CBO raised red flags on Medicare expansion last year; Lieberman not buying the "compromise"

Earlier, I wrote about the obvious issues in proposing an expansion of an entitlement already hurtling towards massive insolvency mainly because of a large expansion of beneficiaries.  The Senate says they want the CBO to score the idea of expanding Medicare, with tens of trillions of dollars in unfunded liabilities, to cover more uninsured at ages 55 and above.  But as Verum Serum reminds us, the CBO already analyzed that idea last year — and found it to be a great way to go broke faster:

A disadvantage of this option is that the ability to buy Medicare coverage at age 62 would encourage some people to retire earlier than they otherwise would have. Some of those early retirees could face financial hardship in later years because many people underestimate the financial resources needed for retirement. In addition, because the cost of the coverage would not be subsidized, many low-income near-elderly people would continue to be uninsured. A potential problem with this option is that the amount of adverse selection that the program experienced could be greater than anticipated, which would put upward pressure on premiums and in turn reduce participation. (The potential for adverse selection would be limited in that the program would be offered only to individuals ages 62 to 64, who are more similar to each other in their health status and attitudes toward insurance than are individuals in the general population.)

So what will be the outcomes here?  People will retire earlier, which will reduce tax revenues as they earn less and draw pensions instead of produce.  Many of them will retire too early and won’t have the resources to maintain a sustainable lifestyle, which means that they will either have to go back to work or receive government assistance.  People who already have insurance or are health won’t need to get the Medicare option, which will create a selection bias that gives the pool a much higher risk factor than the general population.  That will either drive up premiums, or more likely, will pressure Congress to further subsidize Medicare.

Note, too, that this analysis applied to simply moving the eligibility age back three years, not ten.  That would create even more selection bias, further heightening the risk, as well as the payouts and cost of coverage.

Morgen points out the economic risk in massive early retirements:

Perhaps the first concern expressed by the CBO is even more significant as there is no doubt that there are a large number of near-elderly people who are only working in order to receive health insurance benefits through their employer. Considering the anemic growth rate of the economy, and the rapidly expanding national debt, it seems ill advised for the government to create an incentive for people to retire early. Where in all likelihood they would also elect to receive social security benefits early (a point also noted in the CBO report), further accelerating the deficits in social security spending.

That would put more pressure on Social Security as well.  The SSA has had six months of cash deficits thanks to declining revenues from the high levels of unemployment.  We’re already at a 2-1 worker-to-retiree ratio for keeping SSA afloat, down from 16-1 when the program was first implemented.  It’s a Ponzi scheme at best, and now we’re going to encourage fewer people to pay into it and more people to draw out of it.  What are the likely outcomes of that approach?  It’s most likely to destroy both entitlement programs.

Meanwhile, Cato’s Michael Tanner points out seven inconvenient truths about Medicare expansion and the use of the Federal Employees Health Benefit Plan to replace the public option:

  1. In choosing the FEHBP for a model, Democrats have actually chosen an insurance plan whose costs are rising faster than average.   FEHBP premiums are expected to rise 7.9 percent this year and 8.8 percent in 2010.  By comparison, the Congressional Budget Office predicts that on average, premiums will increase by 5.5 to 6.2 percent annually over the next few years.  In fact, FEHBP premiums are rising so fast that nearly 100,000 federal employees have opted out of the program.
  2. FEHBP members are also finding their choices cut back.  Next year, 32 insurance plans will either drop out of the program or reduce their participation.  Some 61,000 workers will lose their current coverage.
  3. But former OPM director Linda Springer doubts that the agency has the “capacity, the staff, or the mission,” to be able to manage the new program.  Taking on management of the new program could overburden OPM.  “Ultimate, it would break the system.”
  4. Medicare is currently $50-100 trillion in debt, depending on which accounting measure you use.  Allowing younger workers to join the program is the equivalent of crowding a few more passengers onto the Titanic.
  5. At the same time, Medicare under reimburses physicians, especially in rural areas.  Expanding Medicare enrollment will both threaten the continued viability of rural hospitals and other providers, and also result in increased cost-shifting, driving up premiums for private insurance.
  6. Medicaid is equally a budget-buster. The program now costs more than $330 billion per year, a cost that grew at a rate of roughly 10.7 percent annually.  The program spends money by the bushel, yet under-reimburses providers even worse than Medicare.
  7. Ultimately this so-called compromise would expand government health care programs and further squeeze private insurance, resulting in increased costs, result in higher insurance premiums, and provide a lower-quality of care.

In other words, we’re going to address a problem of premium-price growth of around 6% a year, which is higher than inflation, and do so by imposing government plans that normally increase prices by 8.8% and 10.7%.  Only in Washington DC could that be considered “progress.”

And all of this has Joe Lieberman remaining skeptical of the compromise:

“I am encouraged by the progress toward a consensus on proposals to send to the Congressional Budget Office to review.  I believe that it is important to pass legislation that expands access to the millions who do not have coverage, improves quality and lowers costs while not impeding our economic recovery or increasing the debt.

“My opposition to a government-run insurance option, including any option with a trigger, has been clear for months and remains my position today.

“Regarding the ‘Medicare buy-in’ proposal that is being discussed, we must remain vigilant about protecting and extending the solvency of the program, which is now in a perilous financial condition.

“It is my understanding that at this point there is no legislative language so I look forward to analyzing the details of the plan and reviewing analysis from the Congressional Budget Office and the Office of the Actuary in the Centers for Medicare and Medicaid.”

If the earlier CBO and CMS analyses give any indication, this compromise may wind up drowning in its predictable red ink.