Designing a Mixed Public and Private System for the Health Insurance Market

Bryan Dowd
Professor, University of Minnesota

Designing a Mixed Public and Private System for the Health Insurance Market considers design features of a health care reform proposal that would offer a government-run health insurance plan alongside competing private plans in a government-run insurance exchange. The Medicare program provides a practical guide to the problems and opportunities offered by such a mixed public and private system. Since both public and private plans have inherent advantages and disadvantages, both plans can be offered on a relatively level playing field. Among the items to be considered in creating a level playing field are the benefit package, advertising and consumer information, risk selection and risk adjustment, the choice environment, default enrollment, provider payment rates, and the administrative structure.

Click here to download the full working paper, commissioned by a joint study panel of the National Academy of Social Insurance and the National Academy of Public Administration on Administrative Solutions in Health Reform. For a list of other papers and study panel members, click here. The project is funded by the Robert Wood Johnson Foundation.

Social Security is Shovel-Ready

Robert Hudson
Professor and Chair, Department of Social Welfare Policy, Boston University

There can be no question that the current economic crisis is emerging as the most dire that we have seen since the 1930s. And, in terms of both employment opportunities and retirement savings, it seems certain to hit older Americans as hard as it will everyone else. Looking for any silver lining in this situation, one finally occurs to me. In recent years, pressures on age-related programs have built as "the scope of conflict" around aging policy has expanded, meaning that programs that were once politically insulated are now under scrutiny and attack from those who see entitlement spending for older adults leading us toward fiscal doom.

Yet, the very challenge we face has allowed the scope of conflict to expand even wider and, in so doing, place aging policy on a side burner if not a back burner. Specifically in the case of Medicare, the issue is being recast, by President Obama and others, as being centrally about a health care financing and delivery system that is largely out of control and not as part of an entitlement crisis centered on older Americans.

Less certain, but possible, is that Social Security is coming to be seen as either a manageable problem or even as en economic stabilizer both meeting needs and protecting income. There is nothing more shovel-ready in America than Old Age, Survivors, and Disability Insurance.

A Bright Light in a Dismal Landscape

Alicia H. Munnell
Peter F. Drucker Professor of Management Sciences and Director of the Center for Retirement Research, Boston College
Original Published 3/25/09, The Boston Globe

President Barack Obama has said that overhauling Social Security and Medicare would be "a central part" of his administration's efforts to contain federal spending. But amid all the economic calamity, the Social Security program is functioning perfectly, meeting the crucial economic needs for millions of Americans. When older workers are losing their jobs and their 401(k) accounts are down about 30 percent, the ability to claim Social Security benefits serves as a backstop against severe economic hardship. Therefore, policymakers should tread carefully.

Social Security checks are not large, but they are reliable. For workers who claim benefits at age 66, the full retirement age, monthly benefits range from $850 for low-paid workers to about $2,200 for those who have consistently earned the maximum taxable amount. In fact, many workers claim early and receive reduced benefits. But Social Security benefits are increased each year to reflect changes in the cost of living, and they continue for as long as the recipient lives. So, despite the modest amounts, the benefits are predictable and people can count on them.

Are these valuable Social Security benefits endangered by the current economic crisis?

Certainly, a higher-than-predicted unemployment rate means that fewer people will be working and contributing to the system than originally projected. This shortfall could be a problem if Social Security operated on a pure pay-as-you-go basis, where today's contributions were the only source of funds for benefit payments. But the system has always had a contingency reserve to serve as a buffer in the event of economic downturns, and today's trust fund is more than adequate to ensure full benefit payments for decades.

How about Social Security's long-run outlook?

A worse-than-expected short-term economy will have only a tiny impact on Social Security's 75-year projections; the long-run costs of the program are driven mainly by the aging of the population, which has not changed. Over the next 75 years, the Social Security actuaries project a program shortfall equal to 1.70 percent of taxable earnings.

This number equals the size of the tax increase required to maintain solvency for 75 years. That is, if the payroll tax rate were raised immediately by roughly 1.70 percentage points - 0.85 percentage point each for the employee and the employer - the government would be able to pay the current package of benefits for everyone who reaches retirement age at least through 2082.

A lasting fix for Social Security would require a little more attention to the fact that the aging of the population will present an increasing financial challenge over the 75-year period. Thus, a lasting fix for Social Security could have smaller tax increases initially and larger ones later. This pattern would avoid the prospect of suddenly running short of money right after the end of the 75 years, and would achieve "sustainable solvency."

When crafting a solution to Social Security's long-term deficit, the lesson from the current financial crisis is that Social Security benefits are crucially important to older Americans.

This importance has increased with the shift in the private sector from traditional defined benefit pensions, which promised benefits for life, to 401(k) plans, which are exposed to the vagaries of the stock market. Americans, with little else to rely on in retirement, may be willing to pay up to maintain the country's successful Social Security program.

The Economical Way to Assure Medical Care for Children and Young People That Also Reduces Strains on Family, Business and State Budgets: Medicare

Nancy J. Altman and Merton C. Bernstein
Former senior staff to the 1982-1983 National Commission on Social Security Reform in the United States Senate and Board Members of the National Academy of Social Insurance

President-elect Obama’s proposed health care reform includes a requirement of mandatory, universal, and comprehensive health care coverage for all children. No reform is more urgent, offers greater returns, or is more readily achieved at such low cost.¹

We suggest that Medicare offers the readiest and least expensive platform for this advance,² one already familiar to the nation’s health care providers, insurers, and consumers. A straightforward, universal children’s health plan is extremely efficient. Social Security, which has low administrative costs (less than 1% of outgo), demonstrates how cost effective an objective test like age is. Using Medicare’s simple and low cost machinery, rather than the myriad private and public sector programs, like SCHIP³ and Medicaid,⁴ will assure universal coverage while eliminating a number of costly and time consuming steps, such as processing hundreds of thousands of billings using innumerable differing formulas. Massachusetts alone, for example, has used eight different eligibility/payment formulas for similar populations. Private plans vary in coverage and procedures. Using but one formula saves effort, time, and lots of money.

Funds now applied to SCHIP and Medicaid will go farther by eliminating the costly means testing that must be done repeatedly – every thirteen weeks in the case of Medicaid. Indeed, the Urban Institute has concluded that Medicare’s administrative costs are about 4 percentage points lower than Medicaid’s.

In addition to its efficiency, a unitary, comprehensive program for children will improve health outcomes. When medical attention is needed, no one need first ascertain which program, if any, will foot the bill; patients can proceed directly to the intake nurse, without first stopping at the financial office.

Reducing the per capita cost of children’s medical care and shifting those costs to Medicare will reduce the financial stress upon families and business. Employers will find the costs of employment-based insurance reduced, as will their employees. Inclusion of children in employment-based insurance has always been a matter of convenience; consequently, it can be modified without violating principle.

Such a program will increase the nation’s productivity. By assuring timely and adequate health care to all of our children, we reduce the disruptions to family life and employment that inevitably accompany child sickness, which can be especially disruptive for single parents. Fewer sick kids mean fewer work absences by adults.

By assuming the cost of the state shares of SCHIP, Medicaid coverage for children, and similar state programs, the federal government can deliver effective assistance to state governments where they urgently need it. Expenditures for Medicaid and the health care costs of public employees have become the largest or second largest outlays by states.

We will all be better off by fully meeting the health needs of all the nation’s children in the most effective, least costly way. Providing health care to children is comparable to our national policy of providing education, free of cost, to all children. As a nation we debated and settled that policy in the 19th century. We decided as a nation that we all have a stake in the education of everyone’s children.

We must recognize children’s health and child education are as much a part of the national infrastructure as our ports, roads and bridges. Medicare provides an efficient, time-tested platform for making this goal a reality.

¹In 2006, Medicaid covered more children (29.5 million) than any other beneficiary category and with the lowest per capita cost - $1,070 as compared with $1,310 for adults, $6,630 for aged, and $7,360 for blind and disabled (Congressional Budget Office fact sheet, March 6, 2007). What we propose here would lower per capita cost even further.
²Out-of-control costs are pervasive throughout both public and private health care programs. Controlling all such costs are essential to overall health care reform.
³State Children’s Health Insurance Programs, enacted in 1997, have substantially decreased the numbers of children lacking assured health care. Together, SCHIP and Medicaid have improved coverage of poor children. However, the older the youngster, the less likely such coverage is. Further, both programs are limited by income caps – typically 200% of the federal poverty level. The most dramatic element of the Massachusetts plan is that it raised the cap for subsidized assured health care to 300%. SCHIP and Medicaid coverage keeps changing; a recent study of five states, all with generous standards, found temporary but substantial coverage gaps (How Stable Is Medicaid Coverage for Children?”, Fairbrother, Emerson and Partridge, Health Affairs, March 20, 2007).
⁴Medicaid provides more extensive care than SCHIP. Both use federal and state funds with the federal share the larger. As with several other economic stimulus measures, this proposed shift of the state contributions would require deficit spending.