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The Political Economy of Health Reform

The Political Economy of Health Reform. Lexington Medical Society November 10, 2009. Health Care Reform Politics. The Economic Environment 2009. TARP “bailout” – $700 Billion Emergency Economic Stabilization Act – Oct. 3, 2008 ARRA - $ 787 Billion Feb. 17, 2009

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The Political Economy of Health Reform

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  1. The Political Economy ofHealth Reform Lexington Medical Society November 10, 2009

  2. Health Care Reform Politics

  3. The Economic Environment 2009 • TARP “bailout” – $700 Billion • Emergency Economic Stabilization Act – Oct. 3, 2008 • ARRA - $ 787 Billion • Feb. 17, 2009 • Current debt $11.9 trillion • 2009 fiscal year deficit: $1.4 trillion • 10 year (2009 – 19) additional deficit: $9 trillion (75% debt growth

  4. U.S. Federal Revenue/Expense: 1969 - 2019 Surplus projection 2001: $5.6 T/ 10 yr. Medicare Part D (unfunded) passed 2003 Financial crisis Expenditures 20.5% Tax cuts Largest Deficit Since 1945 ($1.4T) Tax revenues 18.3% OBRA ’93 achieved a balanced budget Recession CBO: “The Budget and Economic Outlook – An Update” August 2009

  5. Federal Deficits 1965 - 2019 2001-3 tax cuts CBO alternative fiscal scenario Assumes tax increases that politically will not occur (AMT, income tax), & expense cuts, such as a 40% SGR MD payment reduction $1.4 T CBO: “The Budget and Economic Outlook – An Update” August 2009

  6. (CBO – Long Term Budget Outlook, June 2009) Discretionary vs. Mandatory Entitlement Spending 18% GDP

  7. U.S. Federal Debt Projection WW II (Likely) Depression Revolutionary War (Unlikely) If 2001-3 tax cuts sunset Civil War WW I (CBO – Long Term Budget Outlook, June 2009)

  8. 40% 30% 20% 2016 2034 2059 (CBO – Long Term Budget Outlook, June 2009)

  9. (Revised CBO scores) ($1.055T $894B) ($829B) ($0) ($998B) ($167B) ($60B) Avalere Health LLC, “America’s Healthy Future Act of 2009”, Sept 18, 2009

  10. H.R. 3962 – “Affordable Health Care for America Act” (220-215: 11/7/09) • Gross cost = 1,055 B / 10 yr. • Net cost = $894 B / 10 yr. • Minus penalties ($167 B - individual & employer) • New revenue = $998 B / 10 yr. (or $1.165T = .998 + .167 T if penalties added to revenue) • Spending cuts = $426 /10 yr. • Wealthy income tax surcharge (5.4%) = $572 B / 10 yr. • Deficit reduction = $104 B / 10 yr. • SGR fix (HR 3961 / $210 B) excluded from Gross cost (With SGR fix: Gross cost = $1.265 T / Deficit = +$106 B) Douglas Elmendorf, CBO Director: Letter to Charles Rangel, October 29, 2009

  11. HR 3961 - SGR Reform • SGR fix extracted from House bill 10/27/09 • 2010 update = MEI (1.2%) • New SGR: 2011 rebased to 2009 spending • Separate categories & conversion factors • E&M – GDP+2% target update 2011 • Other services – GDP+1% target update 2011 • Cost $210 B / 10 yr. (Revised CBO estimate*) • Unfunded : deficit reduction illusion • Referred to Ways & Means Committee • House floor debate – due week of November 16, 2009 • Senate companion (S. 1776) defeated 53 – 47: Oct. 21 *CBO: H.R. 3961 Cost Estimate, November 4, 2009 (www.cbo.gov)

  12. Senate Finance Bill – CBO Score • $829 B / 10 years - costs • Exchange tax credits & subsidies ($510 B) • Medicaid ]/ CHIP expansion ($287 B) • Small employer tax credits ($24 B) • $911 B / 10 years - revenues • $201 B excise tax on high-premium plans • 40% excise tax over $8000 single / $21,000 family) • $110 B net savings – other sources • $404 B spending reductions (MA, hosp, etc.) • $196 B increased revenues • Net $81 B federal deficit reduction (SGR fix out) Douglas Elmendorf, CBO Director, Letter to Senator Max Baucus, Oct. 7, 2009 “Estimates are all subject to substantial uncertainty” (p. 2)

  13. Flash Point: The “Public Plan” Jacob Hacker, “The Case for Public Plan Choice in National Health Reform”, Institute for America’s Future, December 2008

  14. CBO estimate: 10% (7/14/09) 25% 25% The Lewin Group, “The Cost and Coverage Impacts of a Public Plan” http://www.lewin.com/ content/publications/LewinCostandCoverageImpactsofPublicPlan-Alternative%20DesignOptions.pdf

  15. CBO estimate: 9-10 Million The Lewin Group, “The Cost and Coverage Impacts of a Public Plan” http://www.lewin.com/ content/publications/LewinCostandCoverageImpactsofPublicPlan-Alternative%20DesignOptions.pdf

  16. Billion The Lewin Group, “The Cost and Coverage Impacts of a Public Plan” http://www.lewin.com/ content/publications/LewinCostandCoverageImpactsofPublicPlan-Alternative%20DesignOptions.pdf

  17. CBO Analysis: Public Plan in HR 3962 (Combined House Bill) • Premiums higher than average private • Provider rates = private plan rates • Higher medical loss: adverse selection • Only 20% (6 million) in exchange in public plan in 2019 • Ignores opening to large employers 2015 • Ignores option & intent to eventually drop payment to Medicare rates Douglas Elmendorf, CBO Director: Letter to Charles Rangel, October 29, 2009

  18. The Sting • Public plan brings federal rates to employer market • If successful, an “all payer” system • Commercial “squeeze out” based on pricing • Expected SGR fix dropped to eliminate deficit • S.1776 defeated / HR 3961 on hold • Senate: another one year SGR override ($11B) • AMA / ACS/ ACP endorsement used to get plan passed…without quid pro quo

  19. Outlook for Reform? Questionable,…too close to call Cost, Deficit, Debt

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