Chairman Ryan and the Medicare Part D Myth

March 21, 2012 at 3:21 pm

House Budget Committee Chairman Paul Ryan claims that his troubling proposal to convert Medicare into a premium support system — where beneficiaries would receive a voucher to buy private coverage or traditional Medicare — would control costs.  He notes that the Medicare Part D drug benefit, which private insurers provide, has cost much less than the Congressional Budget Office (CBO) expected.  He says that the lower spending reflects efficiencies produced by competition among private insurers.

But, as our analysis from last year (which we issued after Chairman Ryan started making these claims) explained, Part D’s reliance on private plans had little to do with its lower-than-expected costs.  The primary factors were:

  • Prescription drug spending growth throughout the U.S. health care system slowed sharply just as Part D got up and running.  That’s because fewer blockbuster drugs were coming to market, major drugs were going off-patent, and consumers were using more generic drugs.  In fact, overall U.S. prescription drug spending was about 35 percent lower in 2010 than CBO had projected back in 2003, when Congress created Part D.  Medicare’s trustees have explained that this system-wide slowdown was a key factor in reducing Medicare drug spending below original projections.
  • Part D enrollment was lower than expected.  In 2010, only about 77 percent of people enrolled in Medicare Part B also enrolled in Part D or received Medicare-subsidized drug coverage through their employer, well below CBO’s original 93 percent estimate.  Roughly 6.5 million fewer people were enrolled than CBO had estimated in 2003.

Moreover, there is strong evidence that using private plans to deliver the Medicare drug benefit has actually raised Medicare’s costs.  Before Part D existed, low-income elderly people enrolled in both Medicare and Medicaid (known as “dual eligibles”) got drug coverage through Medicaid, which requires drug manufacturers to provide large discounts for the drugs it buys.  The private insurers providing Part D drug coverage, however, are getting much smaller discounts.

Last year, the Department of Health and Human Services’ Office of Inspector General found that the discounts negotiated by private Part D plans reduced the costs of the most widely used brand-name drugs by only 19 percent; in comparison, the rebates that Medicaid requires cut costs for those drugs by 45 percent.  Requiring drug manufacturers to pay Medicaid-level rebates for drugs dispensed to low-income Medicare beneficiaries, as the Administration proposes, would reduce Part D costs by $137 billion over the next ten years, according to CBO.

Contrary to Chairman Ryan’s claims, CBO’s analysis of his previous premium support proposal found that replacing traditional Medicare with private insurance actually would raise total health care costs per beneficiary because private insurance has higher provider payments and administrative costs.

Chairman Ryan’s Call for “Welfare Reform, Round Two” Ignores Inconvenient Facts About Round One

March 21, 2012 at 3:06 pm

House Budget Chairman Paul Ryan said yesterday that his budget aims to begin “welfare reform, round two.”  According to Chairman Ryan, “That means block-granting means-tested entitlements — like food stamps, like housing assistance — back to the states so they can customize these benefits, have time limits, work requirements, the kinds of successful policies that made welfare reform so successful.”

But the statistics he cites about welfare reform’s “success” come from the early years of welfare reform, when the unemployment rate was exceptionally low — in April 2000 it fell to 3.8 percent, below what economists consider full employment.  Since a safety net is supposed to help people during times of economic need, the true measure of success is how it does during the worst of times, not the best of times.  And, 15 years after Congress enacted welfare reform, we can see clearly that it is not the resounding success that Chairman Ryan claims.

The facts speak for themselves:

  • Fact #1:  Single mothers’ employment rose during the early years of welfare reform, but it started losing ground in 2000 and now, nearly all of those gains have been lost. The share of poorly educated single mothers with earnings rose from 49 percent in 1995 to 64 percent in 2000 but has since fallen or remained constant every year.  By 2009, it had fallen to 54 percent — the same level as in 1997, which was the first full year of welfare reform implementation (see graph).  It remained at 54 percent for 2010.
  • Fact #2:  Welfare reform contributed only modestly to the rise in employment for single mothers during the 1990s. A highly regarded study by University of Chicago economist Jeffrey Grogger found that welfare reform accounted for just 13 percent of the total rise in employment among single mothers in the 1990s.  The Earned Income Tax Credit (which policymakers expanded in 1990 and 1993) and the strong economy were much bigger factors, accounting for 34 percent and 21 percent of the increase, respectively.
  • Fact #3:  Temporary Assistance for Needy Families (TANF), the centerpiece of welfare reform, helps many fewer poor families than its predecessor, Aid to Families with Dependent Children (AFDC). Welfare reform’s modest contribution to raising employment among single mothers came at a very high price.  As our recent report showed, TANF serves only 27 families for every 100 families in poverty, down from 68 families for every 100 families in poverty before welfare reform.  Many children face bleaker futures as a result:  in 2005, TANF lifted just 650,000 children out of “deep poverty” (that is, raised their family incomes above half the poverty line); ten years earlier, AFDC lifted 2.2 million children out of deep poverty.
  • Fact #4:  States used their flexibility under TANF’s block grant to undermine, not strengthen, the safety net for poor families. The Great Recession provided the ultimate test of whether states could do a better job than the federal government of providing a safety net for poor families.  They failed.  The national TANF caseload rose by just 13 percent during the downturn, even though the number of unemployed doubled, and caseloads in 22 states rose little or not at all.  In contrast, the national SNAP (food stamp) caseload rose by 45 percent and kept 5 million people out of poverty in 2010 under a measure of poverty that counts non-cash benefits.  When the need for cash assistance rose during the recession, states responded by scaling back their TANF programs to save money — shortening and otherwise tightening time limits and reducing already low benefits further, leaving the poorest families poorer.

The real agenda for “welfare reform, round two” should be to fix the failings of round one and build on successes like the TANF Emergency Fund, which states used to place 250,000 people in temporary jobs and provide basic and emergency assistance to many others.  It shouldn’t be to extend a failed model to other critical programs.

Greenstein on the Ryan Budget

March 21, 2012 at 11:17 am

We’ve issued a statement from Robert Greenstein on the budget from House Budget Committee Chairman Paul Ryan.  Here’s the opening:

The new Ryan budget is a remarkable document — one that, for most of the past half-century, would have been outside the bounds of mainstream discussion due to its extreme nature.  In essence, this budget is Robin Hood in reverse — on steroids.  It would likely produce the largest redistribution of income from the bottom to the top in modern U.S. history and likely increase poverty and inequality more than any other budget in recent times (and possibly in the nation’s history).  It also would stand a core principle of the Bowles-Simpson fiscal commission’s report on its head — that policymakers should reduce the deficit in a way that does not increase poverty or widen inequality.

Click here for the full statement.

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A First Look at the Ryan Budget

March 20, 2012 at 5:25 pm

We’ve issued a brief analysis of House Budget Committee Chairman Paul Ryan’s new budget plan.  Here’s the opening:

House Budget Committee Chairman Paul Ryan’s new budget plan specifies a long-term spending path under which, by 2050, most of the federal government aside from Social Security, health care, and defense would cease to exist, according to figures in a Congressional Budget Office analysis released today.

The CBO report, prepared at Chairman Ryan’s request, shows that Ryan’s budget path would shrink federal expenditures for everything other than Social Security, Medicare, Medicaid, the Children’s Health Insurance Program (CHIP), and interest payments to just 3¾ percent of the gross domestic product (GDP) by 2050.  Since, as CBO notes, “spending for defense alone has not been lower than 3 percent of GDP in any year [since World War II]” and Ryan seeks a high level of defense spending — he increases defense funding by $228 billion over the next ten years above the pre-sequestration baseline — the rest of government would largely have to disappear.  That includes everything from veterans’ programs to medical and scientific research, highways, education, nearly all programs for low-income families and individuals other than Medicaid, national parks, border patrols, protection of food safety and the water supply, law enforcement, and the like.

Click here for the full report.

Ryan’s Rx for Medicaid Would Add Millions to the Uninsured and Underinsured

March 20, 2012 at 3:51 pm

House Budget Committee Chairman Paul Ryan’s new budget again proposes to radically restructure Medicaid by converting it into a block grant and to slash federal funding by about one-fifth over the next decade (as well as to repeal health reform’s Medicaid expansion).  All told, it would add tens of millions of Americans to the ranks of the uninsured and underinsured.

Repealing the Affordable Care Act’s Medicaid expansion means that 17 million people would no longer gain Medicaid coverage, while the large and growing cut in federal Medicaid funding would almost certainly force states to sharply scale back or eliminate Medicaid coverage for the millions of low-income people who rely on it today.

Ryan Budget Would Slash Federal Medicaid Funding by About One-Third in 2022Under the Ryan plan, the federal government would no longer pay a fixed share of states’ Medicaid costs.  Instead, states would get a fixed dollar amount that would rise annually only with inflation and population growth.

  • The block grant would cut federal Medicaid spending by $810 billion over the next ten years (2013-2022).  That would be a cut of about 22 percent compared to current law.  (This doesn’t count the loss of the large additional funding that states would receive to expand Medicaid under health reform.)
  • Block grant funding amounts would fall further and further behind state needs each year.  The annual increase in the block grant amounts would average more than 3.5 percentage points less than Medicaid’s currently projected growth rate over the next ten years, which accounts for factors like rising health care costs and an aging population.  In 2022, we estimate that federal Medicaid funding would be about 34 percent less than states would receive under current law.  And the cuts would keep growing after 2022.  The Congressional Budget Office (CBO) expects that, under the Ryan plan, federal Medicaid (and CHIP) spending as a share of the economy would fall by half by 2040, compared to spending levels in 2011.
  • The loss of federal funding would be even greater in years when enrollment or per-beneficiary health care costs rose faster than expected, such as during a recession or after the introduction of a new health care technology or treatment.  Currently, the federal government and the states share in those unanticipated costs; under the Ryan plan, states alone would pay them.

As CBO concludes, “the magnitude of the reduction in spending . . . means that states would need to increase their spending on these programs, make considerable cutbacks in them, or both.  Cutbacks might involve reduced eligibility . . . , coverage of fewer services, lower payments to providers, or increased cost-sharing by beneficiaries — all of which would reduce access to care.”  In making these cuts, moreover, states would likely use the expansive new flexibility that the Ryan plan would give them.  For example, the plan would likely let states cap Medicaid enrollment and turn eligible people away from the program; under current law, they must accept all eligible individuals who apply.  It also would likely let states drop certain benefits that people with disabilities and special health care problems need.

The Urban Institute estimated that Chairman Ryan’s block grant proposal of last year would lead states to drop between 14 million and 27 million people from Medicaid by 2021 (outside of the effects of repealing health reform’s Medicaid expansion) and cut reimbursements to health care providers by 31 percent.  There’s no reason to think that this year’s proposal would result in cuts that are any less draconian.