Bashing Chained CPI is the Wrong Focus on Seniors' Cost of Living

Quite often, we hear from those opposed to the President's budget on account of 'chained CPI' that it is a horrible idea because even if chained CPI is a more accurate measure of general price inflation, it disregards the cost of living increases for the population of seniors specifically, which, they argue, is greater than general inflation. That is because a disproportionate portion of seniors' incomes go to pay for medical care, the cost of which tend to rise faster than the price of other goods, and is not as prone to substitutions.

That argument seems sound, until you dig in. First of all, I doubt very much that the so-called defenders would be happy if we did tie Social Security's cost of living adjustments to the rise in per capita Medicare spending. Last year, per capita Medicare costs rose by only 0.4%, but seniors got a 1.7% cost of living increase in Social Security, and under a chained CPI formula, the increase would have been about 1.5%.

Still, one year hardly makes a trendline, and that it is at times very self-defeating isn't really the problem with that line of argument. To be perfectly candid, yes, health care costs rise exponentially as one enters one's golden years. But to say that the remedy is to throw an approximately a quarter of a penny on the dollar extra at a beneficiary is like trying to make the sea less salty by pouring in a bucket of fresh water. The focus should be on reining in health care costs without sacrificing the quality of care, not on taking umbrage at a Democratic president endorsing a proposal that would solve about a fifth of the long term shortfall of Social Security.

The ways to stem the growth of medical costs for today's seniors and the future ones need to address many things, but predominantly two areas: lifelong access to care and a system that needs to reward results rather than making tests cash cows for hospitals and providers.

Access to Care Over a Lifetime

That Medicare bears the brunt of this country's health care costs isn't simply because it's a program for older people who tend to generally have higher medical needs and thus costs. It is also because it is a universal system, whereas the rest of our medical insurance is not. As you can see on the chart on the right, the uninsured population is almost entirely distributed among the non-elderly. So Not only does the naturally higher cost of caring for seniors fall on Medicare, it is also responsible for caring for illnesses and chronic conditions that went untreated because of lack of coverage, and could have reduced cost of care as an elderly significantly were those to be diagnosed and treated in time.

This is why the importance of the Affordable Care Act cannot be understated. Already, it has reduced the number of uninsured through the provision to cover young adults under their parents' plans. When the exchanges are in place next year along with the expansion of Medicaid and the availability of coverage subsidies, the access gap will go a long way towards being bridged. As a recent Kaiser Family Foundation Report states,
Over the next five years, the Affordable Care Act (ACA) of 2010 is expected to reduce the uninsured rate by more than half. The ACA will fill existing gaps in coverage by providing for an expansion of Medicaid for adults with incomes at or below 138% of poverty, building on employer-based coverage, and providing premium subsidies to make private insurance more affordable for many with incomes less than 400% of poverty.
This roughly translates into 30-33 million additional non-elderly people covered. Because of President Obama's actions, a continuous coverage bridge will be in place on a near-universal basis:

  • As children: Children whose families do not qualify for Medicaid yet make too little to afford private coverage already benefit from President Obama's massive expansion of the SCHIP program to 11 million children.
  • As young adults: The Affordable Care Act already provides that young adults be allowed to stay on their parents' policies until age 26.
  • As adults:
    • Who are in poverty: For every state that decides to accept it, covering the poorest will no longer be an issue. Everyone upto 138% of poverty will be covered by Medicaid, period.
    • Low income and middle class: subsidies will be provided up to 400% of the federal poverty level.
    • If they can afford it, a personal responsibility provision requires adults to maintain health insurance. Employer responsibility provisions require large employers to either cover their employees or pay a fee for them to be subsidized in the exchanges.
  • As seniors: Medicare.
That continuous access reduces cost of care in latter years and improves health outcomes is not just common sense. As a Mathematica policy paper pointed out in 2010,
Continuous coverage. Disruptions in insurance coverage have been associated with less access to care, lower service use, and increases in unmet medical needs Lapses and gaps in coverage also contribute to health disparities for people with low educational attainment and for the poor. Conversely, adults with continuous insurance coverage are healthier and at lower risk for premature death than those who are uninsured or whose coverage is intermittent, while children with continuous coverage are more likely to visit a doctor, receive preventive care, and have prescriptions filled.
The Affordable Care Act opened a huge door to build this continuous coverage bridge, and thus reduce the cost of chronic care majorly in the long term. If I were a liberal legislator, I would be trying to bargain with my Republican counterparts to expand coverage even more under the Affordable Care Act in exchange for my vote for the chained CPI. It would not just be a much smarter bargain, it would actually advance the goal of actually arresting health care costs in a progressive way.

Smart Ways of Addressing Current Costs and Challenging the Status Quo of Medical Payments.

Sure, you say, in the long term, a massive expansion in coverage is likely to lower the cost of care in the out years, but what about now? Shouldn't we be doing something about the costs in Medicare that doesn't involve cutting benefits now? Yes, of course we should.

Let me first remind you that the Affordable Care Act already does save seniors money directly, especially for those seniors for whom medical cost is in fact a large driver. 34 million Medicare beneficiaries took advantage of at least one co-pay free preventive service in 2012. And 3.5 million people on Medicare saved a total of $2.5 billion in prescription drug costs last year, an average of $706 each. This compares to a loss of about a grand total of $38 for the average Social Security beneficiary (average benefit of $15,190, as per AARP) if chained CPI were used to calculate this year's COLA rather than the current method, the cost of less than two preventive-service copays.

But but but, chained CPI compounds over time! Yes, genius, thank you for pointing that out. So does the cost of prescription drugs and medical care. In other words, the ObamaCare savings for seniors are also compounded. Surely, the saving of $706 today on prescription drugs won't stay at the same nominal amount in 20 years!

Yeah but does the president's budget do anything about farther reducing costs of medical care? I'm glad you asked. Why, yes it does. From the budget:
To continue our commitment to make health care affordable and strengthen Medicare, Medicaid, and other health programs, the Budget includes $401 billion in health savings over 10 years that build on the ACA by eliminating excess payments and fraud and supporting reforms that boost the quality of care. It accomplishes this without shifting significant risks onto individuals, slashing benefits, or undermining the fundamental compact these programs represent to our Nation’s seniors, people with disabilities, and low-income families. These reforms will extend Medicare’s solvency by approximately four years.
Well, that's nice, Mr. President, but how? The budget outlines several things, but here are a few things that impact the patient's pocket book directly:

  • Reform the payment system - focus on paying for care and coordination rather than for procedure. Note that this will also save money for patients, since if the incentive to perform a zillion procedure is gone, so are the copays a senior pays for unnecessary procedures.
  • Improving post-acute care efficiency: improving the quality of care can shorten long term care needs, and thus, its copays. The same is true for reducing hospital readmissions - it saves money for both Medicare and the beneficiary.
  • Lowering brand name drug costs to Medicaid levels: the budget would bring Medicare drug payments to drug companies to the level of Medicaid payments for the drugs that are covered under both programs. Since beneficiaries pay a percentage of the cost, this would directly lower their cost as well.
  • Close the Part D coverage gap by 2015: That would be 5 years earlier than under the ACA. Again, since beneficiaries pay a percentage, this would bring down their direct costs faster.
All of these combined - heck, probably any one of them individually - would dwarf what a senior suffering predominantly from medical costs would "lose" if their Social Security payments still went up, but went up at a slightly smaller rate.

I'm not saying that the president's budget has all the ideas necessary to reduce medical costs for seniors for whom it is a big factor. But it has good ideas. Why aren't we debating those? Why aren't we bringing new ideas to the table that can check the rising cost of care instead of complaining about a $1,000 a month check that would have gone up to $1,015 instead of $1,017 (using the 2012 chained CPI and CPI figures respectively)?

This is why I doubt the seriousness of the ideologue Left busy foaming at the mouth about chained CPI nearly to the exclusion of everything else. This is why I suspect their cries about seniors' cost of living are crocodile tears. Because if we want to address seriously the problem of seniors' cost of living and medical costs, we certainly could do that without shouting at the rain about chained CPI all day.

So let's talk about that. Let's talk about how we get these ideas passed into law. Let's talk about how we can push our states to let the middle class buy into Medicaid at cost. Let's talk about how we strengthen that bridge of coverage. Let's have the right focus.