Guest post by Amit Rao

Understanding the health care policy claims made by President Obama and Governor Romney during the first presidential debate.

Americans tuning in to the first presidential debate on October 3, 2012, saw President Obama and Governor Romney clash over a variety of domestic issues. On health care, one of the major policy areas debated, both candidates sought to draw stark contrasts on Medicaid, Medicare, the Patient Protection and Affordable Care Act (PPACA), and rising health costs. This blog post provides general background on the health policy claims made by both candidates, concentrated around the following main questions:

What does Governor Romney’s proposal to block grant Medicaid to the states mean?

• President Obama and Governor Romney began their health care discussion by disagreeing on Medicaid, the public insurance program that covers over 60 million low-income individuals.
• President Obama argued that Governor Romney’s plan to replace Medicaid with block grants would cause a “30 percent cut in Medicaid over time,” cutting crucial care for children with disabilities and seniors in nursing homes.
• Governor Romney responded, claiming Medicaid block grants – which essentially give states federal funding to freely manage their own Medicaid program’s eligibility and benefits – would enable state Governors to explore new ways to restrain costs while still caring for the poor. He stated his proposal would allocate to the states the same funding they receive now, set to grow at a rate of inflation plus one percent.

Compared to Medicaid’s current federal-state structure, in which the federal government establishes baseline requirements and provides unlimited matching funds, Governor Romney’s plan would enact significant changes to the program’s benefits and funding. Under a block grant system, states are given a fixed payment and increased flexibility to manage their Medicaid programs.  Governor Romney’s block grant proposal would reduce federal funding for state Medicaid programs over time. The Congressional Budget Office (CBO) estimates that, under the  block grant proposal specified by vice presidential candidate Representative Paul Ryan’s (R-WI) plan, the amount of money spent on Medicaid would drop from 2 percent of GDP in 2011 to 1.25 percent by 2030 and then further to 1 percent by 2050.

If states are unable to achieve significant efficiency gains through the unrestricted block grants, the reduction in federal funding could force states to increase their own share of spending, make considerable cutbacks to benefits, or both. As the CBO notes, “cutbacks might involve reduced eligibility for Medicaid, coverage of fewer services, lower payments to providers, or increased cost-sharing by beneficiaries – all of which would reduce access to care” for Medicaid enrollees, composed of half children, one quarter working parents, and one quarter seniors and people with disabilities.

The Centers for Medicare and Medicaid Services (CMS) projects that Medicaid expenditures will grow at an average annual rate of 8.1 percent over the next 10 years. This growth rate is due in part to the expansion of the Medicaid program in PPACA.  If all states choose to expand their Medicaid program, Medicaid spending will increase by $564 billion between 2014 and 2020, and nearly 26 million people will be newly enrolled in the program by 2020.

Governor Romney’s plan calls for state waivers to replace PPACA. To what extent Medicaid would or could expand under these state waivers is unknown.

What impacts will President Obama’s $716 billion in Medicare cuts have on the program’s sustainability?

• President Obama first brought up the oft-debated $716 billion cut to Medicare from PPACA, stating that the cost savings came from “no longer overpaying insurance companies… and providers.”
• Governor Romney countered that the $716 billion in Medicare reductions would come from care to current beneficiaries.

The PPACA implements $716 billion in reductions to Medicare’s future payments to insurers and providers over the period of 2013 to 2022. These reductions do not target current retirees’ benefits or eligibility – the PPACA actually increased Medicare recipient benefits for preventive care and prescription drugs. Instead, the cuts focus on reducing payments to private insurers given through Medicare Advantage. According to the Medicare Payment Advisory Committee, Medicare Advantage plans are reimbursed at a rate of 114 percent of traditional Medicare’s costs per beneficiary. PPACA also reduces Medicare reimbursements to hospitals, insurance companies, and drug manufacturers. Under these reductions, the federal government’s total spending on Medicare will still increase annually, but at a slower rate than before.

While these changes do not directly affect beneficiaries, Governor Romney is correct that some providers may stop serving Medicare patients because of the reduced reimbursement rates. The proportion of providers likely to respond this way is not known. Almost all doctors currently accept Medicare patients, in spite of receiving lower reimbursement rates than from private beneficiaries, because of the vast pool of seniors the program supports.

For Medicare’s long-term sustainability, repealing the $716 billion in reductions to the program’s future payment growth would cause the Medicare Part A trust fund (which provides for inpatient care) to become insolvent approximately eight years sooner, in 2016 instead of 2024. Reinstating the higher payment rates to providers and insurers would increase the amount Medicare spends each year, and thus deplete the trust fund more quickly.

Do PPACA’s regulations and Independent Payment Advisory Board (IPAB) constitute a “government takeover?”

• Governor Romney accused President Obama of enacting a “federal government takeover of health care” through his reform law, by mandating to providers what care they must provide and instituting an unelected board to tell people what kind of treatments they can have.
• President Obama denied the assertion, emphasizing that PPACA strengthens private insurance by instituting consumer protections and expanding access and that the law explicitly prohibits the board Governor Romney referred to from making decisions about what treatments are given.

PPACA does increase the federal government’s role in health care, primarily through the (now optional) expansion of Medicaid. In addition, the law enacts a variety of regulations that insurance companies and providers must follow, such as extending coverage to those with preexisting conditions, eliminating annual and lifetime caps on care, and requiring large group insurers to spend at least 85 percent of premium dollars towards direct medical care.

Though PPACA significantly increases government regulatory control over the insurance market, the law relies predominantly on private sector infrastructure to extend health insurance coverage.  PPACA requires all non-Medicare or Medicaid eligible Americans to purchase private insurance, and provides subsidies to help low-income Americans afford coverage. In doing so, the law directs millions of new customers to private insurance companies.

PPACA does call for the creation of an Independent Panel Advisory Board (IPAB), to “reduce the per capita rate of growth in Medicare spending.” Governor Romney rightly states that this board of health care experts is unelected, but all 15 members must be first appointed by the President and confirmed by the Senate. Contrary to Governor Romney’s assertion, however, the law specifically states that IPAB cannot deny health care treatments to beneficiaries. Instead, IPAB must make recommendations to Congress to restrain Medicare spending that do not affect beneficiaries. Congress can implement cost control measures to replace IPAB’s recommendations.

What effects has PPACA had on health insurance premiums?

• Governor Romney argued that because of President Obama’s reforms, health care costs have gone up by $2,500 per family.
• President Obama countered that while health care premiums have increased, they have gone up slower over the last two years than any point in the last 50 years – implying that this trend occurred because of his health reforms.

Both candidates were partially accurate on their remarks regarding rising health care premiums. Health care costs have continued to rise each year under President Obama, but not primarily because of his policies. According to the Kaiser Family Foundation’s annual survey of health care costs, since 2009 the average family’s health insurance premiums have increased $1,698, due to the rising cost of health care. Such trends have persisted for decades, with average family health insurance premiums rising 97 percent since 2002. Studies show that PPACA has had some impact on rising health care costs since 2010, although minimal. The law’s consumer protections have been found to increase premiums, relatively modestly for employer plans and slightly more significantly for individual plans, but in return consumers are receiving more robust benefits.

While still rising, it is true that the rate of health care cost growth has lessened over the past two years. Health Affairs reports in January 2012 that health spending increased more slowly over the past two years than in another other window over the past 50 years, at rates of 3.8 and 3.9 percent respectively. This has not occurred predominantly because of PPACA, as the law’s main provisions do not take effect until 2014. Instead, experts attribute the slowing of health care cost growth mainly to consequences of the recession and changing behaviors by consumers and providers that have reduced the overall use of health care goods and services. Read more about the drivers of health care cost growth here.

With the rising prominence of health care issues in the 2012 presidential election, understanding the context behind the candidates’ claims is vital for deciding between their dueling visions for health policy.

Full transcript of the presidential debate is available here.

About the Author:

Amit Rao currently works on development and health policy in Washington, D.C. Prior to moving to D.C., Rao graduated from the University of North Carolina with a Bachelor of Arts degree in political science and philosophy and a minor in public policy. All views expressed here are strictly his own.