Paul Ryan, Chairman of the House Budget Committee, deservedly gets a lot of praise for his courageous work on health care entitlement reform. But over in the Senate, Tom Coburn (R., Okla.) is quietly building a résumé that’s equally impressive.
Today, Sen. Coburn, along with Joe Lieberman (I., Conn.) unveiled a significant proposal for Medicare reform, which aims to save $600 billion over 10 years: not nearly enough, but a fine start. A few weeks back, he co-sponsored a landmark bill to convert Medicaid into block grants for the states. Other than Ryan, there isn’t anybody in Washington who is doing more on entitlement reform.
I have a lengthy essay in the Summer 2011 issue of National Affairs on Medicare reform, entitled “Saving Medicare from Itself.” In it, I discuss six core concepts for real Medicare reform: (1) preserving benefits for people aged 55 and older; (2) making sure that retirees share more of the costs of their care, and thereby a stake in prudent consumption; (3) means-testing; (4) indexing the Medicare retirement age to life expectancy; (5) aggressive fraud prevention; (6) allowing seniors to shop for value in insurance plans. The Lieberman-Coburn bill hits on many of these points in a way that well complements Paul Ryan’s premium support proposal.
Cost-sharing reform
The heart of the Lieberman-Coburn bill is its reform of cost-sharing. A big part of the reason why Medicare spending is through the roof is because seniors pay for almost none of their own care, and therefore have no incentive to be mindful of unneeded or excessive treatments and tests. Lieberman-Coburn proposes important reforms to this system, by combining Medicare Parts A and B into a single annual deductible of $550, capping out-of-pocket costs for most Americans at $7,500 a year, and barring supplemental “Medigap” policies from paying any of the $550 or $7,500. In addition, the bill increases the minimum premium to 35 percent of the program’s costs, as Sen. Lieberman had proposed in his Washington Post op-ed.
These provisions would have significant long-term effects on the growth of Medicare spending, and should be a core component of any attempt at Medicare reform. Simultaneously, they would create a hard cap on seniors’ out-of-pocket expenses, a form of economic security that Medicare currently doesn’t provide. Lieberman-Coburn estimates savings of $371 billion over ten years.
Means-testing
Lieberman-Coburn introduces means-testing into Medicare through two mechanisms. First, the $7,500 cap on out-of-pocket expenses applies to retirees making less than $85,000 a year ($170,000 for married couples). Those at higher income brackets have their out-of-pocket expenses capped at $12,500, $17,500, or $22,500.
Secondly, the bill asks wealthy retirees to pay higher premiums for the Medicare prescription drug benefit, a.k.a. Medicare Part D. At present, high-income retirees pay the same premiums as low-income retirees (though those making $170,000 or more pay an "income-related monthly adjustment"). Under Lieberman-Coburn, retirees making more than $150,000 a year ($300,000 for couples) will pay the full premium costs for their Part D drug coverage. They expect this to save $5-10 billion over 10 years, which I think is conservative.
Increasing the retirement age
As I write in my National Affairs piece,
When Medicare was enacted in 1965, the average life expectancy at birth was 70.2 years. In other words, it was anticipated that Medicare would cover an average person's health expenditures for the last 5.2 years of his life. In 2010, the average American lived to the age of 78.4; Medicare thus covered the last 13.4 years of his life — a 158% increase in the coverage period. The U.S. Census Bureau projects that, in the coming decades, American life expectancy will continue to elongate by approximately one year for every eight years that pass.
Lieberman-Coburn doesn’t go as far as I would like in indexing the retirement age to life expectancy, but it does gradually increase the retirement age to 67, bringing it in line with Social Security. This would save $124 billion over ten years, and countless more into the future.
Anti-fraud measures
Sen. Coburn and Tom Carper (D., Del.) have co-sponsored another bill, the Medicare Fighting Fraud and Abuse to Save Taxpayer Dollars Act, or FAST, which aims to do more to prevent Medicare fraud. The Lieberman-Coburn bill incorporates many of its provisions. I haven’t yet had a chance to review the bill and develop a view of how effective it will be. Lieberman-Coburn estimates the savings as $100 billion over ten years.
In addition, the law incorporates one of the suggestions in the Bowles-Simpson deficit commission report, in which Medicare phases out payments to hospitals for bad debts. Private insurers don’t pay these bad debts, rightly asserting that it’s up to hospitals to collect these payments. CBO has estimated the savings at $23 billion over ten years.
A three-year “doc fix”
The savings from the above provisions will partly fund a three-year “doc fix,” stabilizing reimbursements to physicians and hospitals that are otherwise set to decline by 25 percent at the end of the year. (The three-year doc fix will cost $38 billion over ten years.)
Could it pass?
Democrats appear to have decided that campaigning against entitlement reform is the way to win the 2012 election. But moderate Democrats in the Senate may find Lieberman-Coburn appealing. The proposal could be less controversial than Paul Ryan’s, because it doesn’t make the kinds of market-friendly structural reforms that the House passed (and I wholly endorse). Plus, it doesn't repeal Obamacare.
Either way, Tom Coburn has thrown down the gauntlet. We shall see if other Senators are similarly inclined towards serious governance.
UPDATE 1: That was fast. Senate Majority Leader Harry Reid (D., Nev.) has declared the Lieberman-Coburn proposal a "bad idea." Andrew Stiles of National Review has more quotes from Lieberman and Coburn.
UPDATE 2: Jonathan Chait of The New Republic also likes Lieberman-Coburn, but for a different reason: "It's proof that [Paul] Ryan is wrong" that we need to privatize Medicare in order to save it. Ben Domenech has a lengthy interview with Tom Coburn here.
UPDATE 3: The original version of this post implied that there was no means-testing in Medicare Part D. However, as commenter ldeangelis points out, individuals making $170,000 a year (or couples making $320,000 a year) do pay an additional penalty. I've edited the post to take note of that.
UPDATE 4: The editors of National Review have come out in favor of Lieberman-Coburn.
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