Questions on Medicare For Dr. Tom Price, Our Next Health Secretary

(A version of this column was published by Forbes.)

It looks like Tom Price, MD, Donald Trump’s nominee for U.S Secretary of Health & Human Services will get his first Senate confirmation hearing on January 18. According to Morning Consult, Democratic Senators are planning to focus on Price’s support for turning Medicare into a system of “premium support.”

Fair enough: It will be a relief from all the arguments and counter-arguments about whether “repealing and replacing” Obamacare means “repeal and delay,” “repeal and de-regulate,” or “delay and delay” (as advocated by some who fear Republican politicians will repeal Obamacare immediately and never get around to a replacement bill.)

Democrats have a superficial advantage here, but only because of their own failed health reform. Obamacare offers premium support for private insurance via tax credits, and it has not worked. Last March, the Congressional Budget updated its estimates for Obamacare enrollment in 2016 to just 13 million people, a decrease of 8 million from the 21 million it had forecast when it published its original estimate in 2010. Premiums for individual health insurance have doubled since 2013 (40 percent in 2014, 5 percent in 2015, 10 percent in 2016, and 25 percent in 2017). Dr. Price should welcome questions from Democrats asking why premium support in Medicare would work better than it does in Obamacare.

The approach to premium support advocated by Dr. Price is a better version of the increasingly popular Medicare Advantage program, whereby seniors’ Medicare Part A (hospital), Part B (physician), and (often) Part D (drugs) are rolled into one package offered by a commercial insurer. Although the Affordable Care Act partially financed Obamacare by reducing the amounts the federal government pays insurers to participate in Medicare Advantage, the opportunity to get out of traditional Medicare had become increasingly popular among seniors.

Recall beneficiaries were offered this choice via the Medicare Modernization Act of 2003, which was passed by a bicameral Republican-majority Congress and signed by a Republican President. To be sure, the law passed both chambers very narrowly. Nevertheless, this is yet another recent example showing Republican leadership on health reform can win public acceptance. (For comparison, the 108^th Congress convened in 2003 with 55 Republicans and 44 Democrats in the Senate, and 232 Republicans and 201 Democrats in the House. The current 115^th Congress has a similar breakdown in the Senate of 52-46 and 241-194 in the House.)

And Medicare Advantage appears to save taxpayers money, something we cannot say about Obamacare. In 2003, only 13 percent of Medicare beneficiaries chose private plans. By 2010 (the year the Affordable Care Act was signed), 24 percent made the choice, and last year 31 percent did. However, spending on Medicare Advantage accounted for only 27 percent of overall Medicare spending. Further, average annual growth in per capita Medicare spending was only 4.4 percent between 2010 and 2015, versus 9.0 percent in the previous decade (although Medicare Advantage is not responsible for all this improvement).

Fearing political backlash, the Obama Administration has balked at imposing Obamacare’s cuts to Medicare Advantage in their entirety. Nevertheless, the reduced payments to insurers have not harmed beneficiaries’ choices – so far.

However, Obamacare’s cuts to Medicare Advantage phase in fully this year. That means repealing Obamacare reverses future cuts and adds to federal spending. 

According to a new report by the Committee for a Responsible Federal Budget, the amount would be $400 billion or $450 billion over ten years, a significant factor in the report’s conclusion that repealing Obamacare would increase the deficit.

So, Dr. Price should also be asked how premium support moves beyond Medicare Advantage and would further reduce spending while increasing beneficiaries’ choices. 

The answer is that premium support gives more control of spending to beneficiaries directly instead of insurance companies (a fundamental problem with Obamacare.) The CBO confirmed premium support works in a 2013 analysis: The most likely type of premium support would reduce federal Medicare spending in 2020 by two percent ($15 billion) and also reduce beneficiaries’ premiums and out-of-pocket spending by six percent.

Dr. Price and beneficiaries concerned about the future of Medicare can look forward with confidence to his confirmation hearings.