What does the new budget mean for health reform?

Keeping abreast of how legislative updates will affect your bottom line is challenging at a time when the updates seem ceaseless. Check in for regular updates from the Lockton team – they do a great job taking apart the information.

– Eric

Lockton Benefit Group’s Health Reform Advisory Practice issued weekly legislative updates in the months leading up to the passage of the Patient Protection and Affordable Care Act of 2010 (the “Affordable Care Act”), the federal health reform legislation signed into law in March 2010. We will continue these legislative updates on a periodic basis as Congress continues to tinker with or otherwise address the controversial new law and other healthcare legislation.

Budget Deal Reached Friday Eliminates Two Health Care Reform Initiatives

Just before 11 p.m. Friday, House Speaker John Boehner announced a last minute deal had been struck that would keep the federal government in operation.  Under the agreement, the current fiscal year’s federal budget will be reduced by about $38 billion.

Although many of the details of the budget deal are still to be determined, the agreement would cut $2.2 billion set aside for the creation of private health insurance cooperatives, not-for-profit entities that would compete with private, for-profit health insurance companies. These “co-op plans” were authorized by last year’s healthcare reform law as a compromise between Democratic leadership and the more liberal members of the Democratic caucus, when a “public option” (a federally-funded insurance program) demanded by the more liberal members could not garner adequate votes in the Congress.

The budget deal also purports to eliminate the “Free Choice Voucher” program under the healthcare reform law. The Free Choice Voucher provisions were controversial from the start. They complicated the law’s “employer mandate” that comes on line in 2014 and threatened the viability of many employer group insurance plans. The Free Choice Voucher rules would have enticed employers’ youngest, healthiest employees to leave employers’ group plans and buy cheap individual insurance – with the employers’ nickel – in the new insurance exchanges authorized by the reform law. For more background on the Free Choice Voucher provisions, see endnote 1 at the end of this Update.
President Obama signed into law on Saturday a provision that will keep the federal government running through most of next week, long enough for congressional leaders to put the finishing touches on a budget compromise that will keep the federal government funded for the remainder of the fiscal year.

 Congressional Budget Office Weighs in on

Representative Ryan’s Budget Proposal

House Budget Committee Chairman Paul Ryan’s budget proposal includes revamping the current Medicare program for people born in 1957 and after, in an effort to reign in costs under the essentially insolvent program.

Starting in 2022, when Americans born in 1957 or later begin turning 65, they would no longer get their medical bills paid directly by the government.  Instead, Medicare beneficiaries would be entitled to $8,000 a year on average as a “premium support,” according to an estimate by the nonpartisan Congressional Budget Office (CBO). The amount would increase with inflation, and as the enrollee ages, but could vary based on the Medicare beneficiary’s income. Medicare calculates that it spent an average of $11,743 on every enrollee in 2009.

In effect, Ryan’s proposal would convert Medicare from an entitlement program with defined benefits to a program with a defined governmental contribution. In doing so, Medicare would be following the shift in the private sector from defined benefit pension plans to defined contribution retirement plans, such as 401(k) plans. The CBO concluded that under Ryan’s proposal, “most elderly people would pay more for their health care than they would pay under the current Medicare system.”
The CBO estimates that the cost to buy private insurance, plus the projected out-of-pocket spending that a 65-year-old would have to pay for medical care in 2022, would total about $20,510 per year. After the federal government contributed $8,000, on average, that would leave the senior to pay the difference, an estimated $12,210.

 Other Key features of Rep. Ryan’s Medical proposal include:

  • Phasing in an increase in the Medicare eligibility age beginning in 2022, so that by 2033 the eligibility age would be age 67.
  •  Continuing the “doughnut hole” in Medicare prescription drug coverage, in which beneficiaries pay 100% of drug costs until their out-of-pocket expenses reach a certain point; the doughnut hole is currently scheduled to close over time, under the healthcare reform law.
  • Beneficiaries of the Medicare premium support payments would choose among competing, standardized private insurance plans operating in a newly established Medicare exchange.
  • Plans would have to issue insurance to all people eligible for Medicare who applied and would have to charge the same premium for all enrollees of the same age.
  • Beginning in 2022, the federal government would establish a Medical Savings Account (MSA) for certain Medicare beneficiaries with low income.
  • Eligibility for the traditional Medicare program would not change for people who are age 55 or older by the end of 2011, or for those people who receive Medicare benefits though the Disability Insurance program prior to 2022.
The CBO estimates that by 2030, under Ryan’s plan a typical 65-year-old Medicare enrollee would be required to pay 68% of the total cost of his coverage, which includes premiums, deductibles, and other out-of-pocket costs. That compares with the 25% a 65-year-old beneficiary pays under current law.

More Budget Proposals Will Be Issued This Week

On Monday, April 11th, Senators Mark Warner (D-VA) and Saxby Chambliss (R-GA), who are leading the efforts of a bipartisan group of senators called the “Gang of Six,” plan to brief business leaders in Atlanta about their efforts to cut the budget. After months of discussion, the tentative agreement between the three Republicans and three Democrats would cut military and domestic programs and overhaul the tax code, eliminating popular tax breaks (including, perhaps, the nontaxability to employees of employer-provided health insurance) but using the new revenues to lower tax rates and reduce deficits.
On Wednesday, April 13th, President Obama will present his long-term debt reduction strategy, proposing cuts to Medicare and Medicaid and changes to Social Security. The President will insist that the country cannot afford to preserve Bush-era tax cuts for the wealthiest Americans.
President Obama’s budget forecast a $1 trillion cut over 10 years, while Representative Ryan’s plan cuts $6.2 trillion over the same period.  The Gang of Six’s effort is expected to come in somewhere in the middle, with an estimated $4 trillion in cuts over 10 years.

Janae L. Schaeffer, J.D.
Compliance Services

About thebenefitblog

Eric is a Producer at Lockton Insurance Brokers, Inc., the world’s largest privately held commercial broker. Eric has over 23 years of experience in the insurance industry and has spent the last 11 years with Lockton. Eric specializes in Health & Welfare Benefits, Retirement Planning, and Executive Benefits. Eric's clients utilize his expertise in the areas of Plan Due Diligence, Transaction Structure, Fiduciary Oversight, Investment Design, Compliance and Vendor negotiation to improve the operational & financial outcome for each client. The Benefit Blog is a place to share that expertise and industry news.
This entry was posted in Health, Health & Welfare, Health Reform, News & Updates. Bookmark the permalink.

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