First National Health Policy Conference
Medicare Reform:
Prospects for Broad
Restructuring
Donald W. Moran
February 1, 2001
THE MORAN COMPANY
First National Health Policy Conference
The “Medicare Restructuring” debate is – in
our community – typically thought of as a
“health policy” issue:
THE MORAN COMPANY
First National Health Policy Conference
The “Medicare Restructuring” debate is – in
our community – typically thought of as a
“health policy” issue:
•Optimal benefits design – e.g., outpatient
drugs.
THE MORAN COMPANY
First National Health Policy Conference
The “Medicare Restructuring” debate is – in
our community – typically thought of as a
“health policy” issue:
•Optimal benefits design – e.g., outpatient
drugs.
•Offering choices and promoting
competition between different delivery
models.
THE MORAN COMPANY
First National Health Policy Conference
The “Medicare Restructuring” debate is – in
our community – typically thought of as a
“health policy” issue:
•Optimal benefits design – e.g., outpatient
drugs.
•Offering choices and promoting competition
between different delivery models.
•Sorting out Medicare’s role as a force in
the broader health care system – e.g.,
supporting GME.
THE MORAN COMPANY
First National Health Policy Conference
As we ponder the prospects for “broader
restructuring,” however:
THE MORAN COMPANY
First National Health Policy Conference
As we ponder the prospects for “broader
restructuring,” however:
•We need to understand that Medicare –
and the wider social insurance system of
which it is part – play an increasingly
important role in the fiscal dynamics of the
United States.
THE MORAN COMPANY
First National Health Policy Conference
As we ponder the prospects for “broader
restructuring,” however:
•We need to understand that Medicare – and
the wider social insurance system of which it
is part – play an increasingly important role
in the fiscal dynamics of the United States.
•In my presentation this afternoon, I
propose to put these issues on the table –
and examine their implications for the
“restructuring” debate.
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First National Health Policy Conference
% GDP
TOTAL FEDERAL REVENUES
20%
OASDHI
15%
10%
ALL OTHER
REVENUES
5%
1940
1950
1960
1970
1980
1990
2000
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First National Health Policy Conference
% GDP
8%
SOCIAL SECURITY & MEDICARE
7%
6%
5%
4%
3%
NON-DEFENSE DISCRETIONARY PROGRAMS
2%
1%
1965
1975
1985
1995
2005
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First National Health Policy Conference
Focusing on the HI Tax:
3.5%
3.0%
HI TAX RATE
2.5%
2.0%
EFFECTIVE RATE v.
OASDI TAX BASE
1.5%
1.0%
.05%
0.0%
1977
1987
1997
THE MORAN COMPANY
First National Health Policy Conference
Zeroing in on the “cross-over point”:
3.2%
3.1%
3.0%
2.9%
2.8%
2.7%
In 1990, the HI tax base was accelerated
relative to the OASDI maximum.
2.6%
2.5%
2.4%
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
THE MORAN COMPANY
First National Health Policy Conference
Zeroing in on the “cross-over point”:
3.2%
3.1%
3.0%
2.9%
2.8%
2.7%
Beginning in 1994, the maximum
on the HI tax base was
eliminated altogether
2.6%
2.5%
2.4%
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
THE MORAN COMPANY
First National Health Policy Conference
Zeroing in on the “cross-over point”:
3.2%
3.1%
3.0%
2.9%
2.8%
2.7%
Since that time, growth in the HI
tax yield has been increasingly
dependent on the growing incomes
of upper-income tax payers.
2.6%
2.5%
2.4%
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
THE MORAN COMPANY
First National Health Policy Conference
Whatever one thinks of that as tax policy:
•It means that whatever “financing upside”
has been available from base broadening has
been used up in getting to where we are –
which still doesn’t add up to long term
solvency.
THE MORAN COMPANY
First National Health Policy Conference
Whatever one thinks of that as tax policy:
•It means that whatever “financing upside” has
resulted from base broadening has been used up
in getting to where we are – which still doesn’t
add up to long term solvency.
•There is at least one PhD dissertation
lurking in the fact that, over the last few
years, the exercise and sale of corporate
stock options has become a meaningful
source of financing for Medicare.
THE MORAN COMPANY
First National Health Policy Conference
Over the past few years, the “broader
restructuring” debate has been dichotomized
between:
•“Defined contribution”proponents, who
hope to constrain program growth to the
existing fiscal envelop; and
THE MORAN COMPANY
First National Health Policy Conference
Over the past few years, the “broader
restructuring” debate has been dichotomized
between:
•“Defined contribution”proponents, who hope
to constrain program growth to the existing
fiscal envelop; and
•“Defined benefit” defenders, who implicitly
hope that further revenue sources will be
found to finance an outlay path in excess of
baseline revenues.
THE MORAN COMPANY
First National Health Policy Conference
For the “defined benefit” approach to win out:
•Higher HI rates – or new bases – will be
urgently needed.
THE MORAN COMPANY
First National Health Policy Conference
For the “defined benefit” approach to win out:
•Higher HI rates – or new bases – will be
urgently needed.
•If proponents decide to go the “new base”
route, Medicare will compete for funds with
the “discretionary” funding structure –
which includes all other Federal health
spending including Medicaid.
THE MORAN COMPANY
First National Health Policy Conference
For the “defined benefit” approach to win out:
•Higher HI rates – or new bases – will be
urgently needed.
•If proponents decide to go the “new base”
route, Medicare will compete for funds with the
“discretionary” funding structure – which
includes all other Federal health spending
including Medicaid.
•If proponents try the “HI rate” route, the
main competitor is …..
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First National Health Policy Conference
…Social Security!!!
Receipts as % of Tax Base: 1997 = 100 Basis
1977
1987
1997
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First National Health Policy Conference
Within 30 years, HI would comprise more than 50% of all OASDHI
outlays:
% GDP
7.0%
6.0%
OASDI
5.0%
4.0%
3.0%
HI
2.0%
1.0%
1999
Source: CBO, “The Long-Term Budget
Outlook, October 2000.”
2010
2020
2030
2040
THE MORAN COMPANY
First National Health Policy Conference
In the end, three things are clear:
•The impetus for “broad restructuring”
arises in the context of overall social
insurance policy, not just “health policy.”
THE MORAN COMPANY
First National Health Policy Conference
In the end, three things are clear:
•The impetus for “broad restructuring” arises in the
context of overall social insurance policy, not just
“health policy.”
•The defense of the “defined benefit” model
will pit Medicare against either the rest of
Social Security – or the rest of the
government.
THE MORAN COMPANY
First National Health Policy Conference
In the end, three things are clear:
•The impetus for “broad restructuring” arises in the
context of overall social insurance policy, not just
“health policy.”
•The defense of the “defined benefit” model will pit
Medicare against either the rest of Social Security – or
the rest of the government.
•Successfully sorting this out will require
conscious balancing of the health services
needs of the elderly against their broader
income security requirements.
THE MORAN COMPANY
First National Health Policy Conference
Relevant questions include:
•Is it reasonable that more than half of
promised “social security benefits” after 2030
will be conveyed in the form of health
insurance?
THE MORAN COMPANY
First National Health Policy Conference
Relevant questions include:
•Is it reasonable that more than half of promised “social
security benefits” after 2030 will be conveyed in the form of
health insurance?
•If so, how much in cash OASDI benefits can
we reasonably guarantee to the middle class?
THE MORAN COMPANY
First National Health Policy Conference
Relevant questions include:
•Is it reasonable that more than half of promised “social
security benefits” after 2030 will be conveyed in the form of
health insurance?
•If so, how much in cash OASDI benefits can we reasonably
guarantee to the middle class?
•Will the public accept heavy means-testing of
OASDI cash benefits to ensure income
adequacy of the low income elderly?
THE MORAN COMPANY
First National Health Policy Conference
Relevant questions include:
•Is it reasonable that more than half of promised “social
security benefits” after 2030 will be conveyed in the form of
health insurance?
•If so, how much in cash OASDI benefits can we reasonably
guarantee to the middle class?
•Will the public accept heavy means-testing of cash benefits
to ensure income adequacy of the low income elderly?
As I suggested at the outset, these are not
“health policy” questions – but the answers will
heavily drive whatever “broad restructuring”
we arrive at in Medicare.
THE MORAN COMPANY