Medicare Changes Said Needed to Control Health-Care Costs

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By Sara Hansard

Reducing health-care costs will be a lot harder without making changes to Medicare, two conservative health-care authorities said March 9.

President Donald Trump’s opposition to making changes to the health-care program for seniors as congressional Republicans consider the American Health Care Act (AHCA) means that opportunities to reduce health-care costs are “much more limited,” Douglas Holtz-Eakin, former director of the Congressional Budget Office, told a conference of health insurers. “Medicare definitely needs to come up on the table,” said Gail Wilensky, who headed the agency that runs the Medicare and Medicaid programs. “I am disappointed that President Trump has put that off.”

The Affordable Care Act, which would be repealed by the AHCA, was frequently criticized for not doing enough to control costs. However, the discussion has once again shifted to focusing on health insurance coverage rather than the underlying cost of health care, which drives premiums.

Republican Bills’ Cost About Same as ACA

The bills being considered in the House will be “close to break-even” in their cost as the ACA, Holtz-Eakin, president of the conservative American Action Forum issue advocacy group, said. “This looks close to basically neutral” in its budget impact, he said. The Congressional Budget Office hasn’t yet come up with budget estimates for the legislation.

Coverage will be “close to where we are now,” because premiums could be reduced by 15 percent to 20 percent based on the type of policies sold, according to Holtz-Eakin.

But Harvard University economics professor David Cutler, who collaborated with the Obama administration on the Affordable Care Act, said most estimates are that coverage would be lost under the Republican bills. A March 7 analysis by S&P Global Ratings estimated that between 6 million and 10 million people would lose coverage.

The bills would reduce funding for low-income people to get coverage and repeal the individual mandate requiring people to get coverage or pay a penalty, he said. That is likely to result in a smaller, less healthy risk pool in the individual market, he said.

But more young people are more likely to join because premiums would be lower, according to Wilensky, who headed up the agency that became the Centers for Medicare & Medicaid Services in the George H.W. Bush administration.

The bills would allow insurers to charge older people as much as five times more than younger people, instead of the ACA’s requirement that limits charges to no more than three times as much for older people. The most reluctant buyers have been young adults, she said.

Cutler disagreed. The Republican plans would be less generous in benefits, and ACA cost-sharing subsidies for low-income people would be eliminated. “The costs skyrocket for older middle-aged people and are about unchanged for younger folks, so my guess is not much change with the younger folks and a huge loss for the older and the low-income,” Cutler said.

Medicaid: `Piggy Bank’ to Fund Tax Cuts

The Medicaid program for low-income people would be treated as a “piggy bank” to fund tax cuts for high- income people and to pay for subsidies to middle-class people to buy health insurance, Cutler said. The bill would end the ACA’s Medicaid expansion and change funding for the program to per capita block grants to states.

Wilensky also said she is “worried about whether or not there will be continuing look at Medicaid as the piggy bank” to fund other health programs.

“The expansion Medicaid program has been much more successful, much more stable than what’s gone on in the exchanges, which continue to have a lot of hostility and a lot of churn,” she said. Churn is when people move between Medicaid and the health insurance markets.

But the Medicaid program needs to be “revisited,” said Wilensky, a senior fellow with international health organization Project HOPE.

Under the ACA 31 states and the District of Columbia expanded Medicaid, covering about 11 million people with incomes up to 138 percent of the federal poverty level. Most of the 20 million people who gained coverage under the ACA did so through the Medicaid expansion.

ACA Medicaid Structure `Bizarre.’

The ACA left a “bizarre structure” for Medicaid, Wilensky said. The federal government is set to pay a minimum of 90 percent of the costs as of 2020 for the ACA expansion population, while federal payments for the traditional Medicaid program, which covers the lowest-income people, would be between 50 percent and 83 percent, she said.

“At some point you have to get these numbers together. It made no sense,” she said.

“I don’t think the Medicaid per capita block grant is necessarily a bad idea,” although there are challenges in implementing it, Wilensky said.

Low-income people should be allowed to purchase Medicaid managed care plans if they want to, and the government should consider an automatic enrollment program for people in the individual market under which people would be enrolled unless they took steps not to be, Wilensky said.

That would result in the “vast majority” of people being insured, which would help stabilize the individual market, she said.

The AHCA includes a continuous coverage provision under which people would pay a penalty if they were uninsured for at least 63 days. The penalty is equal to 30 percent of the monthly premium and would last for 12 months, starting in calendar year 2018.

According to an analysis released March 8 by Avalere Health, the penalties could exceed the individual mandate penalties already in place under the Affordable Care Act, and low-income and older people would be more likely to incur them.

It isn’t clear if the 30 percent penalty is large enough to induce people to enroll, Cutler said.

“For this population, for these types of plans with their typical rate of utilization, we don’t have a lot of good evidence,” he said.

To contact the reporter on this story: Sara Hansard in Washington at

To contact the editor responsible for this story: Kendra Casey Plank at

For More Information

The American Health Care Act is at

The S&P Global Ratings analysis is at

Avalere Health's analysis on the AHCA penalties is at

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