Health Care in the 2012 Presidential Election

Heath Care in the 2012 Presidentia Eection AFFORDABLE CARE ACT BLOCK GRANTS ESSENTIAL HEALTH How the Obama and Romney Pans Stack Up INSURANCE EXCHANGES BENEFITS PREMIUM SUPPORT HSAs Sara R. Coins, Stuart Guterman, Rache Nuzum, Mark A. Zezza, Tracy Garber, and Jennie Smith October 2012

Heath Care in the 2012 Presidentia Eection How the Obama and Romney Pans Stack Up Sara R. Coins, Stuart Guterman, Rache Nuzum, Mark A. Zezza, Tracy Garber, and Jennie Smith October 2012 Abstract: With President Obama and Governor Romney offering fundamentay different visions for the nation s heath system, this fa s presidentia eection provides a stark choice for U.S. voters. To inform pubic discussion about heath care in the eection and beyond, this anaysis draws from microsimuation anaysis to contrast the potentia impact of impementing the Affordabe Care Act in fu with Romney s proposas to repea the aw, eiminate many of the new requirements for insurance markets, and make changes in Medicaid and Medicare. The report focuses on the foowing: the number of Americans expected to gain heath insurance; changes in the affordabiity of insurance; changes in consumer protections and consumer choice; hep for sma businesses; improvement in Medicare sovency; improvement in heath care quaity; and contro of heath spending growth. Findings of the anaysis indicate that, in each area, impementation of the Affordabe Care Act woud ikey outperform Romney s proposas. Support for this research was provided by The Commonweath Fund. The views presented here are those of the authors and not necessariy those of The Commonweath Fund or its directors, officers, or staff. To earn more about new pubications when they become avaiabe, visit the Fund s Web site and register to receive e-mai aerts. Commonweath Fund pub. no. 1636.

EXECUTIVE SUMMARY With the U.S. presidentia eection just five weeks away, heath care is in the spotight. President Obama and Governor Romney have proposed distincty different approaches to the heath care probems currenty paguing the United States: more than 48 miion peope without heath insurance, increases in heath care costs and premiums that exceed the growth in famiy incomes, and uneven quaity in heath care across the country. If reeected, the president has pedged to continue to impement the Affordabe Care Act, the heath reform aw whose major provisions to expand insurance coverage and improve heath care deivery wi be roed out in the next 15 months. In contrast, the Repubican nominee has said that, if eected, he wi work to repea the aw and repace it with his own vision for U.S. heath care. To inform pubic discussion about heath care in the presidentia eection and beyond, this report describes the candidates approach, examines key differences in how each woud address the current probems affecting the heath care system, and evauates the potentia impications of their respective pans on heath insurance coverage and out-of-pocket spending. The comparison reies on resuts of microsimuation anaysis of the candidates pans conducted by economist Jonathan Gruber. THE CANDIDATES APPROACHES TO SOLVING THE NATION S HEALTH CARE PROBLEMS With each candidate offering fundamentay different visions for the nation s heath care system, this fa s presidentia eection provides a stark choice for U.S. voters (Exhibit ES-1). In pedging to fuy impement the Affordabe Care Act, President Obama supports the goa of near-universa heath insurance coverage, by maintaining existing private insurance markets but aso instituting tighter and more standardized reguations across the country to ensure a broad choice of comprehensive heath pans to a who seek coverage. In addition, federa tax credits woud make individuay purchased heath pans more affordabe. The Medicaid program woud cover more famiies with ow or moderate incomes. Governor Romney, on the other hand, has not identified universa coverage as a goa. Whie aso supporting a heath insurance system based on existing markets, he beieves that more imited reguation wi ensure a broad choice of heath pans for consumers. Romney woud encourage more peope to buy heath pans in the individua market by making the tax treatment of individuay purchased coverage simiar to that now accorded to empoyer-based pans. By reducing federa funding to Medicaid, through a proposed system of state bock grants, and oosening federa requirements, his administration woud substantiay scae back the federa state pubic insurance program for peope with ow incomes. Exhibit ES-1. Comparison of the Affordabe Care Act and Governor Romney s Pan: Goas and Provisions Aims to cover a Americans State heath insurance exchanges Affordabe Care Act Tax credits or tax advantages for private insurance premiums X X Expanded eigibiity for Medicaid Consumer insurance protections X X New Medicare benefits Individua requirement to have heath insurance Cost containment X X Incentives for quaity improvement X X Sources: Commonweath Fund Heath Reform Resource Center, avaiabe at http://www.commonweathfund.org/heath-reform/heath-reform-resource.aspx; and Governor Mitt Romney s pan, avaiabe at http://www.mittromney.com/. X X X X X Romney www.commonweathfund.org 9

To contain growth in heath care costs and improve the quaity of care, Obama supports the heath aw s reforms targeting both how insurance markets operate and how providers are paid and care is deivered. Romney woud seek to drive down heath care costs by providing fixed budgets and ooser standards to state Medicaid programs, on the theory that doing so wi aow states to innovate and save money. On Medicare, Romney woud introduce competition between private pans and traditiona Medicare by providing beneficiaries with premium support to buy the pan they choose. He woud aso pace imits on annua spending, starting in 2023, if such competition fais to bring down costs. COMPARING THE CANDIDATES PLANS FOR HEALTH CARE To examine how the Obama and Romney heath pans stack up, this anaysis asks seven key questions: Wi the pans increase the number of Americans with heath insurance? Wi the pans make heath insurance more affordabe? Wi the pans protect consumers? Wi the pans improve consumer choice? Wi the pans hep sma businesses? Wi the pans improve Medicare? Wi the pans improve heath care quaity and sow heath care spending growth? Wi the candidates pans increase the number of Americans with heath insurance? Methods. To evauate the effects of the candidates proposas for heath insurance coverage, Jonathan Gruber, an economist at the Massachusetts Institute of Technoogy, modeed three poicy scenarios: 1. The baseine, or what insurance coverage woud be if the Affordabe Care Act had not been impemented. 2. The Affordabe Care Act fuy impemented, with a states participating in the Medicaid expansion. 3. Romney s proposas to: Provide federa bock grants to states for their Medicaid programs Provide the same tax advantages to peope who buy coverage on their own as those avaiabe to peope insured through an empoyer. Because the Romney campaign has not yet feshed out the detais of these two proposas, this report makes a set of assumptions for each to assess their potentia effects. For the Medicaid bock grant proposa, the foowing assumptions are made: Bock grants to states wi grow at the rate of growth in the consumer price index pus 1 percent. States wi match this ower federa rate of spending growth in their share of Medicaid spending. States wi meet these new imits through a 50 50 combination of cuts in Medicaid costs, such as ower payments to heath care providers or reduced benefits, and through reduced eigibiity for the program. States wi maintain existing Medicaid eigibiity for the edery and peope with disabiities, so that any eigibiity cuts needed to meet spending targets wi come from the reduced eigibiity of peope who are under age 65 and not disabed. To evauate the Romney proposa to give tax advantages to individuay purchased pans, a scenario was modeed in which peope who purchased heath insurance in the individua market coud deduct premiums from their income on an above-the-ine basis that is, a deduction avaiabe to a, not just those who itemize their taxes. Resuts. When fuy impemented, the Affordabe Care Act is projected to substantiay reduce the number and share of aduts and chidren who are uninsured in every state, in every income group, and in every age group. In the absence of the Affordabe Care Act the baseine scenario mentioned above 60 miion peope are projected to be uninsured by 2022. The heath reform aw wi reduce the number of uninsured peope by an estimated 32.9 miion, eaving 27.1 miion peope uninsured (Exhibit ES-2). 10 Heath Care in the 2012 Presidentia Eection: How the Obama and Romney Pans Stack Up

Exhibit ES-2. Numbers of Uninsured Under the Affordabe Care Act and Governor Romney s Pan Miions of uninsured, ages 0 64 100 80 63.9 72.0 Romney 60 40 20 36.3 42.6 49.2 47.9 56.0 25.3 60.0 27.1 Baseine Affordabe Care Act 0 2000 2005 2010 2011 2016 2022 Note: Baseine scenario is if the Affordabe Care Act had not been enacted in 2010; Affordabe Care Act is fu impementation of the aw; Romney pan incudes fu repea of the Affordabe Care Act and repacement with state bock grants for the Medicaid program and equaization of the tax treatment of individuay purchased heath pans and empoyer pans. Sources: Income, Poverty, and Heath Insurance Coverage in the United States: 2011, U.S. Census Bureau, Sept. 2012; estimates by Jonathan Gruber and Sean Sa of MIT using the Gruber Microsimuation Mode for The Commonweath Fund. In contrast, the anaysis projects that Romney s proposas wi increase the number and share of peope who are uninsured in every state and demographic group, even compared with the baseine scenario. Nationay, Romney s proposas are estimated to increase the number of uninsured peope by 12 miion compared with the baseine (no Affordabe Care Act), eaving 72 miion peope uninsured in 2022. More than 80 percent of the increase in the uninsured popuation (10.3 miion peope) stems from cuts in Medicaid eigibiity resuting from state bock grants. An estimated 1.9 miion peope woud ose coverage under an income tax deduction for individuay purchased coverage, since some empoyers may stop offering heath insurance if their empoyees have an aternative. A simiar dynamic is expected to occur as a resut of the insurance provisions of the Affordabe Care Act. Peope with incomes beow 250 percent of the federa poverty eve ($27,925 for individuas and $57,625 for a famiy of four) woud be particuary hard hit by Romney s proposas to repea the Affordabe Care Act and repace it with Medicaid bock grants and private insurance incentives. Whie the heath reform aw s substantia expansion of Medicaid is projected to decrease the uninsured rate among peope with incomes under 138 percent of the poverty eve ($15,415 for an individua and $31,809 for a famiy of four) from a projected 38.6 percent to 19.4 percent, or 34.2 miion uninsured peope to 17.2 miion, Romney s proposas are projected to increase the uninsured rate in this income range to 43.7 percent, or 38.7 miion peope. (Exhibit ES-3). Simiary, whie the subsidized private pans that wi be avaiabe under the aw through the new state insurance exchanges are projected to decrease the share of uninsured peope with moderate incomes (up to $57,625 for a famiy of four) from 28.3 percent to 6.9 percent, or 13.8 miion uninsured peope to 3.3 miion, the Romney pan woud raise the uninsured rate in this income range to 36.4 percent, or 17.7 miion peope. Depending on how states respond to Medicaid bock grants, coverage of chidren might be particuary affected under Romney s proposas. With expanded eigibiity for Medicaid and income-based subsidies avaiabe for private coverage purchased through the exchanges, the percentage of uninsured chidren fas from 12.1 percent to 7.2 percent under the Affordabe Care Act, or from an estimated 10 miion uninsured chidren to 6 miion. In contrast, Romney s proposas to repea the heath reform aw and repace it with www.commonweathfund.org 11

Medicaid bock grants and tax incentives to purchase individua market pans increase the percentage of uninsured chidren, from 12.1 percent to 21.6 percent, or 10 miion uninsured chidren to 17.9 miion. Larger numbers of young aduts and baby boomers aso are estimated to be without coverage under Romney s proposas than under the Affordabe Care Act. Provisions of the reform aw have especiay targeted young aduts, incuding the current abiity of young aduts to maintain heath coverage on parent s poicy unti the age of 26. Consequenty, the number of uninsured young aduts is estimated to decine from 17.4 miion, or 38.8 percent of 19-to-29-year-ods, to 7.2 miion, or 16 percent of this age group in 2022. Romney s proposas are estimated to increase the number of uninsured young aduts, to 18.6 miion, or 41.4 percent. Among oder aduts ages 50 to 64, 4.9 miion are estimated to be uninsured under the Affordabe Care Act, compared with 11.8 miion under the combination of Romney s proposas. Across the country, in every state, the percentage of peope under age 65 who are uninsured decines under the Affordabe Care Act and increases under Romney s proposas, reative to the baseine. Uninsured rates are estimated to decine to 10 percent ot 15 percent in 12 states and the District of Coumbia, and to ess than 10 percent in the rest of the states. Peope iving in the South and West are projected to make particuary dramatic gains under the reform aw (Exhibit ES-4). For exampe, uninsured rates in 11 states are estimated to fa by more than 15 percentage points from projected eves (in Aaska, Arkansas, Forida, Georgia, Idaho, Louisiana Mississippi, Montana, New Mexico, South Caroina, and Texas). Romney s pan to repea the Affordabe Care Act and repace it with bock grants to states for Medicaid and new tax incentives for heath pans purchased in the individua market are expected, on baance, to reduce heath insurance coverage in every state (Exhibit ES-5). Under the assumption Exhibit ES-3. Percent of Popuation Uninsured Under the Affordabe Care Act and Governor Romney s Pan Compared with Baseine by Poverty, 2022 Percent of nonedery poverty group uninsured in 2022 75 Baseine Affordabe Care Act Romney 50 38.6 43.7 36.4 25 21.7 9.8 26.0 19.4 28.3 16.8 13.4 6.9 4.3 6.0 5.0 8.0 0 Tota <138% FPL 138% 249% FPL 250% 399% FPL 400%+ FPL Note: Baseine scenario is if the Affordabe Care Act had not been enacted in 2010; Affordabe Care Act is fu impementation of the aw; Romney pan incudes fu repea of the Affordabe Care Act and repacement with state bock grants for the Medicaid program and equaization of the tax treatment of individuay purchased heath pans and empoyer pans. FPL refers to federa poverty eve. Source: Estimates by Jonathan Gruber and Sean Sa of MIT using the Gruber Microsimuation Mode for The Commonweath Fund. 12 Heath Care in the 2012 Presidentia Eection: How the Obama and Romney Pans Stack Up

Exhibit ES-4. Uninsured Nonedery Under Baseine and the Affordabe Care Act in 2022, by State 4% <10% 10% <15% 15% <20% 20% <25% 25% <30% 30% <35% Baseine Affordabe Care Act WA OR NV CA ID UT AZ MT WY CO NM ND SD NE KS OK TX MN WI IA IL MO AR MS LA IN MI TN AL KY OH GA WV SC PA VA NC NY ME VT NH MA CT RI NJ DE MD DC WA OR NV CA ID UT AZ MT WY CO NM ND SD NE KS OK TX MN WI IA IL MO AR MS LA IN MI TN AL KY OH GA WV SC VT NH NY MA CT RI PA NJ DE DC MD VA DC NC ME AK FL AK FL HI HI 22% of nonedery uninsured 10% of nonedery uninsured Note: Baseine scenario is if the Affordabe Care Act had not been enacted in 2010; Affordabe Care Act is fu impementation of the aw; Romney pan incudes fu repea of the Affordabe Care Act and repacement with state bock grants for the Medicaid program and equaization of the tax treatment of individuay purchased heath pans and empoyer pans. Source: Estimates by Jonathan Gruber and Sean Sa of MIT using the Gruber Microsimuation Mode for The Commonweath Fund. Exhibit ES-5. Uninsured Nonedery Under the Affordabe Care Act and Governor Romney s Pan in 2022, by State 4% <10% 10% <15% 15% <20% 20% <25% Affordabe Care Act 25% <30% 30% <35% Romney WA OR NV CA ID UT AZ MT WY CO NM ND SD NE KS OK TX MN WI IA IL MO AR MS LA IN MI TN AL KY OH GA WV SC VT NH NY MA CT RI PA NJ DE DC MD VA DC NC ME WA OR NV CA ID UT AZ MT WY CO NM ND SD NE KS OK TX MN WI IA IL MO AR MS LA IN MI TN AL KY OH GA WV SC PA VA NC NY ME VT NH MA CT RI NJ DE MD DC AK FL AK FL HI HI 10% of nonedery uninsured 26% of nonedery uninsured Note: Baseine scenario is if the Affordabe Care Act had not been enacted in 2010; Affordabe Care Act is fu impementation of the aw; Romney pan incudes fu repea of the Affordabe Care Act and repacement with state bock grants for the Medicaid program and equaization of the tax treatment of individuay purchased heath pans and empoyer pans. Source: Estimates by Jonathan Gruber and Sean Sa of MIT using the Gruber Microsimuation Mode for The Commonweath Fund. www.commonweathfund.org 13

that states respond to reduced federa financing for Medicaid by a 50 50 combination of owering per capita spending in the program, through changes in provider reimbursement or benefits or other efficiencies, and reducing eigibiity, 30 percent or more of the under-65 popuation in nine states, mosty in the South and West, are projected to be uninsured by 2022. In an additiona 12 states, 25 percent to 30 percent of the under-65 popuation may be uninsured by that year. Thus, in 21 states, a quarter or more of the under-65 popuation might be without heath insurance in 2022 if Romney s proposas become aw. Wi the candidates pans make heath insurance more affordabe? Heath insurance premium tax credits under the Affordabe Care Act provide a greater subsidy for twice the number of peope compared with Governor Romney s proposa to repea the aw and instead equaize the tax treatment of empoyer-based coverage and pans purchased in the individua insurance market. Under the Affordabe Care Act, by 2016 about 20 miion peope are projected to be eigibe for tax credits to hep pay the cost of heath pans sod through the insurance exchanges. The beneficiaries of the credits are expected to be eveny spit between peope who had been uninsured unti that point and peope who had insurance. The average per-person tax credit is estimated to range from $3,900 to $4,500. The Romney pan to repea the heath reform aw and equaize the tax treatment of empoyer and individuay purchased pans, as described above, woud benefit about haf the number of peope 10 miion with the primary beneficiaries being those who aready have heath insurance. An estimated 1 miion peope who were previousy uninsured woud take the deduction. The average vaue of the tax deduction, ranging from $1,900 to $2,600, is aso ower than the vaue of the reform aw s tax credits. Peope who currenty do not have heath coverage through an empoyer and must purchase a pan on their own are projected to spend ess of their income on heath care under the Affordabe Care Act than they woud if the aw were repeaed and repaced with Medicaid bock grants and new tax incentives to purchase individua coverage. Without the Affordabe Care Act in pace the baseine scenario peope buying coverage in the individua market are estimated to spend, on average, 18.1 percent of their income on coverage in 2016, incuding 15 percent on heath insurance premiums and 3 percent on out-of-pocket costs (Exhibit ES-6). With the heath reform aw in pace, the combination of premium tax credits, imits on out-of-pocket spending, and consumer protections reduces costs for peope purchasing coverage through the new insurance exchanges or the individua market to 9.1 percent of income, on average, incuding 8.4 percent of income on premiums and 0.7 percent on out-of-pocket costs. Under Romney s proposas, peope buying coverage on their own are projected to spend 14.1 percent of their income on premiums (11.9%) and outof-pocket costs (2.2%). Wi the candidates pans protect consumers? To protect consumers and improve the functioning of individua and sma-group insurance markets, the Affordabe Care Act initiated a set of sweeping reforms whose roout began in 2010 and wi continue through 2014. Amost a states have taken egisative or reguatory steps to impement the aw s Patient s Bi of Rights, which went into effect in 2010 and incudes a ban on the insurance company practice of rescinding, or terminating, a heath insurance poicy (for exampe, as a resut of new diagnosis of iness), a ban on restrictions of ifetime or annua benefits, a ban on excuding chidren with a preexisting condition from enroment, and the requirement to cover preventive care services without cost-sharing. Beginning in 2014, insurers wi no onger be abe to deny or restrict coverage based on preexisting heath conditions, and they wi be prohibited from charging higher premiums based on heath status or gender. Governor Romney s proposa to repea the aw woud remove these protections. In their pace, Romney has said that he woud prevent discrimination against peope with preexisting conditions who maintain continuous coverage. The federa Heath Insurance Portabiity and Accountabiity Act of 1996 (HIPAA) currenty achieves this by preventing both group and individua market heath pans from excuding coverage 14 Heath Care in the 2012 Presidentia Eection: How the Obama and Romney Pans Stack Up

Exhibit ES-6. Average Percent of Income Spent on Heath Care in the Nongroup Market Under the Affordabe Care Act and Governor Romney s Pan Compared with Baseine, 2016 Average percent of income nonedery spent on heath care in nongroup market 25 Tota Premiums Out-of-pocket 20 18.1 15 15.0 14.1 11.9 10 9.1 8.4 5 0 Baseine 3.0 0.7 Affordabe Care Act Romney 2.2 Note: Baseine scenario is if the Affordabe Care Act had not been enacted in 2010; Affordabe Care Act is fu impementation of the aw; Romney pan incudes fu repea of the Affordabe Care Act and repacement with state bock grants for the Medicaid program and equaization of the tax treatment of individuay purchased heath pans and empoyer pans. Source: Estimates by Jonathan Gruber and Sean Sa of MIT using the Gruber Microsimuation Mode for The Commonweath Fund. of preexisting conditions for peope who have been insured continuousy. Wi the candidates pans improve consumer choice? Besides cost and underwriting, the most significant chaenges that consumers face if they must buy heath coverage on their own is a ack of information about the pans that are avaiabe to them. Benefits can vary widey from pan to pan, and cost-sharing responsibiities and imits on coverage can be difficut to assess at the point of purchase. President Obama seeks to address this information gap through the Affordabe Care Act s state insurance exchanges, which wi provide a menu of heath pan choices that incude information on premiums and cost-sharing, benefits covered, participating providers, and ratings of pan quaity and enroee satisfaction. A pans offered through the exchanges and individua and sma-group markets wi incude a standard package of essentia benefits sod at four different tiers : bronze, siver, god, and patinum. Pans offered within each tier wi cover the same share of someone s medica costs on average, ranging from 60 percent in the bronze tier to 90 percent in the patinum tier. In this regard, the heath reform aw shoud hep those consumers who ack access to the guidance in making pan choices that is typicay provided by empoyers that offer heath benefits. A Romney presidency woud seek to repea these consumer-oriented provisions, and repace them with a new set of proposas, incuding encouraging Consumer Reports type ratings for heath pans and aowing consumers to purchase heath insurance across state ines. Under the atter proposa, insurance carriers woud be free to choose a state in which to be icensed and then se coverage in other states, without having to compy with the reguations in each state. The nonpartisan Congressiona Budget Office (CBO) has estimated that such a poicy woud ead to fewer consumer protections across a states, higher premiums for enroees in poor heath, and ower premiums for peope in better heath. An estimated 600,000 peope woud gain heath insurance and about 200,000 woud www.commonweathfund.org 15

ose it. Romney woud aso aow peope to pay insurance premiums with pretax contributions to heath savings accounts medica savings instruments that are couped with high-deductibe heath pans. Currenty peope can use these accounts ony to pay out-of-pocket expenses tax-free. Wi the candidates pans hep sma businesses? Just as it provides new options for consumers who must buy coverage on their own, the Affordabe Care Act aso offers remedies to the chaenges faced by sma businesses that want to offer heath insurance to their empoyees. Heath insurance carriers wi no onger be abe to deny coverage or charge sma businesses higher premiums on the basis of the heath of their workforce. Sma ow-wage firms with fewer than 25 workers are now eigibe for tax credits to offset their premium costs; 170,000 sma empoyers caimed tax credits worth $468 miion for the 2010 tax year. The Obama administration has proposed increasing the size of firms that are eigibe to 50 empoyees. New state exchanges for sma businesses (the so-caed SHOP exchanges) wi enabe empoyers to offer a menu of pan choices to their workers. In addition, the exchanges wi ikey hande the coection and payment of premiums on behaf of empoyers and insurance carriers, reducing administrative costs for sma businesses. Governor Romney s proposa to repea the reform aw woud increase costs for empoyers that are currenty taking advantage of the premium tax credits. It woud aso mean that sma empoyers in some states woud continue to be denied coverage and charged higher premiums based on the heath of their workforces. Romney has proposed empowering sma businesses to form purchasing poos aso known as mutipe empoyer wefare arrangements (MEWAs) and association heath pans but has not aid out a specific poicy proposa. MEWAs, which exist in most states, aow sma empoyers to band together through trade and other associations to share the administrative costs of providing heath insurance, and they are often abe to avoid state insurance market reguations and benefit requirements. This has the potentia to ower premiums for empoyers with younger and heathier workers but raise them for empoyers with oder workforces, who may continue to purchase coverage in the sma-group market. MEWAs have aowed many sma empoyers to offer their workers coverage more cheapy, but some have been pagued by insovency probems. Wi the candidates pans improve Medicare? The Affordabe Care Act began enhancing Medicare benefits in 2010, when the infamous doughnut hoe in prescription drug coverage began to be phased out and preventive care services and an annua weness visit became avaiabe to beneficiaries without cost-sharing. The aw aso incudes provisions to reduce spending, increase revenues, and improve the quaity of care. On net, the Trustees of the Medicare Trust Fund estimate that these changes wi extend the sovency of the Medicare Hospita Insurance (Part A) Trust Fund, which pays for hospita and other services used by Medicare beneficiaries, to 2024. Without the aw, the trust fund woud be depeted by 2016. Governor Romney s intent to repea the aw woud restore the doughnut hoe in Medicare s prescription drug benefit and reinstate cost-sharing for preventive care services and annua weness visits. According to CBO estimates, repea woud aso end the Medicare spending reductions and higher taxes and fees in the aw, increasing net Medicare spending by $716 biion over the period 2013 to 2022. This higher Medicare spending woud aso depete the Trust Fund more quicky by 2016, rather than 2024. The Romney campaign proposes a new way to reduce costs in the Medicare program: providing beneficiaries with a ump sum to pay for premiums and aowing them to appy the amount to either a Medicare private pan or traditiona Medicare. In addition, the age of eigibiity woud increase graduay to 67 by 2034. As chairman of the House budget committee, Rep. Pau Ryan, Romney s running mate, has proposed simiar changes to Medicare, athough he woud retain the Medicare provisions in the Affordabe Care Act. In Ryan s most recent proposa, individuas who become eigibe for Medicare beginning in 2023 woud be aotted a premium support subsidy, adjusted for heath status and income, to use for either a private pan or traditiona Medicare. If competition between pans faied to rein in cost growth sufficienty, starting in 2023 16 Heath Care in the 2012 Presidentia Eection: How the Obama and Romney Pans Stack Up

the per capita cost of the program woud be imited to the rate of growth in the nation s gross domestic product, or GDP, pus 0.5 percentage points. CBO has estimated that by 2050, federa spending for new enroees under Ryan s proposa woud be 35 percent ower than under current aw. Romney, however, has pedged to repea those Medicare provisions in the aw that CBO estimates woud decrease average federa spending on Medicare, incuding the reforms contained in Ryan s earier proposa. Under the Romney Ryan approach, this means that pressure to ower Medicare spending woud be greater, and beneficiaries woud ikey face higher out-of-pocket spending, if the eve of premium support faied to keep pace with growth in heath care costs. Wi the candidates pans improve heath care quaity and sow heath care spending growth? The Affordabe Care Act incudes an extensive set of new demonstration programs and incentives aimed at improving the quaity and owering the cost of heath care. These incude payment innovations, ike higher reimbursement for preventive care services and patientcentered primary care; bunding payments for hospita, physician, and other services provided for a singe episode of patient care; enabing accountabe provider groups that assume responsibiity for the continuum of a patient s care to share in the savings they generate; and pay-for-performance incentives for Medicare providers. In Juy, CBO estimated that a House Repubican bi to repea the Affordabe Care Act woud resut in a $109 biion increase in the federa budget deficit over 2013 2022 (Exhibit ES-7). Governor Romney s proposas to repace the aw with Medicaid bock grants and premium support for Medicare beneficiaries woud reduce federa spending on the two programs. This approach to cost containment woud shift the burden of growth in U.S. heath care costs from the federa government to the states, to owincome famiies, and to Medicare beneficiaries, without addressing the underying causes of rising costs. To sow heath care cost growth, the Romney campaign has aso proposed reforms that woud faciitate heath information technoogy interoperabiity, promote aternatives to fee-for-service payment of physicians, cap noneconomic damages in medica mapractice awsuits, and provide innovation grants to expore nonitigation aternatives to dispute resoution. Romney s proposed repea of the Affordabe Care Act woud eiminate many of the incentives to promote the fu use of heath IT and deveop aternative provider payment mechanisms. A CBO anaysis of capping noneconomic damages in Exhibit ES-7. Estimated Budgetary Effects of Repeaing the Affordabe Care Act, 2013 2022 Juy 2012 Congressiona Budget Office estimate Net change from coverage provisions $1,171 Coverage provisions $1,677 Revenues and wage effects $506 Net change from payment and system reforms $711 Reductions in annua updates to Medicare provider payment rates $415 Medicare Advantage reform $156 Provider payment changes and other provisions $140 Net change in noncoverage revenues $569 Manufacturer and insurer fees $165 New Medicare taxes on high-income earners $318 Other provisions $87 Tota net impact on federa deficit, 2013 2022 $109 Notes: Totas do not refect net impact on deficit because of rounding. Source: D. Emendorf, Letter to the Honorabe John Boehner (Washington, D.C.: Congressiona Budget Office, Juy 24, 2012). www.commonweathfund.org 17

medica mapractice awsuits found that such imits coud ower mapractice insurance premiums and provide some sma savings in heath care costs, about 0.5 percent or ess of tota heath spending. CONCLUSION On each of the seven criteria used in this anaysis to evauate the candidates heath care patforms, President Obama s pan to fuy impement the Affordabe Care Act woud ikey outperform Governor Romney s pan to repea the aw and repace it with fewer federa requirements for insurance markets and reduced funding for the Medicaid and Medicare programs. This concusion is driven in part by the considerabe detai avaiabe in the heath reform aw and the new guidance and reguations issued by the Department of Heath and Human Services to impement its provisions, compared with Romney s far ess detaied proposas to repace the aw. The Affordabe Care Act both substantiay increases and improves heath insurance coverage in private insurance markets and in pubic insurance programs for Americans across income and age groups, whie aso providing new incentives aimed at improving heath care quaity and owering the rate of growth in spending. Fuy two-and-a-haf years after its passage, with many of its provisions aready in pace, the aw is aready interwoven into the nation s reguatory and industria andscape. In 15 months, the major insurance coverage provisions are set to ro out, with more than 30 miion peope projected to gain subsidized coverage over the next decade. Of course, raising our heath system s eve of performance to achieve sustainabe, near-universa access to affordabe heath insurance and heath care, improved quaity and patient-centeredness, greater accountabiity for both heath outcomes and treatment costs, and better overa popuation heath wi require much more than the efforts of the federa government. Regardess of the outcome of the eection, it wi be critica for state and federa poicymakers, reguators, businesses, consumers, and other key stakehoders to work together to achieve the vision of high-quaity, safe heath care at a price that everyone in America can afford. 18 Heath Care in the 2012 Presidentia Eection: How the Obama and Romney Pans Stack Up

Methodoogy The anaysis of the Affordabe Care Act and Governor Romney s heath care proposas was conducted by Jonathan Gruber, professor of economics at Massachusetts Institute of Technoogy. It is based on the Gruber Microsimuation Mode (GMSIM), which aows the user to input a set of poicy parameters and output the impact of these poicies on costs (both pubic- and private-sector) and on the distribution of insurance coverage. The modeing approach is the type of microsimuation modeing that is used by the U.S. Treasury Department, the Congressiona Budget Office (CBO), and other government entities. This approach consists of drawing on best avaiabe evidence in the heath economics iterature to mode how individuas and firms wi respond to changes in the insurance environment that are induced by changes in government poicy. The U.S. Census Bureau s Current Popuation Survey (CPS) is the primary data source in the GMSIM. The CPS incudes data on famiy demographics, tax rates, and insurance status. The baseine dataset is the 2005 2007 Current Popuation Surveys (CPS), which provide the individua-eve data on about 40,000 nonedery individuas and househod units. The 2005 CPS is augmented with the 2006 and 2007 CPS to obtain a arger sampe size for greater precision at the state eve, and state averages are then updated to 2011 to refect current conditions. Income and demographic measures are updated with the most recenty avaiabe CPS data. The CPS is augmented by heath expenditure and premium data from the U.S. Agency for Heathcare Research and Quaity s Medica Expenditure Pane Survey (MEPS), as we as by data from the Kaiser Famiy Foundation on pubic program expenditures and eigibiity. The GMSIM is caibrated to estimate the tota impact of aternative poicies at the nationa eve. GMSIM anayses for individua states may differ from the findings in this report when state-specific information from a source avaiabe ony in a state is incuded, such as specific information on state pricing in the nongroup insurance market. To evauate the effects of the candidates proposas on heath insurance coverage, Jonathan Gruber modeed three poicy scenarios: 1) the baseine, or what insurance coverage woud be if the Affordabe Care Act had not been impemented; 2) the Affordabe Care Act fuy impemented with a states participating in the Medicaid expansion; and 3) Governor Romney s proposas to provide federa bock grants to states for their Medicaid programs and provide the same tax advantages to peope who buy coverage on their own as those who get insurance through an empoyer. Whie the detais of Governor Romney s proposas have not been specified, a set of assumptions was made for the report based on simiar proposas advanced in the past. For the Medicaid bock-grant proposa, it was assumed that: 1) bock grants to states woud grow at the rate of growth in the consumer price index pus 1 percent;* 2) states woud match this ower rate of spending growth in their share of Medicaid spending; 3) states woud meet these new spending imits through cuts in Medicaid costs, such as ower provider payments or reduced benefits (50%) and through reduced eigibiity for the program (50%); and 4) states woud maintain existing eigibiity for the edery and disabed in the Medicaid program, so that any eigibiity cuts needed to meet spending targets wi come from reduced eigibiity of nonedery, nondisabed program enroees. For Romney s proposa to give tax advantages to individuay purchased pans, Gruber modeed a scenario where peope who purchase heath insurance in the individua market coud deduct their premiums from their income on an above-the-ine basis; i.e., a deduction avaiabe to a, not just those who itemize their taxes. * In an earier version of this report, it was incorrecty stated that bock grants woud grow at the rate of popuation growth pus 1 percent. 52 Heath Care in the 2012 Presidentia Eection: How the Obama and Romney Pans Stack Up