Monthly Archives: November 2008

Weekly Newsletter — November 17, 2008

Baucus’ Plan Exposes Democrat Hypocrisy…

Last Wednesday, Senate Finance Committee Chairman Max Baucus (D-MT) issued a 98-page report outlining his proposals for reforming the health care system.  Although his introduction stated that the platform “is not intended to be a legislative proposal,” Baucus did state his hope that the ideas raised would become a starting point for discussions on comprehensive health care reform during the 111th Congress.

In reviewing the report’s contents, some conservatives may note several glaring contradictions present within its pages:

  • The Baucus plan proposes tens of billions in unfunded mandates on states—requiring Medicaid programs to cover 7.1 million new low-income individuals, and further requiring 33 states to expand their State Children’s Health Insurance Program (SCHIP) eligibility levels—at a time when Baucus and other Congressional Democrats allege that states’ “fiscal crises” require Congress to bail them out of their current obligations.
  • While expressing his support for cutting payments to private Medicare Advantage (MA), Baucus proposes to repeal a planned premium support project within Medicare, because he wants to bring payments to private insurers in line with traditional Medicare costs while opposing a link between Part B premiums and “how much [private] insurers’ costs differ from traditional Medicare.”
  • Senator Baucus, who at a health reform conference in June questioned Congress’ role in overseeing Medicare payments—“How in the world am I supposed to know what the proper reimbursement should be for a particular procedure?”—proposes numerous attempts to tie reimbursement to various actions by physicians (IT adoption, etc.) in the hope that these will achieve purportedly desirable health outcomes.

We will monitor additional developments related to this proposal.

…While Proposing More New Spending, Little Cost Control

Many conservatives may also be concerned by the substance of the Baucus plan’s broader proposals.  Similar in many respects to the less-detailed plan offered by President-elect Obama, the platform would expand the role of government in health care in significant, and historic, ways:

  • Expansion of Medicaid and SCHIP to millions of new individuals, as referenced above;
  • Health insurance subsidies for a family of four making $85,000 per year;
  • Repeal of the current five-year waiting period for legal aliens to become eligible for government benefits, increasing government spending on non-citizens;
  • Two new “temporary” entitlement programs, including a buy-in to the Medicare program for those aged 55-64, that many conservatives may be concerned will be anything but “temporary;”
  • A new publicly-run insurance option available to all citizens, whose low reimbursement rates would likely encourage providers to raise rates for private insurers, potentially leading to a “death spiral” of privately-provided coverage options;
  • A health insurance exchange representing another layer of regulation on the health insurance industry;
  • An individual mandate to purchase insurance, requiring the government to pass judgment on the adequacy of individuals’ coverage; and
  • Tax increases on businesses through a “pay-or-play” mandate that could in future years become an easy way for the government to pass off the cost of rising health care on the private sector.

Just as worrisome to many conservatives are the lack of true cost-containment measures present in the Baucus proposal.  Two of the plan’s prime savings targets—an expansion of the Medicaid drug rebate and one-sided cuts to Medicare Advantage plans—constitute little more than government-imposed price controls, which some conservatives may believe both ineffective and detrimental to new innovation.

Some conservatives may believe that the true answer to reforming health care and slowing the growth of costs lies in harnessing innovation and competition.  Implementing, rather than repealing, the Medicare premium support program would allow insurers to compete directly with Medicare to treat seniors in the most cost-effective manner.  Additional means-testing for current entitlements would ensure that scarce government resources will go to those most in need of assistance—meaning that Warren Buffett and George Soros should not pay the same prescription drug premium as a senior making $20,000 per year.  These efforts, coupled with initiatives to streamline costly state benefit mandates and other regulations, would expand coverage by slowing the growth of health costs, helping to ensure the future viability of our current entitlement programs.

Weekly Newsletter — November 12, 2008

Medicaid Bailout Once Again on Congressional Agenda

This Thursday, the House Energy and Commerce Committee will hold a Subcommittee hearing on various ways to “stimulate” the economy during the current downturn.  Witnesses are expected to focus on both additional federal spending, in the form of an enhanced federal Medicaid match and higher funding for the National Institutes of Health, as ways to promote economic growth.

Some conservatives may be skeptical of the effectiveness of both approaches.  An enhanced federal Medicaid match would merely substitute federal dollars for state spending, and provide a perverse disincentive for states not to undertake structural Medicaid reforms.  Higher NIH funding would similarly lack any short-term “stimulative” effect, as long lead times to evaluate and conduct research trials would likely preclude any impact on economic growth for years.  With some experts predicting the federal deficit this fiscal year could top $1 trillion, conservatives may question whether and why Congressional Democrats are attempting to enact all manner of increased federal spending under the guise of economic “stimulus.”

A Policy Brief articulating 10 reasons why conservatives may oppose a Medicaid bailout for states can be found here.

British U-Turn Illustrates Problems with Comparative Effectiveness

Last Tuesday, the British Department of Health announced a reversal of a ban on “top-up” payments within the National Health Service (NHS).  Previously patients who wished to use their own money to purchase drugs not deemed cost-effective by the NHS needed to forfeit their right to basic NHS care.  The Government’s reversal will allow patients purchasing their own therapies to maintain their right to NHS care under certain conditions.  In addition, the report proposed to raise the National Institute on Clinical Effectiveness’ (NICE) cost-effectiveness threshold for certain drug therapies, potentially allowing British patients access to some cancer drugs which the NHS had previously refused to pay.

Conservatives may view both these developments as illustrative of the premise that comparative effectiveness research may not yield the potential savings its adherents claim.  Practical political concerns, sparked by an outcry from the British public over rationed health care, prompted the Government’s reversal of measures designed to save NHS funds.  Given that efforts to tie Medicare reimbursement and coverage decisions are likely to prompt the same response from the American public as it did in Britain, some conservatives may argue that market-based reforms to Medicare, rather than government-imposed rationing, would have a more beneficial and long-lasting effect at slowing the growth of health care costs.

A Policy Brief analyzing comparative effectiveness research in greater detail can be found here.

Policy Brief: Top Ten Reasons Not to Support a Medicaid Bailout

1.      States Already Received a Medicaid Bailout.  In June 2008, the wartime supplemental blocked the Centers for Medicare and Medicaid Services (CMS) from issuing six regulations cracking down on state transactions designed solely to increase the percentage of Medicaid spending paid for by the federal government.  Some may view the $1.6 billion moratoria on these anti-fraud regulations as a bailout in its own right, and question why states are asking for yet more relief from the federal government.

2.      Discourages States from Fighting Fraud.  In September, New York State announced a record $90 million settlement from one hospital related to improper and fraudulent billing practices—the third such settlement from the same hospital in a decade.  Providing additional federal matching funds may provide a perverse disincentive for states not to recoup Medicaid dollars by pursuing anti-fraud cases vigorously.

3.      States Not Reforming Their Medicaid Programs.  The Kaiser Family Foundation reports that only eight states have taken advantage of language in the Deficit Reduction Act to alter their Medicaid benefit packages or introduce modest cost-sharing.  Given the structural deficiencies in many state programs—fraudulent activity, long waits for specialists, and un-coordinated care—conservatives may view a “blank check” for more state Medicaid spending without new accountability or reforms as a disservice to both the federal taxpayer and the needy beneficiaries which the program is designed to serve.

4.      Rewards States for Improper Budgeting.  An Urban Institute study notes that lost revenue creates a significantly larger impact on state budgets than increased costs due to enrollment increases in programs like Medicaid.  Some conservatives may therefore view a Medicaid bailout as rewarding states who failed to project revenues accurately and/or build up adequate “rainy day” reserves.

5.      Provides No Stimulus.  Because increasing the federal Medicaid match only substitutes federal spending for state dollars, even Keynesians may find it difficult to justify such a measure as providing economic “stimulus.”

6.      Medicaid Increases Private Insurance Costs.  A recent study from actuaries at the consulting firm Milliman found that low reimbursement rates for public programs including Medicare and Medicaid resulted in a 12% increase in private insurance costs, as providers charged private insurers more for their services.  Some may therefore view an increase in Medicaid enrollment financed by this bailout as potentially placing additional strain on the private insurance system due to sizable cost shifting from public to private plans.

7.      Earmark for Michigan Automakers.  H.R. 5268 includes language disregarding “extraordinary employer pensions” as income.  According to CMS, only one state would fall into this category—Michigan.  Some conservatives may view this provision as an authorizing earmark.

8.      Flawed FMAP Formula Encourages States to Overspend.  While the Federal Medical Assistance Percentage (FMAP) matching formula was originally designed to provide greater assistance to poorer states, an independent analysis of CMS data indicates that states with higher concentrations of poverty actually have lower per-capita Medicaid spending—exactly the opposite result of FMAP’s intended goal.  Some conservatives may therefore be concerned that an additional FMAP bailout will do nothing to reverse this disparity, and may exacerbate it.

9.      Medicaid Spending Only Continues to Grow.  An American Enterprise Institute study found that during the 1994-2000 boom years, Medicaid spending grew faster than both GDP and state revenues.  Some conservatives may therefore question whether states were irresponsible in expanding their Medicaid programs during flush economic times, and whether the federal government should reward such behavior.

10.  Exacerbates Entitlement Shortfalls.  At a time when unfunded obligations for Medicare and Social Security exceed $53 trillion, some conservatives may be concerned by the impact of increasing Medicaid spending—and the federal deficit—on our ability to respond to this crisis with reforms to slow the growth of health care costs.