In light of recent developments, the Congressional Budget Office (CBO) has updated its estimate of the health care reconciliation bill (previously described here) that has now passed the House. The previous estimate showed that the bill would reduce ten-year deficits by $79 billion, or by $130 billion if economic effects were included, but it also estimated deficit increases beyond the first ten years (we estimated a $400 billion deficit increase in the second decade). The latest estimate shows a similar story: the bill reduces deficits by $78 billion, or $129 billion when economic effects are included, but we estimate that it would increase total deficits by around $250 billion in the second decade.
The latest score updates a few aspects of the bill. The first involves repeal of the auto-enrollment provisions, which requires employers with 200 or more employees to automatically enroll their employees in a health insurance plan unless the employee opts out. This provision, which saves $8 billion over ten years, was included in the Bipartisan Budget Act that just became law, so it is no longer available for this bill. The second involves repeal of the Independent Payment Advisory Board (IPAB), the panel charged with controlling Medicare spending growth. Lawmakers dropped this provision and its $7 billion ten-year cost prior to passage due to concerns that it would jeopardize the bill's ability to be passed via reconciliation.
|Rough Estimate of the House Reconciliation Package|
|Ten-Year Cost/Savings (-)|
|Individual and employer mandate repeals||-$181 billion*|
|Medical device tax repeal||$24 billion|
|Cadillac tax repeal||$91 billion|
|Prevention Fund repeal||-$13 billion|
|Planned Parenthood defunding/Community health centers||<$1 billion|
|Memorandum: Dropped/Nullified Provisions|
|Auto-enrollment repeal||-$8 billion|
|IPAB repeal||$7 billion|
Source: CBO, Joint Committee on Taxation
*Includes $12 billion of revenue from interaction between mandates and Cadillac tax repeal
Today, Republican presidential candidate and former Florida Governor Jeb Bush unveiled a new plan – among the most detailed we have seen so far from any presidential candidate – to reform Social Security and Medicare. According to our estimates, Gov. Bush's plan would save about $285 billion (including interest) over ten years and very roughly $2.7 trillion over twenty years. It would also close Social Security's shortfall over 75 years and beyond.
Congressman Scott Rigell (R-VA) released a plan today we might like even better than our own Sequester Offset Solutions (SOS) plan. Congressman Rigell's America First Act would permanently replace about three-quarters of the sequester-level cuts with a combination of mandatory spending cuts, Medicare reforms, limits on tax expenditures, and the savings and revenue from the adoption of the chained CPI. All told, it would reduce the debt by about $135 billion after a decade and according to our estimate nearly $2.5 trillion over twenty years.
Rigell's Plan would raise discretionary caps by about $630 billion over ten years and repeal $135 billion in mandatory sequester cuts, for a total cost of $765 billion. He would more than offset these costs with $820 billion of savings – including $620 billion from spending (and user fees) and $200 billion from tax revenue. He would also save $125 billion over ten years from Social Security, reducing the shortfall by approximately 15 percent.
To achieve these savings, Rigell's plan focusses largely on slowing the unsustainable growth of federal health spending. His plan includes over $450 billion of health savings. About one-third of this comes from beneficiary-oriented changes such as modernizing cost-sharing, restricting Medigap coverage, encouraging the use of generic drugs, and increasing means-tested Medicare premiums. Another half of the savings come from providers, where his plan would bundle payments for post-acute care, reduce hospital payments for medical education, equalize payments for services performed in different settings, reduce reimbursements for bad debts, and "rebase" nearly all payments to post-sequester levels.
The $165 billion of remaining spending reductions in the Rigell plan come from a variety of sources, many of which we recommend in our Sequester Offset Solutions (SOS) plan. For example, his plan would index various user fees to inflation, increase federal employee retirement contributions, increase PBGC premiums, and adopt the chained CPI for other spending, among other changes.
Lawmakers may be taking action to prevent a steep premium and deductible hike for some Medicare beneficiaries next year, but should make sure to be fiscally responsible in doing so. Although some lawmakers claim acting before October 15 will reduce the cost, in reality it will only hide the cost and thus increase deficits.
As we explained previously, Medicare premiums typically rise every year, but this time it's complicated by the fact that there will likely not be a Social Security cost-of-living adjustment (COLA) for next year. That will will put into motion a "hold harmless" provision that exempts most Medicare beneficiaries from the standard annual premium increase. As a result, other Medicare beneficiaries will shoulder the entire increase that would have been split by everyone, resulting in a 52 percent increase in premiums for those beneficiaries.
Lawmakers are considering options to avert the increase. The cost of any relief should be fully offset, but some lawmakers appear eager to take advantage of a quirk in Congressional Budget Office (CBO) scoring procedures that would allow them to avoid paying for most of the roughly $8 billion cost if they act before October 15. House Minority Leader Nancy Pelosi (D-CA) referred to this in her remarks at a press conference earlier today:
For reasons that I won’t go into – if we act by October 15th, this will cost the taxpayer less in the overall budget. If we act before October 15th, it will have less of an impact on states. We must act so that we stop the pain that will be inflicted upon our seniors.
Adding to the list of things lawmakers want to get done before the end of the year, Congress may take up a relatively obscure Medicare issue that could have significant consequences for some Medicare beneficiaries. Earlier today, House Democrats held a press conference calling for lawmakers to avert a significant Medicare premium increase that could hit a small subsection of beneficiaries next year, and a resulting increase in deductibles for all Medicare beneficiaries.
The issue at stake is the "hold harmless" provision that bars annual increases in Medicare Part B premiums from exceeding the dollar amount of a beneficiary's Social Security cost-of-living adjustment (COLA) for most enrollees. The provision usually does not come into play because Social Security benefits are generally much larger than Medicare premiums, meaning that even a small COLA should cause a large enough benefit increase to clear the bar.
However, with gas prices falling and remaining well below last year's prices, the Social Security Trustees predicted during the summer that there would be no Social Security COLA at all this year since there would be zero inflation. At the same time, Medicare Part B premiums will increase for 2016 because they are calculated for most beneficiaries as being roughly one-quarter of the average per-person Part B costs, which have grown; the deductible grows at the same rate.
Roughly 70 percent of Medicare Part B beneficiaries, therefore, will be protected from premium increases in 2016 due to the hold harmless provision, but the remaining 30 percent would have to shoulder the entire increase necessary to keep premiums at 25 percent of program costs (although the majority of these have their entire premium covered by Medicaid). These 30 percent include:
- High-income beneficiaries who pay higher premiums at 35-80 percent of program costs;
- New beneficiaries;
- Beneficiaries who have not started receiving Social Security;
- Low-income beneficiaries who have their premiums paid by Medicaid; and
- Certain state and local employees who do not participate in Social Security.
The Urban Institute published a new report showing that younger generations will receive much more in lifetime Social Security and Medicare benefits than today's retirees, and all generations will receive more benefits than they have paid in taxes, leading to ballooning economic shortfalls in the two programs.
The study, by CRFB board member Eugene Steuerle and Caleb Quakenbush, shows that benefits for an average-earning couple retiring today are valued at $1 million and expected to be $2 million for millennials turning 30 this year. Left unchanged, this trend will continue to rise for future generations.
Update: CBO has released scores of the three reconciliation bills showing net ten-year savings of $57 billion but a deficit increase of $1 billion in 2025. The blog has been updated to reflect these numbers, and the second-decade numbers have been updated base on the official estimates.
Since Republicans took full control of Congress in the 2014 midterm elections, there has been plenty of discussion about the use of reconciliation, a fast-track process that most critically allows the Senate to pass legislation with 51 votes by allowing it to bypass the 60 vote requirement needed to end a filibuster, for repealing parts of the Affordable Care Act (ACA).
The relevant committees in the House of Representatives, this week, finally detailed their plans, but the proposed reconciliation package may run into trouble in the Senate because it appears to increase deficits in the second decade by in the range of $400 billion.
- The individual mandate;
- The employer mandate;
- Auto-enrollment in health insurance for employers with 200 or more employees;
- The Independent Payment Advisory Board (IPAB);
- The medical device tax;
- The Cadillac tax on high-cost insurance plans;
- The Prevention and Public Health Fund; and
- Funding for Planned Parenthood (which would be redirected elsewhere).
In light of the recent reconciliation package that repeals the Cadillac tax on high-cost health insurance plans and Democratic Presidential candidate and former Secretary of State Hillary Clinton's (D-NY) call for repeal, 101 economists -- including CRFB board members Robert Reischauer, Alice Rivlin, and Eugene Steuerle -- wrote a letter to the Chairmen and Ranking Members of the House Ways and Means and Senate Finance Committees recommending that they spare the tax.
The letter cites three main reasons to keep the tax. First, the tax will help control health care costs by discouraging overly generous employer-provided health insurance plans. Second, it could help wage growth by reducing the share of employee compensation that goes toward insurance. Finally, repealing the tax would cost $91 billion over the next ten years. The letter concludes that:
We, the undersigned health economists and policy analysts, hold widely varying views on other provisions of the Affordable Care Act, and we recognize that measures other than the Cadillac tax could have been used to restrict the open-ended health insurance tax break.
But, we unite in urging Congress to take no action to weaken, delay, or reduce the Cadillac tax until and unless it enacts an alternative tax change that would more effectively curtail cost growth.
Over the past few weeks, the two leading Democratic candidates for President, former Secretary of State Hillary Clinton and Senator Bernie Sanders (I-VT), have both released plans aimed at tackling the rising cost of prescription drugs. The issue has taken on increased importance in 2015 with new, highly-expensive medications hitting the market and the prices of a number of drugs skyrocketing, including the recent high-profile case of Turing Pharmaceuticals' Daraprim price being raised from $13.50 per tablet to $750 before the company backtracked.
High and rising prescription drug prices have become a major story in the past few years. Between 2010 and 2013, Total drug spending averaged only two percent growth as many blockbuster drugs lost patent protection and was a major driver of the health care slowdown in the late 2000s through 2013. However, drug spending bounced back in a big way with 12.6 percent growth in 2014. Over the next decade, system-wide prescription drug spending is expected to grow slightly faster than overall health spending (6.3 percent annually versus 5.8 percent). This is also true in Medicare, where Part D prescription drug coverage is projected to be the fastest growing part of the program.
Last week, the Social Security and Medicare Trustees released their annual reports on the long-term finances of each program, showing that those programs remain financially unsound and on the road toward insolvency. As part of the reports the public trustees, who are appointed members of the public rather than agency heads, release a statement highlighting their thinking around key issues surrounding the trust funds. Three issues stand out in this year’s statement: the need for prompt action to solve the impending exhaustion of the Social Security Disability Insurance (SSDI) Trust Fund; the need for near-term action to solve the imbalance in the Old-Age and Survivors Insurance (OASI) Trust Fund; and the importance of maintaining and building on measures to control Medicare cost growth.
The Impending SSDI Crisis
"It is impracticable to reduce DI costs sufficiently to prevent imminent Trust Fund depletion (and thus, sudden benefit reductions for highly vulnerable individuals) without at least a temporary increase in DI Trust Fund resources, irrespective of its source or combination with other measures."