What does the Heritage Foundation have to say about the saving the American dream project released May 10, 2011? (Part 4)

“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, and today are some of the conclusions of this study.

Medicare. The Heritage plan changes Medicare by moving to a defined
contribution premium-support system subject to competitive bidding. The CDA
projects that the Heritage plan will save almost $1.6 trillion by 2021 compared
with the current law baseline and $9.4 trillion by 2035. Overall, federal health
care spending is 40 percent less under the Heritage plan.

Premium support and competitive bidding are not new
ideas and have been analyzed before. In December 2006, the CBO estimated that a
premium-support program with competitive bidding could reduce Medicare
expenditures by 8 percent to 11 percent, although it would not significantly
affect underlying spending growth.[10] Another study on the benefits of consumer
choice through such approaches found that Medicare spending would fall by 8
percent as a result of choice and competition.[11] The CDA assumes that, when the Heritage plan
is fully implemented, Medicare spending will fall by 5 percent annually because
of the budgeted defined contribution and competitive bidding. However,
there are reasons to believe that Medicare cost growth would fall by much more
as seniors are given a reason to be cost-conscious consumers of health care.
Therefore, the 5 percent decrease that we estimate from the competition reform
is likely a lower bound.

Wealthier seniors contribute more toward their health care under the Heritage
plan. The CDA used the Current Population Survey to estimate how many seniors
have adjusted gross income in excess of the phaseout thresholds. Under the plan
the value of the premium contribution is reduced by 1.82 percent for each $1,000
in excess of the phaseout level. The CDA estimates that just over 9 percent of
seniors have income in excess of the phaseout threshold.

Other changes in Medicare include increasing the
eligibility age and requiring higher Part B premiums for those continuing to
participate in the traditional Medicare fee-for-service program. The CDA scoring
of these changes closely matches CBO scoring estimates of various budget

Medicaid and the Working-Age Population. The Medicaid reforms in the
Heritage plan will significantly strengthen the economy by slowing down health
care costs and federal spending on health care, reducing barriers to economic
mobility, and encouraging work and savings.

The Heritage plan makes several reforms to Medicaid, reshaping the program to
focus on the disabled and elderly with very low incomes and providing
able-bodied adults and their families with assistance to buy private insurance
instead of Medicaid. This is an especially important component of the plan
because it will reduce barriers for many non-disabled adults to return to work.
Today, many lose coverage if they take a job with an employer that does not
offer insurance. By introducing stricter eligibility requirements for the
program (with the alternative assistance for certain current enrollees) and
capping spending growth, the Heritage plan will bring Medicaid spending and its
growth path under control, saving taxpayers $1.1 trillion compared with the
baseline in the first 10 years and $8.2 trillion by 2035.

The Heritage plan replaces Medicaid coverage for non-disabled adults and
children with a tax credit and voucher for purchasing health insurance in the
private market.

Social Security Modernization. The Heritage plan works to protect
seniors from poverty, but also transparently reduces checks to more affluent
seniors. Today, the benefits of more affluent seniors are taxed, and the taxes
reduce checks at much lower income levels than the phasedown threshold in the
Heritage plan. The Heritage plan also adjusts the retirement age to take into
account increased life expectancy.

With modeling assistance from the American Enterprise Institute, the CDA
estimates that the Heritage reforms will reduce federal spending by $1.7
trillion from 2012 to 2021 and $10.9 trillion cumulative by 2035. This is a
reduction of almost 4 percent in annual Social Security outlays by 2035 while
ensuring that no eligible senior falls below the poverty line.

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