More About Paul N. Van de Water

Paul N. Van de Water

Paul N. Van de Water is a Senior Fellow at the Center on Budget and Policy Priorities, where he specializes in Medicare, Social Security, and health coverage issues.

Full bio and recent public appearances | Research archive at

CBO: Health Reform Is Working — and Costing Less

April 14, 2014 at 5:23 pm

In new estimates that it released today, the Congressional Budget Office (CBO) projects that health reform’s coverage expansions will cost less than it previously estimated.  That’s good news for two reasons:

First, the new cost projections come even as CBO also estimates that health reform will dramatically reduce the number of Americans without health coverage.  Second, the lower cost estimate likely means that health reform will reduce budget deficits even more than CBO previously estimated.

Let’s take these one at a time.

Health reform will cut the rate of uninsurance nearly in half.  CBO estimates that health reform will reduce the share of the non-elderly population without insurance from 20 percent in the law’s absence to about 16 percent in 2014 and about 11 percent in 2016 and beyond.  That’s 26 million more people with health coverage.

This coverage expansion also will cost less than the original estimates.  In March 2010, CBO projected that the coverage expansions would have a net cost of $172 billion in 2019.  In February of this year, the projected cost had fallen to $151 billion.  The latest estimate is $144 billion — a drop of 5 percent since February and 16 percent since 2010.  Major reasons for this decline are a 15-percent reduction in projected premiums in the health insurance marketplaces and a somewhat smaller decline in the cost of covering additional Medicaid beneficiaries.

On the deficit front, CBO estimated in March 2010 and again in July 2012 that, considering all of its provisions, health reform will reduce the deficits.  CBO cannot update that estimate because it is not possible to isolate the incremental effects of many of the provisions of health reform that cut federal health spending or increased revenues.  But since the estimated cost of the legislation has fallen, there is every reason to believe that health reform will reduce the deficit by as much or more than the earlier estimates.

Ryan’s Medicare Proposals: the Latest

April 9, 2014 at 4:42 pm

House Budget Committee Chairman Paul Ryan’s Medicare proposals — summarized in a new CBPP analysis — have evolved since Ryan issued his Roadmap for America’s Future in 2010, but much is still the same in the budget plan he released last week.

The centerpiece of Ryan’s Medicare plan remains premium support — replacing Medicare’s guarantee of health coverage with a flat payment, or voucher, that beneficiaries would use to purchase coverage.  But the details have changed significantly over the years.

  • Ryan now retains a form of traditional fee-for-service Medicare as an option.  His earliest proposals would have phased out traditional Medicare, which would have substantially increased health care costs, since traditional Medicare has lower administrative expenses and payment rates than private insurance plans.
  • Ryan now bases the amount of the premium-support payment on a weighted average of bids by private plans and traditional Medicare.  In last year’s proposal, the payment would have been set below the average bid.
  • Ryan no longer mentions a limit on the annual growth of the premium-support voucher, as did his previous proposals.

Even with these modifications, Ryan’s premium-support proposal would disadvantage beneficiaries in at least two ways.  First, in many regions, traditional Medicare would cost more than the premium-support voucher, and, in these regions, beneficiaries who chose to enroll in traditional Medicare would have to pay higher premiums than under current law.  Second, beneficiaries who enrolled in a private plan would not receive the federally subsidized supplemental benefits that enrollees in private Medicare Advantage plans receive under current law.

Moreover, premium support could cause traditional Medicare to unravel — not because it was less efficient than the private plans, but because it was competing on an unlevel playing field in which private plans captured the healthier beneficiaries and incurred lower costs as a consequence.

The Ryan budget again proposes to raise Medicare’s eligibility age — now 65 — by two months per year, starting in 2024, until it reaches age 67 in 2035.   (Ryan’s Roadmap proposed raising the eligibility age to 69½.)  At the same time, the plan would repeal health reform’s coverage provisions.  Consequently, 65- and 66-year-olds would have neither Medicare nor access to health insurance marketplaces in which they could buy coverage at an affordable price and receive subsidies to help them secure coverage if their incomes are low.  Many would end up uninsured.

Finally, the Ryan budget includes other Medicare proposals from past years — increases in income-tested premiums, a cap on medical malpractice awards, and repeal of the benefit improvements in health reform (including closure of the prescription drug “donut hole”) — as well as a new proposal to increase Medicare cost sharing.  For more details, see our new paper.

Why Raising Health Reform’s Threshold for Full-Time Work Would Be Counterproductive

April 1, 2014 at 1:03 pm

The House this week will consider the “Save American Workers Act,” which would raise the threshold for full-time work under health reform from 30 to 40 hours a week.  As we have explained, however, this step would aggravate the very problem that the bill purports to solve — that health reform may lead to more part-time work.

Health reform requires employers with at least 50 full-time-equivalent workers to offer coverage to full-time employees or pay a penalty.  Critics claim that employers are shifting some employees to part-time work to avoid offering them health insurance.  As the Wall Street Journal has reported, however, recent data provide scant evidence of such a shift.  And there’s every reason to expect the impact to be small as a share of total employment.

Raising the threshold from 30 to 40 hours would make a shift toward part-time employment much more likely — not less so.  Only about 8 percent of employees work 30 to 34 hours a week — that is, at or modestly above health reform’s 30-hour threshold.  But 43 percent of employees work 40 hours a week and thus would be vulnerable if the threshold rose to 40 hours (see chart).

If you exclude workers at firms that already offer health insurance and thus won’t be tempted to cut workers’ hours, more than twice as many workers would face a high risk of reduced hours if the threshold rose to 40 hours, according to New York University economist Sherry Glied.

The Congressional Budget Office (CBO) confirms that raising the threshold could put more workers at risk.  “Because many more workers work 40 hours per week (or slightly more) than work 30 hours per week (or slightly more),” CBO writes, raising the threshold “could affect many more workers than are affected under current laws.”

Equally or more important, CBO finds that the House bill would increase budget deficits by $74 billion over ten years (as fewer employers would pay penalties for not offering coverage) and leave more people uninsured.

Health reform’s critics are touting reports that some school districts have limited or reduced employees’ hours in response to health reform.  Nevertheless, the National Education Association (NEA) opposes the bill.  Some employers have overreacted because they don’t fully understand the employer responsibility requirement, the NEA finds, and others have simply used the requirement as an excuse to cut hours.  The bill would do nothing to resolve these issues.

House Budget-Process Bills Are Ill-Advised

March 28, 2014 at 9:00 am

The House will consider three bills in the coming weeks that would make the budget process more complicated, less transparent, and less credible.

  • The Pro-Growth Budgeting Act (H.R.1874) would require the Congressional Budget Office (CBO) to prepare “dynamic” estimates of the budgetary impact of major legislation.  Contrary to widespread misunderstanding, CBO’s standard estimates of tax and spending proposals already incorporate many changes in individual and business behavior that occur in response to changes in tax rates and other policies.  CBO often provides supplemental analyses of how a change in tax or spending policy would affect the overall economy, but it does not reflect such “macroeconomic feedbacks” in its standard estimates because of their high degree of uncertainty.  For this and other reasons, Congress should resist the temptation to expand the use of dynamic scoring.
  • The Budget and Accounting Transparency Act (H.R. 1872) would add an extra amount to the recorded budgetary cost of federal credit programs, beyond their actual cost to the government, to reflect what private lenders would charge if they issued the loans and loan guarantees.  By artificially inflating federal lending costs, this change would disadvantage direct loans and loan guarantees relative to other federal programs and expose them to a greater likelihood of cuts.  We explain the bill’s serious flaws in this in-depth analysis and this shorter paper.  We list the major loan programs that would be affected here.
  • The Baseline Reform Act (H.R. 1871) would require CBO to assume, in constructing the budget baseline that projects spending for future years, that discretionary spending is frozen indefinitely, rather than growing with inflation or with the 2011 Budget Control Act’s spending caps.  That would establish a misleading benchmark against which to measure changes in funding — one that assumes a one-fifth cut in purchasing power for discretionary programs after ten years, at currently projected rates of inflation.  Removing inflation adjustments could also weaken budget discipline by making deficit projections unrealistically rosy, as my colleague Richard Kogan has written.

Proposed Medicare Advantage Payment Policies: The Sky Isn’t Falling

March 13, 2014 at 12:49 pm

In testimony today before the House Energy and Commerce Committee, I explain why policymakers should reject calls from health insurance lobbyists to block the Administration’s proposed 2015 payment policies for Medicare Advantage (MA) plans.  AHIP (the health insurance industry’s trade association) and other interest groups argue that the resulting reduction in payment rates will substantially increase costs to MA participants and reduce the choice of plans.  But, as I point out:

The predictions of doom and gloom are greatly exaggerated.  AHIP issued the same warnings about the MA payment cuts made in 2014, but MA enrollment has nonetheless reached record levels.  The Congressional Budget Office projects that MA plans will continue to thrive, despite further payment cuts.  Nationwide, the number of plans available dropped by only 3 percent in 2014, a small change that reflects the offsetting effects of newly entering and departing plans.  Plans also responded to the payment reductions by becoming more efficient.  The unweighted average monthly premium for MA plans with prescription drug coverage fell from 2013 to 2014 and is lower today than in 2011 or 2012.

Wall Street certainly isn’t pessimistic about Medicare Advantage.  In the wake of the CMS announcement, shares of Humana, the second largest insurer in the MA market, recorded their biggest single-day gain in four years and reached their highest value in more than 33 years.  Standard & Poor’s composite Managed Health Care Index also climbed.

Moreover, preventing overpayments to Medicare Advantage plans is sound policy.  Along with the other cost-saving provisions in the Affordable Care Act, eliminating overpayments reduces premiums for all beneficiaries, including the large majority who are not enrolled in MA plans, and extends the solvency of Medicare’s Hospital Insurance trust fund.  If Medicare’s benefits are to be improved, equity requires that they be improved for all beneficiaries — not just the minority who are enrolled in MA plans.

Click here for the full testimony.