budget (which includes defense).

Second, the report also included as one of the options (if costs continue to exceed a set target of GDP +1%) legislation to create a “robust” government-run health plan.  You may recall that Rep. Jan Schakowsky, one of the members of the deficit commission, previously admitted that such a plan “will put the private insurance industry out of business and lead to single payer.”