Today, Paragon is releasing a new report, “Turning the Tide on Red Ink: Commonsense Policies to Make Federal Health Programs More Sustainable.” The report presents a dozen proposals to improve health policy that, if fully implemented, would put federal health spending on a sustainable trajectory over the next decade. These proposals contrast with those highlighted by President Biden in a New York Times op-ed yesterday, which would grow government and which would fail to deal with the core problems with federal health programs.
On the most serious issues driving federal deficits and debt to unprecedented levels (unsustainable federal health entitlements), Biden offers only misguided tax increases and pharmaceutical price controls. His budget, which will be released tomorrow, will almost certainly fail to address the biggest drivers of spending in Medicare or Medicaid. It will likely include proposals that only make federal health spending even more unsustainable, such as larger subsidies for people who purchase coverage on the ACA exchanges. These are not serious attempts to address Washington’s rising red ink, which will continue to exponentially grow under Biden’s proposals.
President Biden’s proposed increase in the Medicare investment tax would stymie private investment. President Biden’s proposals to tighten the pharmaceutical price controls enacted less than one year ago by Congress would reduce pharmaceutical companies’ incentives to innovate and harm Americans’ well-being.
As I detailed in Forbes last year, expanded ACA subsidies directly paid to health insurers would largely replace private spending with government spending, reduce plan incentives to reduce costs, benefit the relatively affluent, encourage employers to stop offering health benefits, and significantly increase deficits.
Paragon Health Institute has identified federal health savings that would put federal health spending on a sustainable trajectory over the next decade.
In our new report, Joe Albanese and I discuss a dozen policy reforms to Medicare and Medicaid. Collectively, the reforms would save $2.1 trillion over the next decade and far more if accounting for the reduced interest payments from lower federal debt.
Here are the key takeaways from the report:
- Health spending is the key driver of rising federal deficits and debt, and delaying reforms will necessitate a combination of massive tax increases and large, painful benefit cuts.
- Sensible reforms, many of which both parties have already supported, would focus on maximizing health care value.
- Significant savings can be accomplished without cuts to benefits or major restructuring of programs, contrary to common concerns.
- States have unprecedented cash on hand and should bear a greater responsibility for Medicaid costs. One such reform, eliminating the provider tax scheme, was strongly endorsed by President Biden in 2011 when he was vice president.
Paragon Health Institute has quantified the level of savings relative to baseline that need to be achieved over the next decade to put federal health programs on a sustainable path.
One of the nation’s top budget and fiscal policy experts, Paul Winfree, authored a Paragon study in February, “The Contribution of Federal Health Programs to U.S. Fiscal Challenges and the Need for Reform.” Paul found that rising interest payments on the burgeoning national debt and rising spending on federal health programs are almost fully responsible for the poor U.S. fiscal outlook. To avoid massive future tax increases and large benefit reductions, Paul estimates that policymakers need to trim federal health spending by roughly $1.6 trillion relative to baseline over the next decade. This equals about 7 percent of expected federal health spending over this period. Paragon has identified more than that amount of savings in its new report.
Time for Serious Policymaking
Politicians of both parties have failed to grapple with two major problems with health entitlement programs—rising, unsustainable costs and generally poor health outcomes for program recipients. Smart reforms are needed to make the programs sustainable as well as realign incentives so that recipients get much better health outcomes for all the spending. Paragon continues to critically evaluate how government programs are working and to develop needed, sound, evidence-based solutions.
All the best,
Paragon Health Institute