Wednesday, August 24, 2011

Republican Proposal: Spend $11.4 billion, Save $5.7 billion

Senator Tom Coburn (R-OK), among others, has proposed raising Medicare’s eligibility age from 65 to 67 as a way to “fix Medicare.”  The Center on Budget and Policy Priorities (CBPP) ran the numbers and found that doing as Coburn proposes would indeed save the U.S. Government $5.7 billion in 2014 alone.  Sounds like a great idea, right?  Not so fast.  What Coburn doesn’t tell us but the CBPP does is that the $5.7 billion savings WOULD ACTUALLY COST the country $11.4 billion in other health care spending.  Let’s see, the Republicans want to save $5.7 billion by spending $11.4 billion.  Now, is that a good deal for the nation?  What do you think?  Here are the numbers and facts.

Here is the CBPP explanation of the $11.4 cost of the Coburn proposal.

  • State spending would increase by $0.7 billion in 2014, Kaiser estimates, because Medicaid would cover all health care expenses for 65- and 66-year-olds who would otherwise have been fully eligible for both Medicaid and Medicare and for whom Medicare would have been the primary payer.  State spending would increase by significantly larger amounts in later years as states gradually assume a portion of the costs of 65- and 66-year-olds who would not become fully eligible for Medicaid until health reform's Medicaid expansion is in effect.  The federal government will pay the entire cost of these individuals in 2014, but states must pay 10 percent of their costs by 2020.
  • States would have to pay an even larger share of the cost of covering 65- and 66-year-olds newly eligible for Medicaid — something like 40 percent or more — under a proposal for a "blended" Medicaid matching rate.  The proposal, floated in vague terms by the Administration this spring but never formally issued, would replace the various matching rates at which the federal government reimburses states for their Medicaid costs with a single "blended" rate for each state.[4]  A state's blended rate would be set at a level that provides the state with less federal funding overall than under current law.  Because states would have to pay a much greater share of the cost of insuring individuals who are newly eligible for Medicaid as a result of the health reform law, states would have much less incentive to assure that eligible people enroll.  As a result, the number of 65- and 66-year-olds who became uninsured would be higher. 
  • Employers' costs would increase by an estimated $4.5 billion in 2014 as more 65- and 66-year-old retired workers whose employers offered coverage to their retirees received primary coverage through their employer rather than Medicare. 
  • Medicare beneficiaries would pay a total of $1.8 billion in higher premiums because relatively healthy 65- and 66-year-old beneficiaries would be removed from Medicare's insurance risk pool.  At present, these younger Medicare beneficiaries cost less than older beneficiaries but pay the same premiums, thereby holding down premiums for everyone else.  The Kaiser study estimates that premiums for other Medicare beneficiaries would rise by about 3 percent if 65- and 66-year-olds could no longer participate in the program.
  • Adding 65- and 66-year-olds to the health insurance exchanges would raise premiums for everyone else in the exchanges by about 3 percent, or $700 million in 2014.  The reason is that under the ACA, insurers may not charge the oldest enrollees more than three times as much as the youngest, but the average cost of covering the oldest enrollees is over five times that of the youngest, so insurers would raise premiums for enrollees under age 65 to cover the difference.  As premiums for everyone in the exchange rose because of the influx of 65- and 66-year olds, some of the healthiest unsubsidized participants likely would drop coverage, further pushing up premiums for everyone else.
Read the complete CBPP report here:

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