The congressional Super Committee knows that entitlement programs, especially Medicare and Medicaid, are driving our nation’s ballooning budget deficit, yet both Republicans and Democrats fear they are politically untouchable.
But they must be changed to survive and for Congress to have any hope of controlling federal spending.
Legislators can move past this political paralysis by taking first steps to begin to modernize entitlement programs.
The Medicare Prescription Drug Program provides a model for reform. Since its adoption in 2003, Part D has provided affordable drug coverage to seniors by harnessing competition and consumer choice. Private companies approved by Medicare offer prescription drug coverage to seniors who shop to find the plan that best meets their needs. In the process, they force health plans to actively compete to offer the lowest prices and best benefit design.
The result is an entitlement program that is actually under budget. Medicare Part D is coming in 46 percent below original estimates — saving money for taxpayers and seniors. The average Part D enrollee is now paying just $30 a month, far below the $53 premium originally projected by this point. Between 2010 and 2011, average Part D premiums rose just $1.
House Budget Chairman Paul Ryan has a plan to extend this concept to all of Medicare. He would provide seniors with a credit they could use to purchase a Medicare-approved health plan of their choice from among competing plans.
When it begins in the year 2022, the Ryan proposal would provide a generous payment so seniors can pick the health plan that best meets their needs. This federal contribution would be adjusted based on their age, financial well-being, health status, and similar considerations. The older, the poorer, the sicker seniors are, the larger their Medicare payments would be. Everyone who qualifies for Medicare would be guaranteed coverage.
This idea was widely criticized earlier this year when it was included in the House budget, but as Super Committee members honestly study the options, they can’t help but see that this is the right platform to modernize and save Medicare. A number of bi-partisan commissions have come to the same conclusion.
This could be an opportunity for the Super Committee to put down markers for congressional standing committees to get to work on reforms that will grow over time and reduce the future flood of red ink driven by uncontrolled entitlement spending. Congress’ challenge is to make sure the payment is adequate for seniors to obtain coverage while not putting future taxpayers in the poor house.
The alternative is the path we are on, embedded in the new health law — deep cuts in payments to doctors that will drive many out of practice and rationing by the unelected, unaccountable Independent Payment Advisory Board, leading to longer and longer waiting times for medical services.
Spending on Medicare and other entitlement programs must be contained. To survive, Medicare must be changed, and the question is whether it will be through the cuts, price controls, and rationing under current law, or through Rep. Ryan’s plan that enables enrollees to apply the government’s contribution to guaranteed health coverage while bringing the power of market competition to reduce health costs.
While it works to develop positive reform, it is just as important for the Super Committee to avoid changes that will make problems worse. Sen. Jay Rockefeller (D-WV) and Rep. Henry Waxman (D-CA) want the Super Committee to raise money by requiring pharmaceutical firms to pay a minimum rebate on prescription drugs for people who qualify for both Medicare and Medicaid. This is a misguided proposal. Studies show that these rebates would ultimately shift costs back to seniors in the form of higher drug costs and premiums.
The Committee also must beware of programs masquerading as competition. The so-called “Competitive Bidding Program” for Medicare is designed to save money in Medicare’s purchasing of durable medical equipment — everything from diabetic supplies to sophisticated home wound care equipment.
Instead of Washington setting prices, the agency that runs Medicare is supposed to get competitive bids on these medical supplies. It sounds like a good idea. But the regulations the agency set up to implement this program are actually driving out competition and violating all the rules of a market-driven bidding system. Companies can bid so low that they drive out legitimate suppliers, and then the winning bidder doesn’t have to supply the product! This program will disrupt patients’ access to medical goods and should be shut down, not expanded.
Yet the Obama administration has proposed extending this program to Medicaid, despite letters sent by 30 patient advocacy groups, 244 economists and 145 members of Congress objecting. The price distortions in the program are likely to ricochet throughout the health sector, making it difficult if not impossible to find the true competitive price for medical devices in the future, according to Tom Bradley, chief of Medicare cost estimates at the Congressional Budget Office. The Super Committee would do well to shut this program down completely.
The key to real reform is building in changes to Medicare and Medicaid that rely on consumer choice and competition, not price controls and crushing government regulations.
Rationing, regulations, and price controls always fail. The Medicare drug program shows how a truly competitive program can work. It works because consumers are in charge of seeking the best value in their health spending, forcing providers to deliver better services at lower cost.
To ensure the future of Medicare and Medicaid — and to correct our disastrous fiscal course — the Super Committee can take the long-term view of reform with steps that will move away from the failed approach of Washington micro-management and toward modern reforms that rely on consumer choice and market competition.
Posted on The Huffington Post: Politics, November 4, 2011.