Senator Tom Coburn's Plan to Save Medicare

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On today’s edition of Coffee and Markets, Brad Jackson and Ben Domenech are joined by Francis Cianfrocca to discuss the debt and Tim Geithner’s potential exit from Obama’s cabinet. Then Senator Tom Coburn joins us to talk about his plan to reform Medicare and gives us an inside look at the debt ceiling debate.

We’re brought to you as always by BigGovernment and Stephen Clouse and Associates. If you’d like to email us, you can do so at coffee[at]newledger.com. We hope you enjoy the show.

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Transcript of Interview with Senator Tom Corburn

Jackson: Senator, thanks for coming on the show. We appreciate having you here.

Coburn: Glad to be with you guys.

Jackson: I noticed you had a great Medicare proposal you’re doing with Joe Lieberman and one of the particulars of that is means testing Medicare. That’s something that is obviously needed, but quite controversial. Talk about how you guys came around to including that in the proposal and what you think it will do going forward?

Coburn: Well, the underlying problem with Medicare is the average person puts in about $130,000 during their working life and takes out $350,000. So, how do we change that? And there’s a lot of ways to change it, but one of the most important things is to change, what we know from a lot of studies that if you increase the pot (unintelligible) connection between purchase of healthcare and utilization of healthcare, that you can actually get the same quality outcome without the overutilization.

So, one of the things we change is we asked people to participate more fully in the Medicare Part B. And ask if you’re wealthy you pay all of your Part B premium. Right now the average Medicare recipient pays less than 25% of it. And when it was started they were supposed to pay 50% of it. So, we’re going back to the original Medicare which says we’re going to move you from 25 to 35 over 10 years where you’re paying actually a third of the out-patient insurance program under Medicare. And we hit the very rich in this country where they pay all of their Part B. We also asked the very rich to pay all of their Part B premium.

So, that they still get a benefit, and they still are going to take more money out than they put in, but at a much slower rate. So, what this does is it buys us 10 years of life in Medicare, number one. No. It buys us about 20 years of life in Medicare, but it saves us $10 trillion off the unfunded liabilities. And we do several things, you know, we slowly increase the age of Medicare. That’s number one. Number two, we limit Medicare coverage so that you can’t get anything that gives you first dollar coverage. We combine the deductibles into a single deductible, but we also put, you can know what your maximum you’re ever going to spend as a Medicare patient. You’re not, the most anybody on the lower tier is ever going to spend is $7,500 a year. The Government is going to pick up the rest of that.

So now you have a max exposure. So that helps the low income more, but also helps us out. And the very rich have a $22,500 exposure. So, that’s how we get there and what it does is it massively grows over time. The first year, if this were implemented, would save $7 billion. The second year $22 billion. By the time you get to the 10th year, you’re saving $115 billion a year, and it continues to grow.

Domenech: Senator, obviously one of the key elements in your solution on this front is recognizing the longer life expectancies that we’ve been seeing. When it comes to putting the Medicare retirement age in line with the retirement age that modern Americans are experiencing, but unfortunately, and this is something I’ve got to ask you about, when your plan came out it seems like it didn’t take but a few minutes before Senator Durbin was standing up calling your proposal unacceptable and House Minority Leader Pelosi was saying it was unacceptable. Why do you think the reaction is so severe on this front and why do you think that it’s important that these ages are brought in line with the way people are living these days?

Coburn: When we get that kind of criticism, you’ve got to ask those people two questions. One, what is your plan to save Medicare? Because I guarantee you in five years we won’t be able to borrow enough money to pay Medicare. Okay. So, what’s your plan, if you’re critical. And number two is, is this a political answer or is this a well thought out policy complaint?

The position both of them have is that under the assumption that Medicare can continue as it is. It can’t. It won’t. So, there isn’t a senior out there that should not understand that even if you don’t want Medicare touched, five years from now it’s going to be different because the international financial community is going to ply the grease method to us and say, you have to fix Medicare. So, if we fix it now it’s much less painful than if we wait five years to fix it. So, they don’t have a plan, all they can do is criticize, and it’s all a political criticism rather than a policy criticism. And number two is, they’re not living in reality because Medicare is going to change. And it’s going to be much more painful if we wait to change it.

Domenech: Obviously, you know, the President’s Medicare proposal is tied very closely to the Independent Payment Advisory Board. In fact, one could argue that that’s the entirety of his proposal to deal with this issue.

Coburn: Well, there’s two. It’s not just the Independent Payment Advisory Board which is going to cut payments and eliminate options. There’s also the Innovation Council which will limit new treatments, new drugs, and everything else, from being available to Medicare patients. A lot of people don’t know about that. So, they will restrict new treatments, and new drugs, and new techniques, and new processes, and new prosthetics, and the payment board will decrease the payment. So, what you’re going to see is a decreased access for lower care.

Domenech: You know, that’s actually a really interesting and important point and I think you’re completely correct that not a lot of people are talking about it. You know, the whole concept is that newer treatments and newer ways of dealing with disease and problems are always the more expensive ones, or tend to be the more expensive ones, and that because of that they are a problem. What is sort of the motivation going to be for companies that are out there in the private marketplace to create new innovations if, you know, it’s apparent that there’s not going to be a significant of a marketplace for them in such a reality?

Coburn: That’s a great question and we ought to just step back and think about the last 20 years in our country. Around the rest of the world they have Government run healthcare programs. So three quarters of all the innovations in healthcare have come out of ours. Why have they come out of our system? Because we don’t have total Government run. We have 60% of our healthcare run by the Government. But that 40% of the private sector has created a rich reward environment where people will invest capital to get new treatments, new outcomes, new medical devices, new drugs because there was a way to get rewarded for that. And when this gets applied, you’re going to see medical innovation come to a grinding halt. We’re already starting to see it with just medical devices moving off shore to be approved over in Europe. They’re starting to do the research over there. We’re running companies out because of just the bureaucratic side of it.

But the real thing, the entrepreneurial capitalist system that says I can make a buck by creating innovation, is going to dwindle because the IPAD board and the Innovation Council are going to say, it can’t be used in the Government. And remember, we’re shifting from 60% Government run, we’re going to be about 85% Government run when this thing is over, because the number of companies, about half the companies now by the latest estimates who have insurance for their employees are going to drop it. They’re going to pay the fine and then they’re going to go to the insurance exchange. And of course the insurance exchange is going to limit coverage as well, and that’s going to cost is $2.6 trillion over 10 years to move all those people to there. Plus instead of 16 million new people going into Medicaid, the estimate is now at 25 million are going into Medicaid.

So, you’re going to see us go from 60% Government run healthcare to 85%, so you’re eventually going to see Government run single payer in this country, under the ObamaCare.

Jackson: Senator, a lot of the talk in D.C. right now is about the debt ceiling problem and the upcoming deadline. How do you see that playing out and what kind of impact can the cost savings of your Medicare plan have on future budgets?

Coburn: Well our plan, I just got the final scores on it this morning. Without any fraud and abuse in it, which I think is at least $100 billion, our plan saves $628 billion over 10 and continues to grow massively after that on terms of savings. It’s a marker out there. We know it’s not going to go anywhere. But it ought to be, we ought to be, here’s something in the middle that people from both ends of the spectrum can look at and probably come to agreement on. I understand Nancy Pelosi can’t, maybe Dick Durbin can’t, but everybody this side of them and people the other side of me can come and say well, here’s, you know, a common sense solution that could actually work.

You know the, let me just go through just for the first year we save $1 billion on higher income beneficiaries. The first year means testing saves $1 billion. Increasing the Part B premium from 25 to 35 slowly saves $4 billion. So, we don’t save a lot of money the first year, but when you start moving this thing up you start saving a lot of dollars. And remember the goal is to keep Medicare, but make it affordable for our kids to be able to pay it.

Domenech: Exactly. You know Senator —

Coburn: And still get good outcomes.

Domenech: Senator, that’s so true and I wonder if you could share with us your thoughts on sort of the direction, the trajectory of the current debt ceiling talks. Obviously —

Coburn: I think right now everybody is so frustrated, because there hasn’t been leadership displayed by the President as well as our own Republican leaders, I would say, in getting out and saying here is the proposal we’ll offer. Here’s a proposal we’ll offer. Here’s a proposal we’ll offer. And they can say no to it, but we still, people ought to be coming into this debate saying what about this? What about this? What about this? Whereas if you’re actually having the debate about the topic of the debt limit, where we are, just the absolutely unsustainable path we’re on, we ought to be having the debate. And instead there hadn’t been any debate and we haven’t forced the debate.

So starting this next week we’re going to be forcing the debate. We’re going to be talking about this issue and we may not win, but the fact is the country wins if they get informed on what the real issues are.

Domenech: You know Senator, I am curious about your reaction to something that happened just a couple weeks ago. Obviously we’re talking about Medicare, but the letter from 41 Democrats to the President insisting that Medicaid reform be off the table. You have a Medicaid reform package as well, and I wonder if you could talk about your reaction to that because it really shocked me, simply because the need for reform seems so apparent at the state level.

Coburn: You cannot talk to a Governor, there’s not one Governor that doesn’t say Medicaid needs to be reformed and we need to have more flexibility in our state to make sure we take care of our patients and our citizens. Every one of them will tell that to you. So, the fact that you’ve got 41 that want to keep this system, and people should know, first of all 40% of primary care doctors won’t see a Medicaid patient. 65% of specialists won’t. So, just because you have Medicaid doesn’t mean you have access. As a matter of fact, access delayed is access denied.

And so, and the other thing we know is that under the Medicaid system the outcomes aren’t as good. Why is that? Because the best, the highest quality health providers are not available to them. So, what we’re telling them is you can have a system but you can’t get it. And by the way when you get in your outcomes are going to be worse. So, what kind of system is that? Whereas the Governors would like to say, give us the flexibility. We’ll take care of our folks, but let us manage this thing. Don’t put us on the hook. We’ll spend the money properly and we’ll report back to you, but allow us to do it. And there’s tons of money that can be saved.

You know, you’ve got Arizona that has every Medicaid patient on an HMO. They have a waiver. They won’t give that waiver to anybody else. Rhode Island has a total waiver that we got through for the Governor up there right before President Bush. They saved $150 million last year. North Carolina has some waiver for their Medicaid to where they have them all in a medical home. They’ve asked for a waiver for their dual eligibles between Medicare and Medicaid and they won’t give it to them. But the fact is they’ve already proven they can save $400 million a year just on their Medicaid by having some innovation at the state level.

And all knowledge is not in Washington. As a matter of fact, I’ll tell you very little is. And there’s great knowledge in the states and we ought to allow the states into it. Senator (unintelligible) and I have put out a Medicaid cap, a lot in the bill that really frees up the state. There’s some responsibilities, but basically it says go do this. You’re smart enough to take care of your own people and it’s not going anywhere. And it’s disappointing to hear 41 Senators. The same thing I said about Medicare is going to apply to Medicaid. It has got to change.

Domenech: You know Senator, let’s go out on this. You obviously have talked about two proposals that are setting markers out there. Are you optimistic that in the future that you’ll have the ability to, through the educational process, achieve some progress with both of these proposals and that they’ll receive more serious consideration in the future?

Coburn: Well, I would hope they would. These are proposals that are based on common sense. They’re not perfect, we know that. And they can be improved and made better. And they can be compromised somewhat to get the votes, but the fact is that the principles that are underlying them are what is necessary to accomplish any significant savings and reform in healthcare.

Jackson: Senator, thanks again for coming on the show. It’s been an honor having you here.

Coburn: Hey, good to visit with you. Pleasure.

(End of Podcast)