Retiring House Ways and Mean Health Care Subcommittee chairman Wally Herger (R–CA) has introduced the most complete and detailed major Medicare reform proposal in a decade.
Herger leaves a rich legacy with the Save and Strengthen Medicare Act (H.R. 6645). The bill moves Medicare to a defined-contribution model with competition between traditional fee-for-service Medicare and private insurance companies. Many of its provisions are closely aligned to Heritage’s Medicare reform outlined in Saving the American Dream.
Herger’s legislation would protect and enhance Medicare for low-income beneficiaries by offering them a more generous benefit, and it would protect future beneficiaries by making Medicare more financially sustainable. The act contains changes to traditional Medicare, but it also clearly lays out a transition to premium support with the federal contribution eventually based on the minimum bid from both private insurers and traditional fee-for-service.
In premium support, the federal government would make a direct payment toward a beneficiary’s chosen health care plan, just like it does for the Federal Employees Health Benefits plan, which provides health benefits for federal workers. Premium support would save the government substantial money without endangering the future of Medicare.
The bill would use competition instead of failed price controls to reduce the future liabilities of Medicare. It would also maintain many consumer protections to make sure that beneficiaries will be protected and that the playing field between traditional fee-for-service and its new competitors is level.
The changes to traditional Medicare in the bill are very similar to other reform proposals. Heritage and Herger, as well as other reformers, such as Senators Tom Coburn (R–OK) and Richard Burr (R–NC), would unify Medicare with a single deductible and a catastrophic plan. Heritage and Herger would also reduce subsidies for high-income beneficiaries, although Herger’s plan is less aggressive than the Heritage model.
One unique feature of Herger’s plan is that there is a new preferred Medicare retirement age of 67. Beneficiaries could still retire at 65, but they would pay a higher premium than if they waited until age 67 to retire. The premium would be actuarially adjusted so early retirees would not receive a larger benefit than those who waited until the full retirement age. This is similar to Social Security’s early retirement benefit adjustment. Adjusting the retirement age for longevity gains is good policy; creating an early retiree option is less preferable.
The Herger plan also repeals some shortsighted provisions in Obamacare that would harm Medicare. The act would repeal Obamacare’s productivity cuts, which are considered unsustainable because they would drive doctors and hospitals from providing benefits. The bill would also dissolve the Independent Payment Advisory Board immediately, which would give more flexibility to doctors in treating patients.
Equally as important as the policy is the fact that Herger’s bill offers a real legislative proposal for the Congressional Budget Office (CBO) to estimate the bill’s savings. The CBO has admitted that scoring competition is difficult for them. The specificity of the provisions in the bill can give a clear roadmap for CBO to score.
It is unfortunate that Herger is retiring. But this legislation is a great contribution to moving the debate on premium support down the field. Hopefully others in Congress will pick up the ball from here and get it over the goal line.