Red ink: Congress can’t control spending without reforming how we pay for healthcare

Lawmakers are again scrambling to stave off a partial government shutdown by negotiating several spending bills with just a week left on the clock. 

It’s frustrating to see the disproportionate focus given to issues like tax enforcement, border/immigration restrictions, and foreign aid, when anyone familiar with our budgetary outlook and simple arithmetic knows it’s ultimately a question of healthcare and social security. 

If you don’t want to take my word for it, here’s former President Obama, who at a White House healthcare summit in 2010, highlighted that:

“Almost all of the long-term deficit and debt that we face relates to the exploding costs of Medicare and Medicaid. Almost all of it. That is the single biggest driver of our federal deficit. And if we don’t get control over that we can’t get control over our federal budget.”

A year ago, my colleagues Veronique de Rugy and Elise Amez-Droz wrote “We can’t get the debt under control without changing the way we pay for healthcare.” While there have been positive developments, notably the Great Medicaid unwinding which has shrunk our largest safety net program by over 14 million people and is on track to save around $80 billion annually, the statement remains as true today as it was then. 

I won’t indent it all, but what follows is a lightly edited reprint of the ideas proposed by my colleagues last year, tailored to address the ongoing challenges in healthcare spending. Let us know what you think!

Solutions to Get Healthcare Spending Under Control

The inclusion of ideas in this list doesn’t constitute an endorsement but is rather meant to stimulate discussion about various proposals.

Medicaid

• Establish caps on federal spending for Medicaid — Options for Reducing the Deficit, 2023 to 2032 (Congressional Budget Office). The CBO estimates that this measure could yield savings of $501 billion to $871 billion between 2023 and 2032. Liam Sigaud suggests using a funding mechanism resembling the Children’s Health Insurance Program.

• Reduce federal Medicaid matching rates — Options for Reducing the Deficit, 2023 to 2032 (CBO). The CBO estimates that this measure could yield savings of $68 billion to $667 billion through 2032.

• Fully nationalize the financing and administration of Medicaid benefits — Beyond Bailout Federalism: The Case for Nationalizing Entitlements (Chris Pope, Manhattan Institute). According to Chris Pope, this proposal has the benefit of preventing states from tapping into unlimited amounts of federal reimbursement.

• Curb waste, fraud, and abuse — Curbing Waste, Fraud, and Abuse in Medicaid (Tara O’Neill Hayes, American Action Forum). Medicaid’s improper payment rate averaged 9.8% in 2016, and the CBO estimated that cutting improper payments would reduce the deficit by more than 11%.

• Tighten Medicaid eligibility for long-term care services — Taking the Strain Off Medicaid’s Long-Term Care Program (Chris Pope, Manhattan Institute). Doing so, along with setting up tax-advantaged saving options for long-term care, as proposed by Kofi Ampaabeng, would reduce Medicaid’s role in paying for long-term care.

Medicare

• Increase the premiums paid for Medicare Part B — Options for Reducing the Deficit, 2023 to 2032 (CBO). The CBO estimates that this measure could yield savings of $57 billion to $448 billion between 2023 and 2032.

• Reduce Medicare Advantage benchmarks — Options for Reducing the Deficit, 2023 to 2032 (CBO). The CBO estimates that this measure could yield savings of $392 billion by 2032.

• Adopt competitive bidding for Medicare Advantage — Implementing Competitive Bidding in the Medicare Program: An Expressway to Solvency (Rohini Chakravarthy, Gail Wilensky, and Brian Miller).

• Adopt strict payment site neutrality — How to Reduce Health Care Costs: Understanding the Cost of Health Care in America (David Hyman, Cato Institute).

• Eliminate the requirement that Medicare Part D plans cover all approved drugs in six protected classes (immunosuppressants, antidepressants, antipsychotics, anticonvulsants, antiretrovirals, and antineoplastics) — How to Reduce Health Care Costs: Understanding the Cost of Health Care in America (David Hyman, Cato Institute).

• Move drugs from Medicare Part B to Medicare Part D — How to Reduce Health Care Costs: Understanding the Cost of Health Care in America (David Hyman, Cato Institute).

Other healthcare-related items

• Reduce tax subsidies for employment-based health insurance — Options for Reducing the Deficit, 2023 to 2032 (CBO). The CBO estimates that this measure could yield savings of $500 billion to $893 billion between 2023 and 2032.

• Limit state taxes on healthcare providers — Options for Reducing the Deficit, 2023 to 2032 (CBO). State taxes on healthcare providers are responsible for inflated federal reimbursements to states for healthcare expenditures. See this Mercatus Center paper by Brian Blase for more information. The CBO estimates that this measure could yield savings of $41 billion to $526 billion by 2032.

• Charge Original Medicare beneficiaries a copay for home healthcare services — How to Cut $343 Billion from the Federal Budget (Brian Riedl, Heritage Foundation).

• Eliminate Title X Family Planning, the Maternal and Child Health Block Grant, the Health Professions Opportunity Grants, and the Rural Health Outreach and Flexibility Grants — How to Cut $343 Billion from the Federal Budget (Brian Riedl, Heritage Foundation).

• Move drugs from prescription-​only to over-​the-counter or behind-​the-​counter — How to Reduce Health Care Costs: Understanding the Cost of Health Care in America (David Hyman, Cato Institute).

Note: The post has been updated to reflect that the deadline that is fast approaching is for a partial government shutdown, and not the debt ceiling, as was originally stated.