Michael Cannon on Medicare and Healthcare
“Saving the American Dream: The Heritage Plan to Fix the Debt, Cut Spending, and Restore Prosperity,” Heritage Foundation, May 10, 2011 by Stuart Butler, Ph.D. , Alison Acosta Fraser and William Beachis one of the finest papers I have ever read. Over the next few days I will post portions of this paper, but I will start off with the section on Medicare.
A Medicare Budget and Financing System. During the first five years of
the new Medicare program, the government’s annual contributions to enrollees’
plans are based on the weighted average premium of participating health plans’
bids on a regional basis. The plans bid to provide Medicare benefits plus
catastrophic coverage and, just like the FEHBP, are weighted on plan enrollment.
Thereafter, the government contribution is based on the premium bid of the
lowest-cost health plan that meets the required level of quality and provides an
adequate range of benefits. In both cases, the per capita government
contribution on the basis of the plan bidding is set at 88 percent of the bids.
By comparison, the FEHBP contribution is set at 72 percent of the national
average weighted premium, and the original Medicare Part B premium contribution
was set at 50 percent in 1965.
The Heritage plan also caps total Medicare spending. The spending cap is
indexed annually for inflation using the Consumer Price Index plus 1 percent and
Medicare population growth. If Medicare spending exceeds the cap, the
government’s contribution declines from 88 percent to the percentage that
complies with the Medicare spending cap, thereby pressuring the competing plans
and providers to control costs more tightly.
Additional Assistance for Dual-Eligibles. Medicaid, the federal–state
program for the poor and the indigent, provides supplemental coverage for about
8 million Medicare beneficiaries. These are poor people, and most qualify for
full Medicaid benefits, including long-term care services in nursing homes. They
receive subsidies for Medicare premiums and cost-sharing and for the Medicare
Part D drug coverage.
Beginning five years after enactment, states have the option to “top up” the
Medicare defined-contribution amount for dual-eligibles who choose to enroll in
a private health plan. Dual-eligible enrollees who stay with the revamped
Medicare FFS plan continue to receive Medicaid coverage as they do today.
Integrating Traditional Medicare into the System and Adding Catastrophic
Cost Protection. Under the Heritage plan, all senior citizens have the
option of keeping their current health plans or choosing better health plans.
Five years after enactment, traditional Medicare FFS begins to compete
directly with private plans on a level playing field. Seniors can remain in
Medicare FFS if they wish. However, the previous organizational and benefit
distinctions within Medicare FFS (Medicare Parts A, B, C, and D) disappear
because Medicare becomes a single, unified program with a unified trust fund
that is financed by a defined contribution.
A single stated premium incorporates today’s multiple Medicare FFS premiums
plus the cost of a new catastrophic benefit. Cost-sharing parameters are
adjusted to ensure that the Medicare benefit package is actuarially equivalent
to the package provided under current law. In the first year of competition with
private health plans, the initial value of the catastrophic benefit will need to
equal the average of such benefits currently provided in the Medicare Advantage
program, but it may be adjusted thereafter by the Secretary of Health and Human
Services.
The Daily Hatch 