1. The Commonwealth Fund Alliance for Health Reform Washington DC Medicare as a Building Block for Health Reform: Should Americans Buy In? June 6, 2008 Steven Lieberman

2. Lieberman Consulting LLC2 Contents 1.Assessing “Building Blocks” Proposal –Many Issues Need More Specification –Questions about “Cost Estimate” 2.Fiscal Pressures: “Excess Cost Growth” 3.Key Choices: –“Part D” (Bidding) or “FFS” (Gov’t Prices) –Other Strategies (HIT, Comparative Effectiveness, EHR/EMR, Public Health) –Benefit & Coverage Expansions? 4.Conclusions

3. Lieberman Consulting LLC3 Assessing “Building Blocks” Proposal Many “Open” Issues Are tax rates sufficient? Revenues & costs balanced over time? Would employers drop worker coverage? Early retiree costs shifted to taxpayers? How would private (at risk) plans compete with government plan(s)? Selection issues? How are plan costs & premiums set? What are mechanisms for controlling costs?

4. Lieberman Consulting LLC4 Not Credible “CBO” Cost Estimate Assumes savings from unproven approaches & unspecified mechanisms Costly Medicare expansion & offset unlikely Long range costs could skyrocket: Federal subsidies linked to health care costs Tax rate may be too low: maximum tax of $2600/employee could induce employer’s dropping of coverage Assessing “Building Blocks” Proposal

5. Lieberman Consulting LLC5 Fiscal Pressures: Excess Cost Growth

6. Lieberman Consulting LLC6 Revenues as a Percentage of GDP Under CBO’s Long-Term Budget Scenarios Percent

7. Lieberman Consulting LLC7 Fiscal Pressures: Excess Cost Growth Historical growth averaged 3 + % > GDP/capita For 2018 - 2082, CBO now projects: –1.7% for Medicare & 0.9% for Medicaid –CBO assumes gradual slowing from historical levels under current law “Most of the [Medicare & Medicaid] increase that CBO projects will result from rising costs per beneficiary rather than rising numbers of beneficiaries [or their aging].” (May 28, 2008 CBO Issue Brief)

8. Lieberman Consulting LLC8 Key Choices: Part D or FFS? Is Part D Viable Model for Health Plans? –Vigorously competing, at risk plans –Strong “price signals” to beneficiaries –Regulation by RFP Is FFS Viable for Medicare Extra? –Complexity & information requirements –Interest groups & Congress intervention? –Regulation by “command & control”

9. Lieberman Consulting LLC9 Key Choices: Other Strategies Evidence that HIT, EHR/EMR, Public Health & Comparative Effectiveness: –Improve health & health care? –Save money? Important policy goals may be worthwhile, even if they increase costs, but –Key challenge for maintaining/expanding coverage remains lowering growth in health care costs

10. Lieberman Consulting LLC10 Key Choices: Expand Benefits & Coverage Expanding Coverage Will Increase Costs –Covering more people will add costs –Subsidizing coverage will add costs –Shifting retiree costs will save companies but cost taxpayers money Enhancing Benefits Will Increase Costs –Proposed Medicare expansions expensive Certainty about How to Spend More –Uncertainty about how to reduce costs!

11. Lieberman Consulting LLC11 Conclusions 1.Building Blocks has Many Key Parts, but –Costs don’t add up –Many open questions 2.Critical to Lower Actual Cost Growth –CBO projections already assume “success” –Better at spending money than lowering costs 3.Part D “Bidding” Better Model than FFS? 4.Critical to Invest in More Government Capacity (CMS, MedPAC, FEHB, etc)