End or Grow Medicaid? Health Policy Advisers Debate Reforms

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By Adrianne Appel

Health policy experts with mile-long resumes of advising Republican and Democratic presidents sparred Feb. 13 about the best way to reform the nation’s health-care system.

The only thing that was crystal clear by the close of the evening event at Harvard was that there was little agreement about how to control spending and how to get care to those who need it.

Medicaid, the federal-state program that provides free health care to people earning up to 100 percent of the federal poverty level, was one such topic.

Medicaid should eventually be dismantled and replaced with a system of tax credits and health savings accounts that allow low-income consumers to buy into health exchanges or purchase health care outright, Avik Roy, president of the Foundation for Research on Equal Opportunity and a former fellow at the Manhattan Institute, said.

Some states also offer Medicaid to those up to 138 percent of the federal poverty level, through a program known as Medicaid expansion, which was offered through the Affordable Care Act.

What will happen to Medicaid expansion—and Medicaid—under a reformed health system is under debate in Congress.

“Take the money we spend on Medicaid and give it to people to buy insurance through the exchanges,” Roy said. Low-income consumers make excellent decisions about how to spend their money, because they have to, he said.

“Every dollar really matters to them,” Roy said.

Tax Credits Inadequate

But a chief adviser to former President Barack Obama on the ACA disagreed.

“It’s all fine and well to give people a tax credit. But that credit can’t buy health insurance,” said Jonathan Gruber, an MIT economics professor who crafted the Massachusetts health system under former Gov. Mitt Romney (R) and advised Obama.

People need money in hand to buy health insurance, and that’s something those at the lowest incomes don’t have, Gruber said. And insurance is expensive.

“Affordability is issue No. 1,” Gruber said. This is especially true for chronically ill, seriously ill and elderly people, who need the most health care.

“Eighty percent of the spending on health care is done by 20 percent of the people. And those 20 percent can’t afford the 80 percent of the spending,” Gruber said.

“We could decide to throw a bunch of money at the sick” to make their insurance more affordable. But that money has to come from somewhere else in the system, he said.

Bring Tax Credits, HSAs to More People

Roy suggested the program of tax credits and health savings accounts could be expanded to include the elderly and anyone for whom the cost of insurance is highest.

This could be done by removing the subsidies provided today to middle-income people under the ACA, and delivering them instead to those at the bottom who earn too much to qualify for Medicaid, he said.

“There would be many benefits to people, to have the advantage of a tax credit available to them,” to purchase health insurance or health care directly, Roy said.

“Our model would cover 12 million more people than the ACA because it delivers more subsidies to lower-income people and takes away subsidies from higher incomes,” Roy said. And it would cost less, he said.

“It’s magical thinking that we can spend less money and cover more people,” Katherine Baicker, an economics professor at Harvard and former member of the Council of Economic Advisers under President George W. Bush, said. “It’s redistribution,” she said.

“Higher-income people would be paying more for health care,” she said.

A Bigger Medicaid Program

Another way to insure more people at less cost is to allow people who earn between 100 percent and 200 percent of the federal poverty level to buy into the Medicaid program, Gail Wilensky, a fellow at Project HOPE, said. Wilensky also headed what is now the Centers for Medicare & Medicaid Services under President George H.W. Bush.

Today if someone is in the Medicaid program and they earn more money, they become ineligible and must purchase insurance in the private market or go without, Wilensky said.

“Let people choose, if they make more money, to stay in Medicaid,” Wilensky said.

The experts had varying opinions about the need for a requirement that people have insurance.

Roy would do away with the individual mandate, under which people are penalized for not having insurance.

But Gruber said this would make the exchanges and insurance market skewed. “Healthy people will get out, and sick people will stay in,” he said.

The exchanges should look to Medicare for the answer to the mandate question, Wilensky said.

“Medicare doesn’t have a mandate. But when you turn 65 if you don’t choose drug coverage, you’ll pay a fee for every month you don’t join,” she said. “Why we couldn’t do something similar for those under 65 is a mystery to me.”

Collins Bill a Bad Idea: Gruber

A bill, S. 191, sponsored by Sens. Susan Collins (R-Maine) and Bill Cassidy (R-La.), is often referred to as a moderate bill that would not make big changes to the ACA.

But following the panel, Gruber said the bill has one big failing in his eyes: It does not require states to insure at least the same number of people they do now,

The bill proposes allowing states to continue with the ACA or to request 95 percent of the funding they receive today to put in place their own systems, Gruber told Bloomberg BNA.

The result would be that “blue states would have good coverage and red states would have crappy coverage,” he said.

To contact the reporter on this story: Adrianne Appel in Boston at aappel@bna.com

To contact the editor responsible for this story: Brian Broderick at bbroderick@bna.com

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