By Robert Laszewski

Let’s take a look at Mitt Romney’s Health Care plan using his own outline (“Mitt’s Plan”) on his website.

Romney’s approach to health care reform summarized:

• “Kill Obamacare” – There seems to be no chance Romney would try to fix the Affordable Care Act––he would repeal all of it.
• No new federal health insurance reform law – There is no indication from his policy outline that he would try to replace the health care reform law for those under age-65 (“Obamacare”) with a new federal law–his emphasis would be on making it easier for the states to tackle the issue as he did in Massachusetts.
• Small incremental steps – His approach for health insurance reform for those under age-65 relies on relatively small incremental market ideas when compared to the Democrats big Affordable Care Act–tort reform, association purchasing pools, insurance portability, more information technology, greater tax deductibility of insurance, purchasing insurance across state lines, more HSA flexibility.
• Getting the federal government out of the Medicaid program – He would fundamentally change Medicaid by putting the states entirely in control of it and capping the annual federal contribution–“block-granting.”
• Big changes for Medicare – Romney offers a fundamental reform for Medicare beginning for those who retire in ten years by creating a more robust private Medicare market and giving seniors a defined contribution premium support to pay for it.

Romney vs. Obama–Romney Would Kill “Obamacare”

“On his first day in office, Mitt Romney will issue an executive order that paves the way for the federal government to issue Obamacare waivers to all fifty states. He will then work with Congress to repeal the full legislation as quickly as possible.”

The Affordable Care Act (ACA) does give the President power to issue states waivers from the Democratic health plan legislation. But, not before 2017 and only if the state can demonstrate that it can cover as many people as the Democratic health care law is covering in the state.

“Obamacare” is the law of the land having been passed by Congress. It can’t be just pushed aside on the first day of a Romney presidency. If Romney tried this, I would have to believe advocates for the ACA would quickly be in federal court.

On “Obamacare,” The Republican mantra has been to “repeal and replace it.” I have no doubt that a Romney presidency will do everything it can to get rid of the Affordable Care Act (ACA). If Republicans hold the House and capture the Senate, with as few as 51 votes they can gut the new health law and pretty much end it using budget rules that cutoff the money. While I see them intent on getting rid of the ACA, I do not see any consensus among Republicans to replace it at the federal level. Instead, it looks like their health care priorities will be to pass their Medicare and Medicaid reforms and leave dealing with the uninsured to the states.

Romney and the Republicans Would Not Replace “Obamacare” at the Federal Level

On his website, Romney makes it clear the states will be left to deal with the uninsured: “In place of Obamacare, Mitt will pursue policies that give each state the power to craft a health care reform plan that is best for its own citizens. The federal government’s role will be to help markets work by creating a level playing field for competition.“

In effect, this is how Massachusetts was able to launch its health reform plan. It received a waiver from existing Medicaid laws from the George W. Bush administration enabling Massachusetts to redirect the money it receives from the federal Medicaid program into the health reform law in Massachusetts. Massachusetts also had a substantial fund of state money called the Uncompensated Care Pool—a tax on providers, self-insured employers, and insurers—that was also reallocated to help pay for the Mass health reform plan. This is not common in the other states making duplicating the Mass experience difficult elsewhere.

“Mitt will begin by returning states to their proper place in charge of regulating local insurance markets and caring for the poor, uninsured, and chronically ill. States will have both the incentive and the flexibility to experiment, learn from one another, and craft the approaches best suited to their own citizens.”

Romney vs. Obama–On health care reform for those under the age of 65, the difference between Romney and Obama couldn’t be more stark. Obama would continue to implement his signature health care reform law—Romney would kill it and not replace it at the federal level.

Romney Would Fundamentally Change Medicaid

Romney is calling for the block granting of Medicaid. While he isn’t specific, a recent House Republican plan, authored by his running mate Paul Ryan, would do this by taking federal Medicaid payments currently being made to the states and “block grant” that to the states with complete flexibility in how the states spend the Medicaid money. This would end the longstanding custom of the federal Congress mandating the states provide certain Medicaid benefits but not pay for all of these mandates—“unfunded mandates.”

The idea is to let the states have autonomy and flexibility in how they run their Medicaid programs thereby having the flexibility to try new things and better manage them. The catch is that the Ryan House Republican plan would increase subsequent Medicaid payments to the states by only the rate of inflation—health care costs have been rising at a much faster rate. The CBO calculated that this would mean the federal government would save $800 billion over ten years and the states would be paid that much less during the same period.

The block granting of Medicaid all comes down to a belief by conservatives that the states can much more efficiently provide the Medicaid safety net on less money if the federal government is gotten out of the process.

Are Romney and Ryan right that more state flexibility will make Medicaid more cost effective?

Critics argue that this is just cost shifting from the federal government to the states. It isn’t hard to save money if the states can cut benefits or increase cost sharing for the poor.

Most states are already using private health insurance companies in an attempt to better manage Medicaid. The results have been very impressive—it is clear that there are lots of “low hanging fruit” savings when states take a more aggressive approach to managing Medicaid. States are also able to save money by having more authority to decide who will be eligible and what their out-of-pocket costs should be.

The cost of Medicaid is unsustainable in its current form. The Romney-Ryan plan is about spending less and giving states almost complete flexibility in the belief they will be able to stretch fewer dollars farther and continue to cover the poor. Clearly, the recent experience in the states in more directly managing Medicaid is promising.

As part of this movement of responsibility to the states, Romney is also calling for a number of steps to cover more people who are currently uninsured:

• Limiting federal standards and requirements on both private insurance and Medicaid coverage
• Ensuring flexibility to help the uninsured, including public-private partnerships, exchanges, and subsidies
• Ensuring flexibility to help the chronically ill, including high-risk pools, reinsurance, and risk adjustment
• Offering innovation grants to explore non-litigation alternatives to dispute resolution

Romney’s argument is that the states should be dealing with these health care safety net issues—not the federal government. He would argue that more liberal states should try the kinds of things Massachusetts has tried while more conservative states would try other things.

The Democrats’ Affordable Care Act creates universal baseline health insurance coverage complete with federally required health insurance exchanges, federally driven health insurance reform mandating coverage, requiring insurers to cover people with pre-existing conditions, as well as hundreds of billions of in federal subsidies so consumers can buy health insurance. Instead, Romney would repeal these reforms and would leave their replacement to each state.

Creating Robust Competition is at the Core of Romney’s Approach to Health Care Reform

“Competition drives improvements in efficiency and effectiveness, offering consumers higher quality goods and services at lower cost. It can have the same effect in the health care system, if given the chance to work.”

Romney would cap non-economic damages in medical malpractice lawsuits. Republicans have been calling for tort reform for many years. However, it takes 60 votes in the U.S. Senate to pass and even when they had 54 Senators during the recent Bush years they were not even able to get all Republicans onside.

Romney would empower individuals and small businesses to form purchasing pools. I have actually run such pools—association health plans. It is perfectly legal to start one today. In all of my years running these pools, I never saw them save money—actually they tended to cost more when compared to small group plans. Whether I was insuring one dry cleaner or ten thousand in an association, I had the same marketing, billing, policy issue, and claim paying costs for every person covered whether they were part of my large block of business or an association health plan. Except, in an association health plan I had one expense factor that I didn’t have in the regular block—the association wanted to get paid something thereby increasing the cost of my association business over my traditional small group block.

Romney would prevent discrimination against individuals with pre-existing conditions who maintain continuous coverage. We have that in the much of the employer market today—the 1996 health care reform law provides for portability when a worker changes jobs so long as the individual stays continuously covered at his next job. The federal “Cobra” law also enables a worker to extend their employer coverage at full cost for 18 months. But these protections don’t apply in the individual health insurance market. Presumably, Romney would extend this protection. But the problem is that health insurance costs a lot of money—the average cost of employer-provided family coverage is almost $14,000 a year. In the face of that kind of cost, how does someone who just lost his or her job—and health insurance—stay continuously covered?

Romney also says he would “facilitate IT interoperability.” That is all he says about this issue. The Affordable Care Act currently has a number of programs designed to universally expand the use of information technology among health care providers and payers.

“For markets to work, consumers must have the information and the power to make decisions about their own care. Placing the patient at the center of the process will drive quality up and cost down while ensuring that services are designed to provide what Americans actually want.”

Romney would end the tax discrimination against the individual purchase of insurance. Presumably, that means that individuals would get the same tax deduction, or tax credits, a Romney administration would provide for everyone else. However, tax deductions are a function of income. A lower income person may pay little of no taxes. A wealthy person may be a lot in taxes. The person who will need the most help in buying insurance will be the poorer person but that is the person who would get little help from improved tax deductibility.

It is possible that Romney would support tax credits to help people buy health insurance as many Republicans do—perhaps larger tax credits for poorer people as the Affordable Care Act does now. But that is not a part of his current health care policy outline that favors solutions for the uninsured at the state level.

Romney would allow consumers to purchase insurance across state lines. The problem he is trying to address is that states have lots of coverage mandates that make buying coverage much more expensive in some states than in others. By enabling consumers to go to a state with less regulation, consumers should have the ability to cut the cost of their coverage.

But there is no free lunch. Stripped down policies cost less because they cover less. Many of these mandates prohibit such things as “drive by deliveries,” limits on cancer treatments, or refusing to cover pregnancy costs. Many of these state mandates are arguably excessive—but generally not in the eyes of advocates for the treatment of various diseases who demanded their legislatures to pass them in the first place.

I have no doubt that some states have fewer mandates and lower individual health insurance prices. However, I know of no state that has truly affordable health insurance. It is hard to see this as any real solution.

Perhaps Romney should provide us with a list of which coverage mandates he believes are wasteful.

If this provision were ever to become law it could have a very negative impact on current state individual insurance markets. Many, and many in the health insurance business, believe this provision will take us back to the days of cherry picking in risk selection. Predatory insurance companies could use this provision to offer a stripped down policy in a state with more mandates. That policy would be cheaper and cover less—and therefore attract more healthy consumers. That would leave a sicker population in the existing state risk pool with rates having to ratchet up for those who need more coverage.

Advocates for this idea believe that it will lead to a competition among states as they are forced to eliminate many of their mandates to keep their policies competitive. That might be true. But that process would take many years and there would likely be lots of damage in these state markets in the meantime.

Romney generally believes that he needs to leave the regulation of insurance to each of the states—but apparently not in this case where he would pit some states against others. You would be hard pressed to find any state insurance regulators—Republicans or Democrats—that like this idea.

Romney also lists a series of pro-market ideas including unshackling Health Savings Accounts (HSAs) by allowing funds to be used for insurance premiums, promote “co-insurance” products, promoting alternatives to “fee for service,” and encouraging “Consumer Reports”-type ratings of alternative insurance plans.

HSAs have been around in one form or another for 20 years. The most recent iteration came as part of the 2003 Medicare reform bill. HSAs have been growing steadily and cost a few percentage points less than traditional health plans and are still less than 20% of the market. When I speak to insurance company managers that sell HSAs, I hear that, after adjusting for more healthy people tending to buy them and higher out-of-pocket costs, an HSA program tends to be only a few percentage points lower in cost than standard programs. Tweaking HSAs, or implementing these other ideas, are probably good ideas but aren’t game changers.

I would suggest that Romney’s list of health insurance market reforms–tort reform, association purchasing pools, insurance portability, more information technology, greater tax deductibility of insurance, purchasing insurance across state lines, more HSA flexibility–could be categorized as health insurance reform “lite.” Many of these ideas could be helpful but would not dramatically resolve the big problem–the average cost of health insurance for a family is $14,000 a year.

Romney’s Medicare Reform Plan

Separately, Romney has detailed his Medicare reform plan. Romney says his plan “almost precisely mirrors” a Medicare plan introduced by his running mate, Republican House Budget Chairman Paul Ryan (WI), and Democrat Senator Ron Wyden (OR).

His website details his proposal:

“Mitt Romney has laid out the approach he would take to modernizing America’s entitlement programs, guaranteeing their continued vitality for future generations. Mitt’s proposals would not affect today’s seniors or those nearing retirement, and they would not raise taxes. But he proposes that tomorrow’s Medicare should give beneficiaries a generous defined contribution, or ‘premium support,’ and allow them to choose between private plans and traditional Medicare.

“Mitt’s plan honors commitments to current seniors while giving the next generation an improved program that offers the freedom to choose what their coverage under Medicare should look like. Instead of paying providers directly for medical services, the government’s role will be to help future seniors pay for an insurance option that provides coverage at least as good as today’s Medicare, and to offer traditional Medicare as one of the insurance options that seniors can choose. With insurers competing against each other to provide the best value to customers, efficiency and quality will improve and costs will decline. Seniors will be allowed to keep the savings from less expensive options or choose to pay more for costlier plans.”

Trying to ferret out the details of Romney’s Medicare program is not easy. His outline is very broad and his running mate, Paul Ryan, has introduced three different versions of his Medicare support plan in the last two years.

The Ryan Medicare version most likely to get anywhere in Congress is the white paper version he co-authored with Democratic Senator Ron Wyden (OR). Under the Wyden-Ryan plan, starting in 2023 new retirees would receive a “premium support” payment equal to what Medicare would have paid for that senior under the traditional plan. The senior would have a choice of traditional Medicare or a private plan—each plan would have a price and it would be up to the seniors to decide where they would spend their premium support amount.

This would save the federal government billions of dollars over future years because the federal liability to seniors would be capped—no matter how fast or how slow Medicare costs escalated in future years.

The Wyden-Ryan plan would cap future “premium support” payments to what the second lowest cost plan in each seniors community cost. The traditional Medicare plan might or might not be one of the two lowest cost plans.

The Wyden-Ryan plan would also set an upper limit on what the federal government paid for Medicare—the cost of the program would not be allowed to increase in future years at a rate greater than GDP+1%. That means that what the federal government gave to seniors to buy their Medicare benefits would be capped at a growth rate no greater than 1% more than the overall U.S. economy was growing.

A big hole in the Wyden-Ryan plan is that they do not tell us what would happen if costs grew faster than GDP+1%. They vaguely leave the next steps to the Congress which has had a very poor track record in recent years dealing with standing up to the health care industry when existing spending caps are breached.

In his most recent budget, Paul Ryan capped the growth rate at GDP + one-half percent—less than the Wyden-Ryan plan. It should also be noted that President Obama, in his latest budget plan, in effect proposed capping Medicare costs at GDP + one-half percent by setting that as the benchmark triggering the Affordable Care Act’s Medicare cost board action to contain costs.

Critics of the Romney-Ryan approach worry that the Republican plan puts the burden of any Medicare cost increases above the limit almost entirely on the backs of seniors.

Advocates of the Republican approach argue that we cannot afford the old Medicare program any longer and that this plan would invigorate the market creating competition between health plans for seniors looking for greater value for their premium support payment. They argue that seniors would have a strong incentive to more carefully shop for health care and that would finally bring costs under control.

I would argue that Romney’s under-age-65 health plan he has only offered incremental and old Republican small-scale ideas. But on Medicare, he has joined with Paul Ryan in advocating a game changing and revolutionary plan—and a controversial one.

The difference between Democrats and Republicans couldn’t be dramatic than on this Medicare issue.

Years ago many workers had a defined benefit pension plan—the employer promised to pay them a set portion of their final wages for the rest of their lives no matter what it cost or no matter how well the investment markets did or didn’t do.

Defined benefit plans became too expensive for most employers forcing them to move to defined contribution pension plans—most notably 401K plans. In defined contribution pension plans you get a defined contribution into your own account each year and there is no guarantee that it will be enough or that the investment markets will be kind enough to it—it is on you to be prudent in how much you save and how you invest it.

Democrats continue to support defined benefit health care—the government will guarantee you a basic health benefit and will pay for a certain portion of that benefit’s cost no matter what the health care inflation rate is. That is the case in Medicare today and it is largely the case under the Affordable Care Act.

Republicans believe that health care costs are out of control because consumers are so divorced from its real costs and they have no consequences for unlimited and unbudgeted care. The Republican solution is defined contribution health care—you get a fixed amount of money to go shop in a more robust and competitive marketplace where health plans must now compete for your business.

When it comes to Medicare and Obama vs. Romney, this is your choice:

• Obama: He claims he can preserve the defined benefit Medicare entitlement—as well as the defined benefit Affordable Care Act for those under-age-65.
• Romney: He says Medicare is on a clear path to bankruptcy and it cannot be preserved in its current form and he has an alternative path that will work.

Which side is right? You can read my post on that question here.

While Romney has not proposed such a defined contribution scheme for the under-age-65 health insurance system, many conservative health policy experts already have. They would take the premium support idea to those under the age of 65. Some ideas would eliminate employer-based health care and replace it with tax credits that supply consumers with their premium support payments. Other ideas would allow employer plans to continue but require the employer to restructure their plans to look like premium support payments by limiting the tax deductibility of employer payments in line with more affordable cost trends.

If Romney, Ryan, and the Republicans are successful in reforming Medicare into a premium support scheme I fully expect these ideas will ultimately surface in the under-age-65 health care market as well.

Robert Laszewski has been a fixture in Washington health policy circles for the better part of three decades. He currently serves as the president of Health Policy and Strategy Associates of Alexandria, Virginia. Before forming HPSA in 1992, Robert served as the COO, Group Markets, for the Liberty Mutual Insurance Company. You can read more of his thoughtful analysis of healthcare industry trends at The Health Policy and Marketplace Blog, where this post first appeared.