Monthly Archives: July 2009

Policy Brief: Obamacare Is Not Similar to Members of Congress’ Health Coverage

Some observers have attempted to compare the health coverage offered to Members of Congress through the Federal Employee Health Benefit Program (FEHBP) and the government-run plan included in Democrat health “reform” legislation.  Although FEHBP plans are heavily subsidized by the federal government and may not be a model for comprehensive reform, an analysis shows little commonalities between FEHBP and a government-run health plan:

  • All federal employees participating in FEHBP receive their coverage from private plans—no so-called “public option” is necessary to create competition or enhance choice.
  • Federal employees are not required to participate in any FEHBP plan, or to enroll in FEHBP at all— unlike the government-run plan, where bureaucrats could enroll individuals solely in the government-run plan.  (Section 205(b)(3), pp. 69-70)
  • Plans participating in FEHBP have flexibility to determine their own benefits—unlike the government-run plan, where bureaucrats on a new “Health Benefits Advisory Committee” would determine what health coverage all individuals must purchase.  (Section 123(b), pp. 28-30)
  • In FEHBP, plans negotiate with hospitals and doctors to determine fair reimbursement levels—unlike the government-run plan, where bureaucrats would be able to pay doctors and hospitals as little as they want, while denying physicians the right to appeal the bureaucrats’ decision to any board or court for review.  (Section 223(f), pp. 96-97)
  • There are no penalties for non-participation in FEHBP—unlike the government-run plan, where under the Democrats’ new regime, individuals would be taxed if they do not buy coverage that meets bureaucrats’ diktats, whether they want (or need) that coverage or not—and whether they can afford that coverage or not.  (Section 401, pp. 136-40)
  • Because plans within FEHBP operate at arm’s length from the federal government, there is no government pressure for carriers to deny access to life-saving treatments based on cost grounds—unlike a government-run health plan, which would face pressure to deny care to save money.  As senior Obama Administration official Sherry Glied has previously written: “Health care waiting lines represent a trade-off between patient costs and capital costs.”
  • Perhaps most importantly, no provision in any Democrat bill would transition existing participants in FEHBP into either the new Exchanges or the government-run health plan.  Neither Democrat Members nor federal employee unions have demonstrated any desire to join a government-run health plan.

While Members of Congress receive health coverage through FEHBP, this coverage is provided through private plans—and does not include any type of government-run health plan.  Moreover, the quality coverage provided to Members of Congress through FEHBP does not include the myriad bureaucratic mandates, regulations, and directives included in the government-run health plan as part of Democrats’ government takeover of health care.

Policy Brief: The Truth about House Democrats’ Tax Increases

More than $800 Billion in Job-Killing Revenues

Even as they attempt to enact a government takeover of health care, Democrats fail to face the facts about the scope of the tax increases in their own legislation—that according to official estimates from both the Congressional Budget Office (CBO) and the Joint Committee on Taxation (JCT), the House Democrat health “reform” bill (H.R. 3200) would raise taxes by well over $800 billion:

  • The Joint Committee on Taxation (JCT), in its official score of the Democrat bill, found that the “surtax” on high-income filers—more than half of whom are small businesses—imposed in Section 441 would generate more than half a trillion dollars in revenue—$543.9 billion over ten years.
  • Section 412 of the bill would impose new taxes on businesses who cannot afford to fund “bureaucrat-approved” health coverage for their workers.  According to CBO and JCT, these provisions would generate an additional $208 billion in revenue.
  • JCT also found that additional tax increases—including worldwide interest penalties ($26.1 billion), treaty withholding ($7.5 billion), and codification of the economic substance doctrine ($3.6 billion)—included in pages 204-15 of the bill would raise taxes by an additional $37.2 billion.
  • Section 1802 of the bill includes provisions imposing a tax on health benefits—breaking a promise by Speaker Pelosi that, “We will not be taxing [health] benefits in any bill that passes the House.”  This provision would raise taxes by an additional $2 billion over ten years.
  • Finally, the bill includes taxes on individuals who do not purchase “bureaucrat-approved” health insurance.  According to Section 401 of the bill, this tax increase would be applied to all individuals—including those with incomes under $250,000, thus breaking a central promise of then-Senator Obama’s campaign.  According to CBO and JCT, these provisions would raise taxes by $29 billion over ten years.
  • Thus the total amount of tax increases included in the Democrat bill—according to official estimates—is $820.1 billion over ten years.

Imposing these new tax increases in the middle of a recession—with unemployment at 26-year highs—will only harm the economy and kill jobs.  In fact, a study by Harvard Professor Kate Baicker indicates that a minimum of 5.5 million workers will be “at substantial risk of unemployment”—and that minority workers are twice as likely to lose their jobs as their white counterparts.  Given these facts, one may understand why Democrats would not want to admit the truth about the full scope of their harmful tax increases.

Policy Brief: Blue Dog “Compromise” a Raw Deal for America

“Senior Congressional aides cast [the agreement] as a temporary accommodation, saying leaders had not committed to support it once the bill advances to the floor of the House in the fall.”

 — Associated Press story, July 30, 2009

On Wednesday, several Blue Dog Democrats announced a “compromise” agreement with Energy and Commerce Committee Chairman Waxman regarding components of health “reform” legislation (H.R. 3200).  However, the broad outlines reveal few substantive changes to Democrats’ government takeover of health care:

  • Cost:  The agreement reportedly would reduce proposed subsidies and entitlement expansions by $100 billion.  This figure would represent a reduction of only 6 percent of the $1.6 trillion in total federal spending in the bill—and would not even reduce by half the $239 billion deficit projected by the Congressional Budget Office (CBO) for the bill as introduced.  Moreover, any one-time savings would not change a fundamental dynamic in which the bill, according to CBO, “would probably generate substantial increases in federal budget deficits” in future decades.
  • Payment Rates:  The agreement requires the government-run health plan to negotiate with doctors and hospitals to determine payment rates.  However, CBO has previously noted that a similarly constructed government-run plan in the Senate HELP Committee bill “was not projected to have premiums lower than those charged by private insurance plans.”  In other words, a government-run plan as constructed by the Blue Dog agreement would not lower costs, so there should be no point in including it in the bill—unless Democrats intend to use the so-called “public option” as a stalking horse for a government takeover of health care.
  • Small Business Taxes:  Despite attention being given to a modest increase in the small business exemption, the bill still includes a massive $544 billion tax increase on high-income filers, more than half of whom are small businesses.  The agreement increases the small business exemption for the tax on jobs—i.e., the 8 percent payroll tax for employers who cannot afford to provide their workers with coverage—up to $500,000 in annual wages; firms with between $500,000 and $750,000 in total payroll would pay reduced tax rates.  However, if the agreement follows the language in Section 313 of the introduced bill, the exemption would not be linked to inflation—making any exemptions increasingly irrelevant over time.  Moreover, this supposed compromise on one small business tax would not diminish the impact of more than half a trillion dollars in other new taxes imposed, as noted above.
  • Deficit Impact:  While Blue Dogs claimed to reduce spending in the bill by $100 billion, the proposed changes to the government-run health plan would necessitate higher insurance subsidies for individuals—and increasing the small business exemption would reduce the amount of revenue the new payroll tax will generate.  In other words, the changes proposed by the Blue Dogs to purportedly limit the deficit impact of the bill would be almost entirely self-defeating.
  • State Share:  The Blue Dog agreement calls for States to pay some share of the proposed Medicaid expansion—which would require States to pay tens of billions in matching funds to increase the current Medicaid population by 10 million individuals.  However, States cannot afford their current Medicaid programs, which is why Congress included a $90 billion Medicaid bailout in the “stimulus” package.  Moreover, State Governors in both parties have already voiced significant concerns about the unfunded mandates in the underlying bill, which prohibits States from reducing or otherwise modifying their existing programs in any way after the bill’s enactment.
  • “Fannie Med”:  Finally, the agreement calls for the introduction of co-op health plans in addition to the government-run plan.  Many question whether a co-op would function as a truly independent entity, or whether the co-op could do for health care what Fannie Mae and Freddie Mac did for the housing market—dominate the marketplace based on implicit government subsidies until the federal government steps in with a bailout.
  • Provisions Left Untouched:  Almost as striking for what was included in the supposed “compromise” are the onerous provisions in the underlying bill that the agreement did not address:
  1. Abolition of the private market for individual health insurance, effective in 2013;
  2. Taxes on individuals who cannot afford health coverage—or do not purchase “bureaucrat-approved” plans;
  3. The 53 new boards, commissions, programs, and bureaucracies created in the bill as introduced;
  4. Harmful cuts to Medicare Advantage plans that would cause millions of seniors to lose their current coverage;
  5. No prohibitions on government programs denying access to life-saving treatments on cost grounds;
  6. New mandates on businesses and health plans that would raise, not lower, health costs;
  7. New government price controls throughout the health care sector; and
  8. Determination of required health benefits by a board of federal bureaucrats—which would likely result in federal taxpayer funding of abortion coverage.

While Republicans support reform to make health care universally affordable, this latest “compromise” will do nothing but compromise the health of millions of American families—and the fiscal health of our nation.

Policy Brief: Co-Op Insurance Coverage: The New Fannie Med

“We’re going to have some type of public option—you can call it a co-op, call it whatever you want…”

 — Senate Majority Leader Reid, quoted in The Washington Post, July 10, 2009

In recent days, policy-makers in the Senate have focused on the idea of health insurance co-operatives as an alternative variation to the government-run health plan supported by many Democrats.  Recent press reports indicate that Senators are contemplating providing $6 billion in federal taxpayer dollars as “seed money” to finance the new plans.  The Republican Conference has prepared the following questions to help determine whether the co-op proposal being considered would compete on a “level playing field” against existing plans, or would be blessed by the government with inherent biases.  In a broad sense, the question surrounds whether the co-op will function as a truly independent entity, or whether the co-op could do for health care what Fannie Mae and Freddie Mac did for the housing market—dominate the marketplace based on implicit government subsidies until the federal government steps in with a bailout.

  • Compliance With State Laws:  Would a co-op have to comply with all relevant State laws that currently apply to health insurance plans, such as licensure and solvency standards?  Would the co-op plan be subjected to the more than 2100 benefit mandates in every State that require carriers to treat ailments such as varicose veins and hair prostheses?  Budget Committee Chairman Conrad’s proposal that a uniform national definition “could ease the ability of co-ops to operate in multiple States” may therefore appear to suggest government bias in favor of the co-op.
  • Deemed Approval:  Would a co-op have to go through the same rigorous process for approval by all 50 State insurance commissioners that existing carriers have to face—or would it be deemed “approved” by Congressional fiat?  Chairman Conrad’s proposal that “each State would be required to have one qualifying co-op” would seem to fail this test—as a federal mandate that co-ops be established suggests that States ultimately would not be able to reject a co-op’s application.
  • Ability for State Sanctions:  Could a State insurance commissioner evict the co-op from the State due to consumer protection violations—or seize the co-op if it is dangerously underfunded?  Again, would a requirement that co-ops must operate in each State therefore make the co-op essentially exempt from sanctions by that State?
  • Provider Networks:  Would the co-op form provider networks—and if so, how?  Would the co-op be required to set prices through negotiation and at market rates, rather than through executive fiat?  Would States be permitted to form their co-ops in such a manner as to exclude from other government programs providers who did not accept co-op coverage?
  • Appeals and Lawsuits:  What kind of appeals process would the co-op have for beneficiary complaints—and would it be subject to imposed penalties for consumer violations?  Would individuals be able to file legal actions against the co-op, as they may against private insurance plans currently—and if so, who would pay damages awarded?
  • Government Financial Backstops:  Would the co-op have any government backing—explicit or implicit?  Would capital markets provide lower interest rates for the co-op—as they did with Fannie Mae and Freddie Mac—due to an expectation of government aid in the event of liquidity difficulties?
  • Possibility of Failure; Prohibition on Government Bailouts:  Would a co-op be permitted to fail?  Even if the government provided “seed funding” to finance the co-op’s establishment, would there be a statutory prohibition—coupled with a supermajority point-of-order in the Senate—on further funds being provided to the co-op plan?
  • Difference from Existing Co-Op Plans:  Perhaps most importantly, how would the new co-ops being proposed differ from existing co-ops in operation now?  Association plans currently operate in many States—and while providing individuals with greater choice and flexibility of coverage options, they have not appreciably lowered the growth of health costs or insurance premiums.  Since co-op supporters believe that their existence would have a marked effect on reducing health costs and premium growth, what advantage would the government-created co-op have that current associations do not?

While supporting the concept of additional market choices for consumers, some Members may question how exactly co-ops will improve competition in the current health insurance marketplace without relying on biases provided by States or the federal government.  The prime ways a co-op could obtain “clout” over existing offerings—a national marketplace and lower provider reimbursement rates—both would involve government exercising its sovereign power in favor of a particular market competitor.  Therefore, while welcoming discussions to provide choice of insurance plans, some Members may still agree with Congressional Budget Office Director Elmendorf, who previously testified that it would be “extremely difficult” to construct a “level playing field” between any government-backed insurance plan and private coverage offerings currently on the market.

Policy Brief: Senate Democrats Discourage Hiring Poor and Disabled Workers

“Fair Share” an Unfair Deal for Low-Income Households, Workers with Disabilities

As they attempt to craft a “bipartisan compromise,” Democrats on the Senate Finance Committee have discovered a potential “solution” to a mandate on employers to buy health coverage that may be worse than the problem it attempts to remedy:

  • Press reports indicate that Finance Committee negotiators may require employers that do not offer coverage to pay for half of the cost of any Medicaid beneficiaries employed by the firm, as well as the full cost of any “low-income” subsidies for individuals with income up to three times the federal poverty level ($66,150 for a family of four).
  • Groups from the Heritage Foundation to the liberal Center for Budget and Policy Priorities have criticized the Finance Committee proposal, which could in practice lead to hiring discrimination against low-wage workers.  For instance, a single mother would prove much less attractive to an employer from a financial perspective than a college-age student from a wealthy family—the former would cost the firm additional money in “fair share” contributions, while the latter would not.
  • In many cases, the cost of the “fair share” penalty may actually exceed the “pay-or-play” tax on businesses proposed in the House legislation.  For instance, under the House bill (H.R. 3200) an employer who cannot afford to offer health coverage would pay $1,664 in tax penalties per year for a full-time worker making $10 per hour.  If that employer were subjected to a “fair share” contribution equaling even half of the cost of insurance subsidies in the Exchange, the tax on that business would be significantly higher—as average subsidy amounts would total nearly $5,000 per year under most legislative proposals being considered.  A “fair share” penalty of $2,500 would serve as a further disincentive to hire low-wage workers, as employers would be hit with high tax penalties on only a certain segment of the targeted workforce—individuals from poorer backgrounds.
  • As the liberal Center for Budget and Policy Priorities noted, “the [“fair share”] proposal also could discourage the hiring of low-income people with disabilities who have no choice but to enroll in Medicaid” in order to obtain proper treatment for their disabilities.
  • Regardless of the specifics, studies have confirmed the impact of new jobs taxes—i.e., employer mandates—on low-wage workers.  For instance, the Congressional Budget Office recently noted that, “a pay-or-play provision could reduce the hiring of low-wage workers, whose wages could not fall by the full cost of…a substantial pay-or-play fee if they were close to the minimum wage.”  Harvard Professor Kate Baicker has also published an analysis demonstrating that at least 5.5 million low-wage workers would be “at substantial risk of unemployment” due to new mandates on employers—and that minority workers were twice as likely to lose their jobs as their white counterparts.

Some Members may be concerned by the panoply of proposals to raise taxes on businesses that cannot afford to provide coverage to their workers.  At a time when unemployment stands at 26-year highs—and with job losses still rising—Democrat proposals to impose new job-related taxes on businesses comprise one sure way to delay economic recovery still further.

Policy Brief: A Government-Sponsored Co-Op Is Not Market-Based Reform

“We’re going to have some type of public option—you can call it a co-op, call it whatever you want…”

 — Senate Majority Leader Reid, quoted in The Washington Post, July 10, 2009

As they attempt to craft a “bipartisan compromise,” Democrats on the Senate Finance Committee are advertising a potential “solution” to a government-run health plan in the form of government-chartered co-ops.  While these proposals are being sold as a way to create health insurance competition, a close examination reveals that the concept differs significantly from other Republican-led efforts to create new pooling opportunities:

  • Senate Budget Committee Chairman Conrad recently confirmed that co-ops could receive $6 billion in federal government funding to serve as “seed money” and reserves for the new plans.  According to statistics compiled by Modern Health Care, this “seed money” would exceed the total annual revenues of all but 20 of the nation’s hundreds of private health plans—including such well-known companies as MetLife.  No Republican proposal for small business health plans or Association Health Plans has included provisions providing federal taxpayer dollars to purportedly private health plans.
  • A white paper released by Senator Conrad regarding co-ops mentioned nothing about federal “seed money” provided to co-ops ever being repaid.  Even language in House health “reform” legislation (H.R. 3200) includes provisions requiring the government-run health plan to repay seed money—though not with interest, whether at market-based rates or lower Treasury rates of interest.  By contrast to the Democrat proposals, no Republican proposal for small business health plans includes language providing free or reduced-rate loans to plans—because no Republican proposal gives purportedly private health plans access to the federal Treasury, one of the hallmarks of any government-run plan.
  • The Conrad white paper also noted that “by a date certain, each State would be required to have at least one qualifying co-op.”  No Republican proposal for small business health plans includes a federal mandate requiring that such plans exist—it merely permits private entities to offer additional options.
  • Senator Conrad has recently claimed that the co-op “is expected to enroll 12 million people, making it the third-largest U.S. insurer”—and raising serious questions about whether such a large insurer, chartered by the federal government, would be permitted to become insolvent.  No Republican proposal for small business plans would create such a scenario—not least because small business health plans would not have access to federal taxpayer dollars in the first place.

Although the details to date about the co-op proposal have been scant, some Members may be concerned that the concept currently being discussed would create another government-sponsored enterprise, chartered by Congress, that would be “too big to fail” and could in time require yet another federal bailout—not unlike Fannie Mae and Freddie Mac.  While supporting efforts to offer additional market choices for consumers, Members may believe that the co-op plan being discussed would, rather than reducing health care costs, instead result in significant new taxpayer liabilities—both in the short term and the long term.  Therefore, Members may be concerned that a co-op will do for health care what Fannie Mae and Freddie Mac have done for the housing sector.

CBO Documents on Health “Reform”

In case you hadn’t seen it, CBO released two documents this weekend — one providing additional information about the House health care bill (H.R. 3200), and the second relating to proposals for a “MedPAC on steroids” as proposed by the Administration.  The documents can be found online at http://www.cbo.gov/ftpdocs/104xx/doc10400/07-26-InfoOnTriCommProposal.pdf and http://www.cbo.gov/ftpdocs/104xx/doc10480/07-25-IMAC.pdf, respectively.

The supplemental information about the score of the House legislation covers several key areas; important take-aways include the following:

  • One of the reasons why CBO believes that employer coverage would remain relatively high is that the significant penalties on firms who do not offer coverage associated with the employer mandate mean that “a distinct minority of workers” would be better off if their employer placed them in the Exchange.  A footnote on page 3 also implies that the lower non-compliance costs from the employer mandate in the Senate legislation could result in higher “crowd-out” figures resulting from employers dropping coverage — because the lower penalties would make it of greater benefit for the firm and its employees to do so.
  • CBO assumed that 3 million individuals would drop their current employer plan to join the Exchange, and that an additional 6 million workers would be in firms which decided to have their employees “buy in” to Exchange plans.  This latter number is based on the hypothetical assumption that only firms with fewer than 50 employees would be able to access Exchange plans.  However, the bill text itself notes that beginning in 2015, the Commissioner could open the Exchange up to all employers.  If the Exchange were opened up to all employers, CBO said the number of workers thrown into the Exchange “would be undoubtedly greater than 6 million, but we have not estimated the magnitude.”
  • CBO presumes a lower take-up in the government-run plan than Lewin estimates because CBO believes that the government-run plan premiums would only be about 10 percent lower than private coverage — as opposed to Lewin’s model, which presumes a price differential of 20-25 percent.  However, CBO acknowledges that “because…[many] factors are uncertain, estimating enrollment in the public plan is especially difficult.”
  • The letter admits that a pay-or-play mandate on business “would tend to reduce the hiring of workers at or near the minimum wage, because their wages might not be able to decline” by a sufficient amount to reflect costs of the new federal mandates/taxes.  CBO also argued that “employers would be expected to pass the costs of [pay-or-play] fees on to workers in the form of lower wages.”
  • In addition to the $239 billion deficit in the current 10-year budget window, H.R. 3200 “would probably generate substantial increases in federal budget deficits” in the years following 2019.  This phenomenon occurs because health spending under the bill would rise by 8% in nominal terms, whereas offsetting tax increases would only rise by 5%.

On the MedPAC concept, CBO found that the legislation proposed by the White House would save only $2 billion (or approximately .125% of total spending in the bill) over the next ten years — and beyond 2019 “would generate larger but still modest savings.”  CBO also estimated “the probability is high that no savings would be realized” over the first ten years for the MedPAC commission, largely because the savings provisions would not take full effect until 2016 — but also because “as proposed, the composition of the council could be weighted toward medical providers who might not be inclined to recommend cuts in payments to providers or significant changes to the delivery system.”  However, the document did say that more savings could be generated if the legislation was expanded to include payment policies for Medicaid and other government health programs (as opposed to just Medicare), or if the council was given some type of hard savings target to meet (and/or there were statutory reductions in payments if the council did not meet its savings goals).

The CBO analysis prompted a rebuke by OMB Director Orszag, who publicly criticized his successor for the estimate in a blog post, saying that “CBO seems to have overstepped” by “providing a qualitative estimate of long-term effects without any analytical basis for doing so.”

Policy Brief: A Federal Health Board Would Raise, Not Lower, Health Costs

“If You Like The Plan You Have…You Will Probably Lose It Anyhow”

The Administration has advanced various proposals to create a new, Presidentially-appointed board empowered to make recommendations on Medicare reimbursement levels as one way to lower the growth of health care costs.  However, an analysis of the bills’ provisions demonstrates that each could have significant unintended consequences that could undermine individuals’ current coverage:

  • The proposals being discussed would empower government boards to make recommendations on reductions in Medicare payment levels—the White House bill through its new Council, and a separate bill proposed by Sen. Jay Rockefeller (S. 1110; H.R. 2718) through a revamped Medicare Payment Advisory Commission (MedPAC).
  • The Congressional Budget Office has testified that Medicare already pays doctors 20 percent less than private health plans; hospital reimbursement rates are “as much as 30 percent lower.”
  • Independent actuaries at the consulting firm Milliman, analyzing current reimbursement rates, found that below-cost payments by government-run plans like Medicare and Medicaid result in private coverage—primarily employer-sponsored plans—paying nearly $90 billion more a year to offset below-cost reimbursements from Medicare and Medicaid.
  • Milliman also found that this cost-shift increases health costs for families with private coverage by nearly $1,800 per year.
  • Non-partisan actuaries at the Lewin Group, in analyzing the House Democrat health bill (H.R. 3200), found that this cost-shifting phenomenon would result in as many as 114 million Americans losing access to their current coverage, as employers would drop coverage in order to enroll workers in a government-run health plan.
  • Empowering a board of federal bureaucrats with the power to reduce Medicare payment levels still further beyond their current below-cost levels would likely exacerbate cost-shifting from public to private payers—leading many employers to drop their current coverage and raising insurance premiums for those employees lucky enough to retain their existing plan.

As many as 92 percent of Americans with health coverage are satisfied with the plan they currently hold.  However, permitting a government board to reduce Medicare payment rates could result in yet more individuals losing access to their current private plans, placing millions of Americans in a government-run health plan.  Members may view this cost-shifting dynamic as yet another reason to be concerned by proposals to give unelected and unaccountable bureaucrats power to micro-manage the doctor-patient relationship and deny life-saving treatments to millions of American seniors.

Pelosi Comments: “There’s More to Be Squeezed” from Health Providers

I wanted to make you aware of comments Speaker Pelosi made in a front-page interview with USA Today.  Specifically, the Speaker said that “many Members think that there’s more to be squeezed from hospitals, pharmaceutical companies, and docs.”  This comes on the heels of a letter from several surgical specialty groups — including the American College of Surgeons, which previously endorsed the House bill (H.R. 3200) — that “should provisions to place the authority for Medicare payment policy in an unelected executive agency be included in any legislation at any point, the surgical community would vigorously oppose this legislation regardless of any other provisions that may be included.”

Given multiple press reports this morning that the Blue Dog Coalition may have reached an agreement with Chairman Waxman to include some version of “MedPAC on steroids” as part of a health care overhaul, you are strongly encouraged to reach out to provider groups in your district to inform them of this latest development, which could result in a board of unelected bureaucrats setting payment rates and otherwise interfering in the practice of medicine.

Policy Brief: Democrat Proposals to Create a Federal Health Board

Plans Would Empower Bureaucrats to Ration Care by Setting Payment Levels

“The chronically ill and those toward the end of their lives are accounting for potentially 80 percent of the total health care bill out here….There is going to have to be a very difficult democratic conversation that takes place.”

 — President Obama, interview with The New York Times

Last week the Administration sent to Congress draft legislation creating an “Independent Medicare Advisory Council” (IMAC), which would create a new, Presidentially-appointed board empowered to make recommendations on cost savings proposals.  These cost-saving proposals could include denying care to the elderly because an unelected board of bureaucrats determines the treatment recommended by physicians is too expensive.  In transmitting the legislation, the White House endorsed its bill, along with similar legislation (S. 1110; H.R. 2718) first introduced by Sen. Jay Rockefeller (D-WV), as two potential ways to slow the growth of health costs.  However, a close examination of the bills’ provisions finds that each would give significant power to federal bureaucrats, with few controls on their ability to impose reimbursement cuts and deny access to life-saving but costly medical treatments:

  • Both bills would empower boards to make recommendations on reductions in Medicare payment levels—the White House bill through its new Council, and the Rockefeller bill through a revamped Medicare Payment Advisory Commission (MedPAC).
  • Both bills would give the President the power to appoint board members, subject to Senate confirmation; MedPAC members are currently appointed by the Comptroller General, but S. 1110 would make the Commission an independent executive branch agency, with its members subject to Presidential appointment.
  • Both bills would make the boards’ recommendations binding absent external action.  The Rockefeller bill would permit Congress to overrule recommendations made by the Commission—but only if 3/5 of Members in each chamber agreed to consider such legislation.  The White House proposal would require the President to give his up-or-down approval of the Council’s recommendations en bloc, and if the President approves, Congress would have 30 legislative days to pass a joint resolution expressing its disapproval—otherwise the proposals would be implemented.
  • Both bills would give the respective commissions the power to set reimbursement rates for providers in Medicare.  Some Members may be concerned that these provisions could result in the federal government refusing to reimburse doctors and hospitals for providing treatments to seniors that, while effective, are too costly.
  • While press reports indicate that some Democrat Members are insisting on higher Medicare reimbursements for rural areas to expand physician access in those locales, there is nothing in either proposal that would prohibit the respective councils from reducing—or even eliminating entirely—these payment increases for rural providers.
  • The White House bill would go further than the Rockefeller proposal, empowering the new IMAC to impose “delivery system reforms” on health care providers.  Page 11 of the bill notes that such reforms must “either improve the quality of medical care received by the beneficiaries of the Medicare program or improve the efficiency of the Medicare program’s operation.”  Some Members may be concerned that this provision, by allowing the enactment of “reforms” that EITHER improve beneficiary care OR save the program money could result in this new board of bureaucrats denying access to life-saving treatments on cost grounds.
  • Both pieces of legislation would also place significant restrictions on judicial review that would effectively prohibit individuals harmed by the boards’ recommendations—including any seniors denied access to care because of a bureaucratic prohibition on covering costly treatments.

“In health care, waiting lines…can reduce the average cost of health capital, even while raising patient costs in terms of time and inconvenience.  Health care waiting lines represent a trade-off between patient costs and capital costs.”

— Senior Obama Administration Official Sherry Glied,
writing in Critical Condition: Why Health Reform Fails

  • Because both pieces of legislation would give the President veto power over any disapproval resolution, overriding the recommendations of the respective Commissions could effectively require the support of 2/3 of Congress—which would give the bureaucratic boards significant leverage to make binding decisions on millions of doctors and other health care professionals.
  • Some Members may believe that both proposals resemble a concept advocated by former Senator Tom Daschle—a board of unelected bureaucrats making health care decisions, including decisions about which therapies and treatments the federal government will cover.  In his book Critical, Daschle wrote that, “We won’t be able to make a significant dent in health-care spending without getting into the nitty-gritty of which treatments are the most clinically valuable and cost-effective.”

Given the various proposals for a “MedPAC on steroids,” some Members may be concerned by the implications of these potential changes—which would give unelected and unaccountable bureaucrats power to micro-manage the doctor-patient relationship and deny life-saving treatments to millions of American seniors.  Moreover, some Members may view the many new bureaucracies the bill establishes—and the significant powers given to them—as emblematic of the many problems associated with the Democrat-proposed government takeover of the health care system.