Monthly Archives: August 2009

Weekly Newsletter — August 31, 2009

More Problems with Government-Run Health Care

This past week saw two additional reports from the United Kingdom on how and why that country’s government-run health care system doesn’t work for many of its patients.  On Wednesday, the Welsh Assembly Government hinted that it would block access to several cancer drugs, reversing a January decision that would allow patients access to these treatments.  The apparent reversal came after the National Institute for Clinical Excellence (NICE) ruled the drugs were not cost-effective—giving the Welsh Government grounds to deny patients access to effective but expensive treatments solely on cost grounds.  One patient on the cancer drug Sutent reacted with anger and frustration to the new development: “It is working for me.  I don’t see how they can refuse it if it is working.  It’s an expensive drug but what price life?”

The next day, a patient advocacy group highlighted problems with basic services at hospitals in England, citing cases of patients left in their own waste and similar problems where family members noted “at no time…did we feel there was ever anyone who cared for patients enough.”  In an interview, the head of the Patients Association discussed the problems with a bureaucratic culture in Britain’s National Health Service:

The most awful part of this for many people is that they ring the hospital, they write the hospital, they make a complaint, “Why did my mum die in this terrible state, sitting here in her own…body [waste]…Why did she have to end her days like this?”  Nobody answers, nobody phones back, and if they do, they’re very defensive.  What does it cost to say, “I’m so sorry this happened—I’m going to find out why and stop it happening in the future?”

Many Members may not be surprised by these stories, which illustrate the problems created by government-run health systems—a bureaucratic culture showing little regard for patient needs and a strong inclination to deny patients access to life-sustaining but costly treatments.  Examples such as these from Britain’s NHS represent the prime reason why Republicans believe that doctors and patients, not government bureaucrats, should make health care decisions in a reformed system.

The Real Reason Why Democrats Ignore Liability Reform

This past Tuesday, Rep. Jim Moran (D-VA) held a town hall with former Vermont Governor Howard Dean.  When asked by one of Rep. Moran’s constituent, the licensed physician—and known advocate of a government-run health plan—Gov. Dean gave a straight-forward answer:

This is the answer from a doctor and a politician.  Here’s why tort reform is not in the bill.  When you go to pass a really enormous bill like that, the more stuff you put in it, the more enemies you make, right?  And the reason that tort reform is not in the bill is because the people who wrote it did not want to take on the trial lawyers in addition to everyone else they were taking on.  And that is the plain and simple truth.

In other words, Democrats support a government takeover of health care—except when it comes to the parts of health care controlled by the trial bar.

A Question of Identity

The same exchange at Tuesday’s town hall meeting was also noteworthy for Rep. Moran’s insistence that the constituent show identification before putting forth his query.  This exchange follows a similar policy instituted by Rep. Gene Green (D-TX) at his town hall meetings.

However, some Members may note that House Democrats’ health care takeover legislation (H.R. 3200) includes no provisions requiring individuals to show any proof of identity or citizenship in order to receive taxpayer-subsidized health insurance—which could allow individuals engaging in identity theft, or undocumented immigrants, to obtain government-funded health care.  The ID policy implemented by Democrats like Reps. Moran and Green at their town hall meetings begs an important question: Why should the process to ask a question of one’s Congressman be more rigorous than policies to ensure ineligible individuals receive taxpayer-subsidized health care?

Policy Brief: Democrats’ Government Takeover Will Raise Medicare Premiums by 20%

“Rock-Solid Deal” for Drug Companies a Bad Deal for Seniors

“I’m appalled by the deal the White House has made with the pharmaceutical industry’s lobbying arm to buy their support….When an industry gets secret concessions out of the White House in return for a promise to lend the industry’s support to a key piece of legislation, we’re in big trouble.  That’s called extortion.”

 — Former Clinton Administration Labor Secretary Robert Reich, blog posting, August 9, 2009

A recent analysis released by the non-partisan Congressional Budget Office (CBO) found what many policy-makers have long believed—that House Democrats’ government takeover of health care (H.R. 3200) will raise Medicare prescription drug premiums for seniors “by about 5 percent in 2011, rising to about 20 percent in 2019:”

  • The CBO estimated that provisions in the bill to gradually eliminate the Part D “doughnut hole” would raise Part D premiums.  The analysis confirms a previous CBO report estimating that immediate elimination of the “doughnut hole” would cause Medicare premiums to rise by 50 percent.
  • CBO also found that providing discounts for brand-name drugs within the Part D “doughnut hole” would “increase federal spending” and thus premiums for seniors.  While the discount provision is at the heart of an agreement reached between Democrats and the pharmaceutical industry to provide $80 billion in “savings” to fund health “reform,” the CBO analysis confirms that seniors will be paying more as a result of these “discounts.”
  • Even though the agreement he negotiated would raise Medicare premiums for seniors, the head of the Pharmaceutical Research and Manufacturers of America (PhRMA) publicly bragged that drug manufacturers had negotiated a “rock-solid deal” with the Administration.
  • As the New York Times has noted, big drug companies have embraced Democrats’ government takeover of health care: “Foreseeing new profits from the expansion of health coverage, they are spending as much as $150 million on advertisements to support the President’s plan,” hiring AKPD to generate publicity in support of Democrats’ health “reform.”  AKPD owes its former founder—White House Senior Advisor David Axelrod—$2 million in compensation, and employs David Axelrod’s son.

Thus the past several weeks have revealed two inconvenient truths about Democrats’ government takeover of health care—seniors’ Medicare premiums will rise 20 percent, while Big Pharma companies are so certain of higher profits that they are willing to spend up to $150 million in support of the Democrat agenda.  The juxtaposition of higher premiums for seniors and higher profits for drug companies has raised concerns even among proponents of government-run health care like Robert Reich.  Is this the kind of change we can believe in?

CBO Predicts 20% Increase in Part D Premiums from H.R. 3200

This afternoon CBO released a letter requested by Ranking Member Camp regarding Part D provisions in H.R. 3200 as introduced, which can be found here.

The analysis found that provisions included in the bill “would lead to an average increase in premiums for Part D beneficiares of about 5% in 2011, rising to about 20% in 2019.”  The letter noted that federal spending and Part D premiums would rise due to the gradual elimination of the Part D “doughnut hole,” and that the “voluntary” discounts provided in the “doughnut hole” until its elimination — one component of the PhRMA “deal” with the White House – “would increase federal spending” and thus beneficiary premiums.  Finally, while an expansion of drug rebates (i.e. government-imposed price controls) to dual eligible beneficiaries enrolled in both Medicare and Medicaid would lower federal spending on net, CBO estimates that pharmaceutical companies “would probably lower the rebates they pay to prescription drug plans” covering non-Medicaid eligible beneficiaries, which “would lead to an increase in beneficiaries’ premiums…[and] an increase in beneficiaries’ payments for cost sharing.”

Weekly Newsletter — August 24, 2009

Deficit Time Bomb Set to “Explode” Tomorrow

Tomorrow, both the Office of Management and Budget (OMB) and the Congressional Budget Office (CBO) will release their updated deficit projections for both the current fiscal year and the upcoming decade.  Press reports released late Friday night indicate that the OMB deficit projections will increase by $2 trillion over ten years when compared to the President’s projections of only six months ago—to a deficit of more than $9 trillion this decade alone.  While no such estimates have leaked out of CBO ahead of that non-partisan office’s release of its budget numbers, unemployment has already exceeded CBO’s March projections, as have estimates for long-term Treasury interest rates—suggesting that federal revenues may drop more than expected, even as the federal government’s cost of borrowing continues to grow.

Given these impending reports, many Members may be concerned by Democrat attempts to enact health “reform” that will expand federal entitlement obligations while seemingly ignoring the United States’ capacity to carry its existing fiscal obligations, let alone the impact of any future programs created.  Particularly after Treasury Secretary Geithner’s claims of the United States’ fiscal rectitude were publicly mocked by an audience during his recent visit to China, Members may believe that Democrats would be wise to provide much more clarity—and spending restraint—before embarking on a new and costly government takeover of health care.

The Face of Government Rationing

From Oregon comes a story that may represent the face of health care across America under Democrats’ “brave new world.”  Barbara Wagner, a patient in the state’s Oregon Health Plan, had a request for a chemotherapy drug denied, only to have the same denial letter inform her that the plan would pay for “physician aid in dying.”  While the drug denied by the plan—one which would allow Barbara to treat her cancer and live—costs $4,000 per month, the approved drug—which would cause her to die—costs but $100.  When contacted by a local news station about the health plan’s priorities, the chairman of a board that sets priorities for the government plan claimed that, “If we invest thousands and thousands of dollars in one person’s days or weeks, we are taking away those dollars from someone.”

Many Members may be saddened, but not surprised, by the government-run Oregon Health Plan’s misplaced priorities.  The plan has a history of rationing access to care, creating a list of priorities and refusing to pay for certain treatments and procedures ranked low on the priority scale.  In fact, Oregon’s most recent list of “bureaucrat-approved” treatments gives abortion higher priority than ectopic pregnancies or infections stemming from a miscarriage.

Given these skewed priorities in one state—where a bureaucracy will pay for life-destroying treatments, but not life-sustaining ones—many Members may believe that Democrats’ government takeover of health care could replicate the Oregon model across the United States.  In the legislation, a board of bureaucrats will be empowered to require individuals to purchase certain coverage—giving unelected officials significant power over all Americans’ health care.  Coupled with its lack of prohibitions on government programs using cost-effectiveness tests to deny access to treatments, the legislation’s high and unsustainable costs could well lead to rationing by federal bureaucrats on the same terms as the Oregon model—where, by denying access to life-saving treatments, government ensures that a life-and-death choice for patients isn’t really a choice at all.

Policy Brief: The Orwellian Chart Barack Obama Doesn’t Want You to See

President’s Senior Advisor Sets “Principles for Allocation of Scarce Medical Resources”

“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 conversation that is guided by doctors, scientists, ethicists.  And then there is going to have to be a very difficult democratic conversation that takes place.”

 — President Obama, interview with The New York Times

In his April interview, President Obama announced the need for a “difficult democratic conversation” surrounding federal health spending on end-of-life care.  However, one of President Obama’s senior health care advisors, Ezekiel Emanuel, has already reached the conclusion that some individuals are more worthy of medical care than others:

  • An article Dr. Emanuel co-wrote this January proposed a “complete lives” system for purposes of determining the “appropriate” allocation of scarce health care resources.  The article notes that under this system, “Individuals aged between roughly 15 and 40 years get the most substantial chance [of receiving care], whereas the youngest and oldest people get chances that are attenuated.”
  • The model includes reasoning why adolescents should receive priority over infants: “Adolescents have received substantial education and parental care, investments that will be wasted without a complete life.  Infants, by contrast, have not yet received these investments.”
  • As the chart shows, and the article admits, “the complete lives system discriminates against older people….[However,] age, like income, is a ‘non-medical criterion’ inappropriate for allocation of medical resources.”
  • Dr. Emanuel’s other writings show an inclination to direct health care resources away from individuals deemed “unworthy.”  In 1996, he wrote that, “[Health care] services provided to individuals who are irreversibly prevented from being or becoming participating citizens are not basic and should not be guaranteed.  An obvious example is not guaranteeing health services to patients with dementia.”

Given that President Obama’s self-appointed “ethicist” supports allocating resources in a way that discriminates against the most vulnerable citizens in our society—infants, the elderly, and citizens with disabilities—who can state with certainty that the federal government will not end up denying treatments to those deemed “unworthy” as a result of Democrats’ government takeover of health care?

Policy Brief: “Big Pharma” and David Axelrod: $2 Million of Change You Can Believe In?

Even as President Obama campaigned on a platform of change and transparency, recent dealings between the pharmaceutical industry and the Administration raise serious questions as to whether the drug lobby is helping to bankroll a multimillion dollar severance package for one of the President’s senior advisors:

  • Several weeks ago, the President announced an agreement with the Pharmaceutical Research and Manufacturers of America (PhRMA) to achieve $80 billion in savings as part of health care “reform.”  The Congressional Budget Office has previously found that eliminating the Part D “doughnut hole”— one element of the PhRMA “deal”—would cause Medicare premiums to rise by 50 percent.
  • As a result of the White House agreement with the drug lobby, press reports indicate that a coalition of interest groups led by PhRMA has committed up to $150 million to generate publicity in support of the President’s health “reform.”
  • On Saturday, Bloomberg News reported that one of the firms hired to spearhead the PhRMA-led advertising campaign is AKPD—the firm that Senior Advisor to the President David Axelrod founded, and where his son continues to work.
  • The same news story reported that Axelrod will be paid $2 million from AKPD as part of his severance package—payments which will come due beginning in December.

The press reports to date raise other potentially troubling questions about the ramifications of the dealings between the pharmaceutical industry and the Administration:

  • Has David Axelrod recused himself from the PhRMA “deal,” or will he work to defend an agreement with an industry that is directly funding his son’s work, and indirectly funding his own $2 million severance package?
  • Why exactly did the head of PhRMA publicly brag about negotiating a “rock-solid deal” with the Administration—and did the hiring of David Axelrod’s former firm have anything to do with his confidence?
  • How exactly did AKPD generate this advertising contract?

As the pharmaceutical industry spends hundreds of millions supporting a government takeover of health care—one which drug companies obviously believe will increase their profits, even as it raises Medicare premiums for seniors—some may wonder whether White House senior advisors earning millions of dollars paid for in part by the pharmaceutical industry represents the kind of change Americans can believe in.

Weekly Newsletter — August 17, 2009

Not an “Option”

Yesterday’s Sunday talk shows saw several White House officials—including Health and Human Services Secretary Kathleen Sebelius and press secretary Robert Gibbs—indicating the Administration’s willingness to strike the so-called “public option” from health “reform” legislation in lieu of a system of health insurance cooperatives.  The apparent reversal comes amid growing criticism of Democrats’ attempted government takeover of health care, and surveys from outside experts indicating that as many as 114 million Americans could lose their current coverage if a government-run health plan were created.

Despite the apparent change in tone by the Administration, recent press reports indicate that the House Democrat majority—at the insistence of its liberal Members—will continue to include a government-run plan in any legislation considered on the House floor.  Indeed, just before Congress embarked on its August recess, Speaker Pelosi reportedly acquiesced to a floor vote on a single-payer health care system.

While supporting the White House’s newfound conciliatory tone, Members may still have many other concerns surrounding the legislation—including nearly $1.6 trillion in spending, an increase in the federal deficit in the short-term and the long-term, abolition of the private market for individual health insurance, and onerous tax increases on the middle class and large and small businesses alike.  Many of these concerns surround issues tangential to the Administration’s stated goal of reducing health costs—and many of the new mandates, regulations, and bureaucracies will raise costs for both the private sector and the federal government.

Similarly, while Members may support the concept of increasing private insurance market competition, Members may also be concerned by the import of some of the cooperative proposals being discussed.  Many leading Democrats have made statements equating co-op proposals to a government-run “public option,” and most of the proposals being discussed would involve billions of dollars of federal cash infusions to fund the co-ops—which could lead to additional federal dollars being spent to bail such institutions out if they prove unsuccessful.  Therefore, Members may be concerned that the co-op proposals being advanced by Democrats will do for health care what Fannie Mae and Freddie Mac have done for the housing sector.

“Just the Facts, Ma’am”

Amidst all the White House claims of “misinformation” surrounding access to treatments and government rationing, it bears worth repeating that the United Kingdom and other countries with government-run health plans deny costly therapies to patients, particularly older patients.  For instance, a report regarding Britain’s National Health Service released in June prompted complaints from patient advocates that senior citizens receive sub-standard care; one activist found it “appalling that people over 75 are not getting the care they need…it is scandalous that not everyone is getting” access to treatment.  In its coverage of the report, the BBC relayed the story of one 74-year old ovarian cancer patient, who according to her daughter had to travel to Iran in order to receive a proper diagnosis:

Mum started to have bleeding early in 2007.  She went to the [general practitioner], but they just took her off her [hormone replacement therapy] and sent her to a gynecologist.  He said it was probably just stress.  It was only when she went back to visit family in Iran and saw a doctor there that she was diagnosed.  They did a scan and found a large lump in her fallopian tube.  When she came back to the UK, doctors found the cancer had spread to one of her lymph glands.  It was the size of a tennis ball.  She then had a six-week wait before having a hysterectomy and then chemo.  Her treatment was very good, but the diagnosis was abysmal.  If it had been found 18 months earlier, it could have been removed easily and she wouldn’t have needed a hysterectomy or chemo.”

Given that President Obama’s key advisors have admitted that government-run health plans will always be under-funded—and that waiting times are an acceptable “trade off between patient costs and capital costs”—many Members may be highly skeptical of any claims that a government takeover of health care will not lead to denial of life-saving treatments for patients.

Other key facts surrounding Democrats’ health care “reform” include these:

  • Individuals who like their current plan may not be able to keep it—millions of seniors will lose access to Medicare Advantage plans under Democrats’ proposed cuts, employers may drop coverage due to costly federal mandates imposed in the bills, and the House legislation would abolish the private market for individual health insurance entirely;
  • The non-partisan Congressional Budget Office has confirmed that all the bills being considered would raise, not lower, the growth of health costs—CBO has estimated that the House bill would increase the federal deficit by $239 billion in its first ten years, and “would probably generate substantial increases in federal budget deficits” in the years following;
  • The bills include tax increases on families with incomes under $250,000 who cannot afford to purchase “bureaucrat-approved” health coverage—a violation of then-Senator Obama’s campaign promise not to raise taxes on the middle class;
  • Job losses will result from the more than $800 billion in tax increases included in the House bill—according to a model developed by President Obama’s chief economic advisors, as many as 5.5 million jobs could be lost.

All these reasons should give the American people pause before embracing Democrats’ proposed government takeover of the health care industry.

Legislative Bulletin: Key Committee Amendments to H.R. 3200

BACKGROUND

On July 14, 2009, the Chairmen of the three House Committees with jurisdiction over health care legislation—Education and Labor Chairman George Miller (D-CA), Energy and Commerce Chairman Henry Waxman (D-CA), and Ways and Means Committee Chairman Charlie Rangel (D-NY)—introduced H.R. 3200.  On July 17, the Ways and Means Committee approved the bill by a 23-18 vote, and the Education and Labor Committee approved the bill by a 26-22 vote.  The Energy and Commerce Committee approved its version of the legislation on July 31 by a 31-28 margin.

During consideration of H.R. 3200 in the three Committees, many amendments changed the bill text from the legislation as originally introduced.  Below are some of the key substantive amendments offered by Republicans and Democrats that were adopted during the three markups.

AMENDMENT SUMMARIES

The list below is by no means exhaustive, and should not be construed as indicating that some or all of the amendments adopted in Committee will be incorporated into any manager’s amendment considered by the Rules Committee.  Moreover, at the time the Energy and Commerce Committee completed its markup on July 31, there were as many as 60 additional amendments pending to the bill; at that time, Chairman Waxman indicated that he would hold a second markup in September to allow those amendments to be considered (the precise legislative vehicle for doing so still being unclear) before any synthesis of the respective Committee products is brought to the House floor for consideration.

Education and Labor Amendments

Chairman’s Mark:  Prohibits group health plans from “reducing the benefits provided under the plan to a retired participant, or beneficiary of such participant” after the worker retires “unless such restriction is also made with respect to active participants.”  Some Members may be concerned that this provision, by restricting employers’ flexibility to adjust retiree health coverage, may encourage firms to drop their health plans entirely—undermining the argument that “If you like your current plan, you can keep it.”

The Chairman’s mark also requires health plans to spend at least 85 percent of their premium revenue on medical claims, or offer rebates to their enrollees.  Particularly as the Government Accountability Office noted in a report on this issue that “there is no definitive standard for what a medical loss ratio should be,” some Members may be concerned about this attempt by federal bureaucrats to impose arbitrary price controls on private companies.  Some Members may also be concerned that such price controls, by requiring plans to pay out most of their premiums in medical claims, would give carriers a strong (and perverse) disincentive not to improve the health of their enrollees—as doing so would reduce the percentage of spending paid on actual claims below the bureaucrat-acceptable limits.

The Chairman’s mark also prohibits the transfer or use of prescription information, except in very limited circumstances.  Some Members may be concerned that these new restrictions would prevent patients from receiving information of benefit to them—for instance, materials regarding less costly generic alternatives.

Courtney:  Effective six months after the date of enactment, reduces pre-existing limitation exclusions from one year to three months, and shortens the “look-back” window for determining such exclusions from six months before enrollment to 30 days before enrollment.  While supporting efforts such as high-risk pools to allow individuals with pre-existing conditions to obtain coverage, some Members may be concerned that these provisions could raise premiums for employers, potentially prompting some to drop coverage entirely.  A similar amendment, offered by Rep. Sutton, was adopted at the Energy and Commerce Committee markup.

Titus:  Expands eligibility for small employers seeking to purchase coverage on the Exchange.  In 2013, employers with 15 or fewer employees would be eligible to join the Exchange (up from 10 in the base bill), in 2014, employers with 25 or fewer employees would be eligible (up from 20 in the base bill), and in 2015, all employers with 50 or fewer employees could join the Exchange (the base bill permits—but does not require—the Health Choices Commissioner to open the Exchange to employers with more than 20 workers).  Adopted by a party-line vote of 29-19.

Scott:  Expands the definition of the minimum benefits package to include early and periodic screening, diagnostic, and treatment services (as defined in the Medicaid statute) for all children under 21.  Some Members may be concerned that this expansive definition—which includes “such other necessary…measures” to treat physical ailments, regardless of “whether or not such services are covered under the State [Medicaid] plan”—would significantly raise costs for businesses required to offer coverage, and the federal funds needed to subsidize Exchange enrollees receiving such rich benefits.  Adopted by a 32-17 vote.

Kucinich:  Permits States to seek a waiver of the Employee Retirement Income Security Act (ERISA) for a single-payer system that States may wish to adopt.  Such a non-profit system—“under which private insurance duplicating the benefits provided in the single payer program is prohibited”—would operate in lieu of the proposed Exchanges, must provide benefits that meet or exceed federal benefit standards in the bill, and may not result in federal costs “neither substantially greater nor substantially less” than those associated with the underlying bill.  While supporting the concept of State flexibility over health care regulations, some Members may be concerned by the provision’s prohibitions on private health insurance, which could cause millions of individuals to lose their current coverage.  Adopted by a 27-19 vote.

Energy and Commerce Amendments

Capps:  With regard to abortion in the government-run health plan, explicitly permits the Secretary to include abortion in the services offered by government-run plan, and—if the “Hyde amendment” restrictions on federal funding for abortion coverage are not renewed every year in the Labor-HHS appropriations bill—requires that the government-run plan cover abortions.

With regard to the subsidies authorized under the bill, referred to as “affordability credits,” the Capps amendment specifically permits taxpayer subsidies to flow to plans that include abortion, but creates an accounting scheme designed to designate private dollars as abortion dollars and public dollars as non-abortion dollars.  The Capps accounting arrangement is rejected by pro-life organizations, which recognize that it is a clear departure from long-standing federal policy against funding health plans that include abortion (e.g., Federal Employee Health Benefits plan, Medicaid, SCHIP, DOD, etc).

Other provisions in the Capps amendment appear to prevent State laws from being overturned and prohibit the Secretary from mandating that all plans include abortion.  Although in apparent conflict with the anti-mandate language, the Capps amendment also requires that a plan that includes abortion be made available in every region—which could in turn lead to mandates that abortion clinics be established to “protect” access to abortions.  Adopted by a party-line 30-28 vote, with six Democrats opposing.

Pallone:  Includes language intended to serve as a placeholder for introduction of the Community Living Assistance Services and Supports (CLASS) Act (H.R. 1721), much of which lies within the jurisdiction of the Ways and Means Committee (and was therefore not germane to the sections considered by Energy and Commerce).  That bill would create a new entitlement to long-term care services, financed by a new “Independence Fund” generated from beneficiary premiums.  The Fund would be excluded from the federal budget for purposes of both the President and Congress, and subject to a “lock-box” that would prohibit any legislation from diverting monies from the Fund without the consent of 3/5 of the Senate.

Under H.R. 1721, the plan would have a level monthly premium of $30, provided individuals enroll in the first year they are eligible to join.  (Late enrollees would pay age-adjusted premiums.)  All individuals over 18 receiving wage or self-employment income would be automatically enrolled in the program; premiums would be automatically deducted from workers’ wages, and firms would be eligible for a tax credit equal to 25 percent of the administrative cost of withholding.  Individuals with incomes below 150 percent of the federal poverty level would pay a nominal monthly premium, subject to a self-attestation form verifying their status.  Premiums would not increase so long as the individual remained enrolled in the program (or the program had sufficient reserves for a 20-year period of solvency), and under no circumstance could premiums more than double.

Under H.R. 1721, individuals’ eligibility for benefits would vest after five years.  The minimum cash benefit would be $50 per day, with amounts scaled for levels of functional ability—and benefits not subject to lifetime or aggregate limits.

Some Members may be concerned by the concept of creating a new, expansive federal entitlement program when Medicare itself is not actuarially sound and the Medicare Hospital Insurance Trust Fund is scheduled to be insolvent by 2017.  Moreover, Members may note that the Congressional Budget Office, in analyzing similar provisions included in Section 191 of legislation considered by the Senate HELP Committee, found that “if the Secretary did not modify the program to improve its actuarial soundness, the program would add to future federal budget deficits in a large and growing fashion beginning a few years beyond the 10-year budget window.”

Rogers:  Prohibits any federally sponsored comparative effectiveness research from being used by the federal government to deny or otherwise ration access to health care.  A second, similar amendment offered by Rep. Gingrey prohibiting the Centers for Medicare and Medicaid Services from using cost-effectiveness criteria to make coverage determinations was also adopted.  (However, Ways and Means Committee Democrats blocked a similar amendment, offered by Rep. Herger, in their markup on a party-line vote of 26-15.  Anti-rationing language was not offered in the Education and Labor Committee markup, as the issue falls outside the Committee’s jurisdiction.)

Stupak:  Codifies the Hyde/Weldon annual appropriations provision, first enacted in FY 2005 and included in Labor, Health and Human Services Appropriations bills since then, providing conscience protection for health care entities by preventing local entities from discriminating against them if they refuse to provide, pay for, or refer for abortion.  The amendment seeks to protect health care entities/workers from discrimination and participating in health care plans.

Eshoo:  Establishes a Food and Drug Administration approval process for generic biosimilars, also referred to as follow-on biologics.  Grants a period of exclusivity for brand-name products of 12 years, with a six-month extension possible in cases where a manufacturer agrees to an FDA request for pediatric studies.  Gives FDA the authority to issue general or specific guidance documents (subject to a notice-and-comment period) regarding product classifications.  Adopted by a 47-11 vote.

Ross:  Includes placeholder language amending the small business exemption for the employer mandate, which lies within the jurisdiction of the Ways and Means Committee and technically was not germane to the Energy and Commerce markup.  The language would increase the exemption level from $250,000 to $500,000 of overall annual payroll, and provide reduced tax penalties to firms with payroll between $500,000 and $750,000; the full 8 percent payroll tax would apply to firms over the latter threshold.  Some Members may still be concerned that this provision would impose costly taxes on businesses in the middle of a recession—taxes which the Congressional Budget Office recently notedcould 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.”  Members may also note that the underlying bill includes no annual inflation adjustment for the small business exemption threshold—making the “compromise” agreement increasingly irrelevant over time.

Modifies the sliding-scale affordability subsidy levels, such that individuals with incomes equal to four times the federal poverty level ($88,200 for a family of four) would be expected to pay 12 percent of their income on health coverage, as opposed to 11 percent in the underlying bill.  Requires States to pay 10 percent of the cost of the bill’s Medicaid expansion, beginning in 2015; according to the preliminary CBO score of H.R. 3200 as introduced, this provision alone would require States to pay an additional $35.8 billion in matching funds over the next decade.  Given that Governors in both parties have already voiced significant concerns about what Tennessee Democrat Gov. Phil Bredesen termed “the mother of all unfunded mandates” being imposed upon States, some Members may be concerned that these provisions would have—as the head of Washington State’s Medicaid program recently suggested—States facing severe financial distress saying, “‘I have to get out of the Medicaid program altogether.’”

Requires the Secretary to negotiate payment rates for the government-run plan, and notes that such payment levels should result “in payment levels that are not lower in the aggregate” than those paid under Medicare.  Includes other changes intended to create a “level playing field” with respect to the government-run plan; however, Members may agree with CBO Director Elmendorf, who previously testified that it would be “extremely difficult” to create “a system where a public plan could compete on a level playing field” against private coverage.  Clarifies that enrollment in the government-run health plan is voluntary; however, Members may note studies by the Lewin Group have found that up to 114 million Americans could lose their current health coverage due to the creation of a government-run plan.

Establishes a Consumer Operated and Oriented Plan (CO-OP) program to provide grants or loans for the establishment of non-profit insurance cooperatives to be offered through the Exchange, but does not require States to establish such cooperatives.  Authorizes $5 billion in appropriations for the Commissioner to make start-up loans or grants to help meet state solvency requirements.  Some Members may be concerned that cooperatives funded through federal start-up grants would in time require ongoing federal subsidies, and that a co-op would do for health care what Fannie Mae and Freddie Mac have done for the housing sector.

Establishes a Center for Medicare and Medicaid Payment Innovation, intended to develop budget-neutral payment models that “address a defined population for which there are deficits in care leading to poor clinical outcomes.”  Requires qualified plans to offer information regarding end-of-life planning, and notes that such entities “shall not promote suicide, assisted suicide, or the active hastening of death.”  Contains provisions intended to retain insurance brokers’ role in enrolling individuals in health plans, as well as other provisions related to State-based Exchanges.  Adopted by a party-line 33-26 vote, with three Democrats opposing.

Baldwin:  Directs the Secretary of Health and Human Services to develop a formulary for the government-run plan, and requires qualified health plans to contract with pharmaceutical benefit managers (PBMs), which shall disclose prices paid for drugs to the Commissioner.  Some Members may be concerned that these provisions would require the disclosure of proprietary price information and could lead to additional federal price controls placed on pharmaceutical companies and/or a restrictive formulary in the government-run health plan.  Permits States to establish accountable care organizations within their Medicaid programs, and permits a temporary enhanced federal match (up to 90 percent) for same.  Includes language regarding administrative simplification of health care transactions, as well as an expansion of electronic funds transfer payments within Medicare.

Requires that any savings generated from the amendment’s provisions be directed towards increasing affordability subsidies provided in the Exchange.  The first of two progressive “unity” amendments attempting to mitigate what liberals viewed as the harmful effects of the Blue Dog proposal to reduce federal insurance subsidies.  Adopted by a party-line 32-26 vote, with three Blue Dog Democrats opposing.

Schakowsky:  Prohibits Exchange plans from increasing premiums at more than 150 percent of medical inflation levels, unless the plan adds extra benefits or the restriction would threaten its financial viability.  Some Members may be concerned that this provision would impose a federal price control that would unfairly target plans enrolling sicker individuals with above-average cost increases.  Requires the Secretary of Health and Human Services to negotiate drug prices covered under the Medicare Part D program.  Requires that any savings generated from the price controls be directed towards increasing affordability subsidies provided in the Exchange.  The second of two progressive “unity” amendments attempting to mitigate what liberals viewed as the harmful effects of the Blue Dog proposal to reduce federal insurance subsidies.  Adopted by a party-line 32-23 vote, with two Blue Dog Democrats opposing.

Ways and Means Amendments

Chairman’s Mark:  Prohibits the reimbursement of over-the-counter pharmaceuticals from Health Savings Accounts (HSAs), Medical Savings Accounts, Flexible Spending Arrangements (FSAs), and Health Reimbursement Arrangements (HRAs), effective in 2010.  Because these savings vehicles are tax-preferred, adopting this prohibition would raise taxes by $8.2 billion over ten years, according to the Joint Committee on Taxation.

Members may be concerned that this provision would first raise taxes, and second—by imposing additional restrictions on savings vehicles popular with tens of millions of Americans—undermines the promise that “If you like your current coverage, you can keep it.”  At least 8 million individuals hold insurance policies eligible for HSAs, and millions more participate in FSAs.  All these individuals would be subject to additional coverage restrictions—and tax increases—under this provision.

In addition, the Chairman’s mark extends current tax benefits for health insurance—including the exclusion from income and payroll taxes for participants in employer-sponsored coverage, the above-the-line deduction for health insurance premiums paid by self-employed individuals, and FSAs and HRAs—to “eligible beneficiaries,” defined as “any individual who is eligible to receive benefits or coverage under an accident or health plan.”  Under current law, while employer-sponsored coverage provided to spouses and children is generally excluded from income, domestic partners do not qualify for similar treatment, as the Internal Revenue Code does not classify them as dependents, and the Defense of Marriage Act (P.L. 104-199) prohibits their classification as spouses.  This section would effectively expand the current-law health insurance tax benefits to domestic partners and their children, beginning in 2010; the provisions would reduce revenue by $4 billion over ten years, according to the Joint Committee on Taxation.

Legislative Bulletin: H.R. 3200 — A Government Takeover of Health Care

BACKGROUND

On July 14, 2009, the Chairmen of the three House Committees with jurisdiction over health care legislation—Education and Labor Chairman George Miller (D-CA), Energy and Commerce Chairman Henry Waxman (D-CA), and Ways and Means Committee Chairman Charlie Rangel (D-NY)—introduced H.R. 3200 as a revised version of the “discussion draft” first publicly released on June 19.  On July 17, the Ways and Means Committee approved the bill by a 23-18 vote, and the Education and Labor Committee approved the bill by a 26-22 vote.  The Energy and Commerce Committee approved its version of the legislation on July 31 by a 31-28 margin.

The summary and analysis below refers solely to the bill as introduced.  The Rules Committee will merge the respective bills, and their amendments approved in Committee, for the House to consider one piece of legislation on the floor.

EXECUTIVE SUMMARY

The introduced bill sets the tone for a Washington takeover of the health care system—one defined by federal regulation, mandates, myriad new programs, and higher federal spending.  The bill would ensure the heavy hand of federal bureaucrats over the United States health care system, levying costly new taxes on individuals and businesses who do not comply.  Many Members may question how additional federal mandates and bureaucratic diktats raising costs appreciably for all Americans would make health care more “affordable.”  Many Members may also be concerned that the bill’s provisions—only partially masked by budgetary gimmicks and “smoke-and-mirrors” accounting—cost well over $1 trillion, financed largely by significant job-killing tax increases imposed on small businesses during a recession.

Highlights of major provisions likely to cause Member concern include:

  • Creation of a government-run health plan that experts say would result in up to 114 million Americans losing their current coverage—a clear violation of any pledge to allow individuals to keep their current health plan;
  • More than half a trillion dollars in tax increases on certain income filers, a majority of whom are small businesses—and $820 billion in tax increases overall;
  • Insurance regulations that would raise costs for nearly all Americans, particularly young Americans, and confine choice of plans to those approved by a board of bureaucrats;
  • New price controls on health insurance companies that provide perverse incentives to keep individuals sick rather than managing chronic disease, while impeding patient access to important services just because those services do not provide a direct clinical benefit;
  • Additional federal mandates that would significantly erode the flexibility currently provided to employers—and could result in firms dropping coverage;
  • Massive expansion of Medicaid—fully paid for by the federal government—to all individuals with incomes below 133 percent of the Federal Poverty Level ($29,326 for a family of four), replacing the existing private health coverage of millions with taxpayer-funded health care;
  • Language opening employers operating group health plans to State law remedies and private causes of action—subjecting employers to review by 50 different State court rulings, thereby raising costs and encouraging more employers to drop their current health plans;
  • Establishment of a bureaucrat-run health Exchange that would abolish the private health insurance market outside the Exchange—and could evolve into a single-payer approach due to the Exchange’s ability to cannibalize existing employer plans;
  • Creation of a new government board, the “Health Benefits Advisory Committee,” that would empower federal bureaucrats to impose new mandates—including a mandate to obtain and provide abortion coverage—on individuals and insurance carriers;
  • Taxation of individuals who do not purchase a level of health coverage that meets the diktats of a board of bureaucrats—including those who cannot afford the coverage options provided;
  • New, job-killing taxes—over $200 billion worth—on employers who cannot afford to provide their workers health insurance, which could result in up to 5.5 million employees losing their jobs;
  • Penalties as high as $500,000 on employers who make honest mistakes when filing paperwork with the government health board—which would likely dissuade businesses from continuing to provide coverage, increasing the amount of health care provided through the bureaucrat-run Exchange;
  • “Low-income” health insurance subsidies to a family of four making up to $88,200;
  • Arbitrary and harmful cuts to popular Medicare Advantage plans that would result in millions of seniors losing their current health coverage; and
  • Expanded price controls on pharmaceutical products that would discourage companies from producing life-saving breakthrough treatments.

SUMMARY

Division A—Affordable Health Care Choices

This division would create a new entitlement—a government-run health plan causing as many as 120 million Americans to lose their current coverage—intended to provide all Americans with “affordable” health insurance.  The bill also imposes new mandates and regulations on individual and employer-sponsored health insurance, while raising taxes on businesses who do not offer coverage and individuals who do not purchase coverage meeting federal bureaucrats’ standards.  Details of the division include:

Abolition of Private Insurance Market:  The bill imposes new regulations on all health insurance offerings, with only limited exceptions.  Existing individual market policies could remain in effect—but only so long as the carrier “does not change any of its terms and conditions, including benefits and cost-sharing,” as determined by the new Health Choices Commissioner, once the bill takes effect.  This provision would prohibit these plans from adding new, innovative, and breakthrough treatments as covered benefits, and would ensure that plans’ risk pools can only get older and sicker, putting these plans at a significant disadvantage to those operating under the government-run Exchange.  Some Members may be concerned that this provision would effectively prohibit individuals from keeping their current coverage, as few carriers would be able to abide by these restrictions without cancelling current enrollees’ plans.

With the exception of grandfathered individual plans with the numerous restrictions imposed as outlined above, insurance purchased on the individual market “may only be offered” until the Exchange comes into effect.  Some Members may be concerned about the abolition of the private market for individual health insurance, requiring all coverage to be purchased through the bureaucrat-run Exchange.

Employer coverage shall be considered exempt from the additional federal mandates, but only for a five year “grace period”—after which all the bill’s mandates shall apply.  Some Members may be concerned first that this provision, by applying new federal mandates and regulations to employer-sponsored coverage, would increase health costs for businesses and their workers, and second that, by tying the hands of businesses, this provision would have the effect of encouraging employers to drop existing coverage, leaving their employees to join the government-run health plan.

Insurance Restrictions:  The bill would require both insurance carriers and employer health plans to accept all applicants without conditions, regardless of the applicant’s health status.  The bill also does not clearly permit carriers from restricting guaranteed issue enrollment to certain open enrollment periods—meaning that individuals could be eligible to enroll immediately after suffering a major (and costly) adverse health event.

In addition, carriers could vary premiums solely based upon family structure, geography, and age; insurance companies could not vary premiums by age by more than 2 to 1 (i.e., charge older individuals more than twice younger applicants).  As surveys have indicated that average premiums for individuals aged 18-24 are nearly one-quarter the average premium paid by individuals aged 60-64, some Members may be concerned that the very narrow age variations would function as a significant transfer of wealth from younger to older Americans—and by raising premiums for young and healthy individuals, may discourage their purchase of insurance.  Some Members, noting that the bill does not permit premiums to vary based upon benefits provided—i.e. differing cost-sharing levels—may therefore question how the bill’s regulatory regime would provide any variation in health plan offerings.

The bill requires plans to comply with to-be-developed standards ending “discrimination in health benefits or benefit structures” for applicable plans, “building from” existing law requirements under the Employee Retirement Income Security Act (ERISA) governing group health coverage.  Some Members may view these additional bureaucratic provisions as an invitation for costly lawsuits regarding perceived discrimination that would do little to improve Americans’ health—and much to raise health costs.

The bill also requires health insurance plans to “meet such standards respecting provider networks as the Commissioner may establish”—which some Members may construe as allowing bureaucrats to regulate access to doctors and reject any (or all) private health insurance offering on the grounds that its network access is insufficient.  Conversely, the government-run plan is significantly advantaged because it would be automatically approved within the Exchange without subjecting its provider networks to scrutiny.

Price Controls:  The bill requires plans spending less than an “acceptable” percentage of their premium revenue on medical claims—as determined by federal bureaucrats in the Department of Health and Human Services—to offer refunds to enrollees.  This provision would take effect in 2011, ahead of the other major reforms scheduled to be implemented beginning in 2013.  Some Members may view this provision as a government-imposed price control, one that could be viewed as ignoring the advice of White House advisor Ezekiel Emanuel, who wrote that “some administrative [i.e. non-claims] costs are not only necessary but beneficial.”  Some Members may also be concerned that such price controls, by requiring plans to pay out most of their premiums in medical claims, would give carriers a strong (and perverse) disincentive not to improve the health of their enrollees through prevention and wellness initiatives—as doing so would reduce the percentage of spending paid on actual claims below the bureaucrat-acceptable limits.

Benefits Package:  The bill prohibits all qualified plans from imposing cost-sharing on preventive services, as well as annual or lifetime limits on benefits.  As more than half of all individuals currently enrolled in group health plans have some form of lifetime maximum on their benefits, some Members may be concerned that these additional mandates would increase costs and discourage the take-up for insurance.  Some Members may also be concerned that the bill’s provisions insulating individuals from the price of their health care would raise overall health costs—exactly the opposite of the legislation’s supposed purpose.

Annual cost-sharing would be limited to $5,000 per individual or $10,000 per family, with limits indexed to general inflation (i.e. not medical inflation) annually.  Benefits must cover 70 percent of total health expenses regardless of the cost sharing.  Services mandated fall into ten categories: hospitalization; outpatient hospital and clinic services; physician services; durable medical equipment; prescription drugs; rehabilitative and habilitative services; mental health services; preventive services; maternity benefits; and well child care “for children under 21 years of age.”

Benefits Committee:  The bill establishes a new government health board called the “Health Benefits Advisory Committee,” chaired by the Surgeon General, to make recommendations on minimum federal benefit standards and cost-sharing levels.  Up to eight of the Committee’s maximum 26 members may be federal employees, and a further nine would be Presidential appointees.

The bill eliminates language in the discussion draft stating that Committee should “ensure that essential benefits coverage does not lead to rationing of health care.”  Some Members may view this change as an admission that the bureaucrats on the Advisory Committee—and the new government-run health plan—would therefore deny access to life-saving services and treatments on cost grounds.

Some Members may be concerned with federal bureaucrats having undue influence on the definition of insurance for purposes of the individual mandate. Members may also be concerned that the Committee could evolve into the type of Federal Health Board envisioned by former Senator Tom Daschle, who conceived that such an entity could dictate requirements that private health plans reject certain clinically effective treatments on cost grounds. Finally, some Members may be concerned that the Committee could be used as a venue to require all Americans to obtain health insurance coverage of abortion procedures—a finding by unelected bureaucrats that would significantly increase the number of abortions performed nationwide.

Additional Requirements:  The bill would impose other requirements on insurance companies, including uniform marketing standards, grievance and appeals processes (both internal and external), transparency, and prompt claims payment—all of which would be subject to review by the new bureaucracy established through the Commissioner’s office.  The bill also requires insurers to make disclosures on plan documents in “plain language”—and directs the new federal Commissioner “to develop and issue guidance on best practices of plain language writing.”

Effective in July 2010, the bill would prohibit carriers from rescinding insurance policies except in cases with “clear and convincing evidence of fraud,” and would require mandatory external review in cases where carriers seek to cancel policies.  The bill also includes language requiring the Secretary to undertake a program of administrative simplification designed to ensure the rapid processing of claims and other related data.

New Bureaucracy:  The bill establishes a new government agency, the “Health Choices Administration,” governed by a Commissioner.  The Administration would be charged with governing the Exchange, enforcing plan standards, and distributing taxpayer-funded subsidies to purchase health insurance to anyone with incomes below four times the federal poverty level ($88,200 for a family of four).  The Commissioner would be empowered to impose the same sanctions—including civil monetary penalties, suspension of enrollment of individuals in the plan, and/or suspension of credit payments to plans—granted to the Centers for Medicare and Medicaid Services with respect to Medicare Advantage plans.  Some Members may be concerned that the bill’s provisions permitting federal bureaucrats to interfere in the enrollment of private individuals in ostensibly private health insurance plans confirms the over-arching nature of the government takeover of insurance contemplated in the bill.

The bill requires the Commissioner to conduct audits of health benefits plans in conjunction with States, and further authorizes the Commissioner to “recoup from qualified health benefits plans reimbursement for the costs of such examinations.”  Some Members may be concerned these provisions could lead to overlapping and duplicative requirements on private businesses—as well as higher costs due to inspections by a “health care police,” which businesses themselves would have to finance.

Pre-Emption:  The bill makes clear that its additional mandates and regulations “do not supersede any requirements” under existing law, “except insofar as such requirements prevent the application of a requirement” in the bill.  The bill also makes clear that existing State private rights of action would apply to plans as currently permitted under existing law.  Some Members may be concerned that these additional mandates, and the duplicative layers of regulation they create, would raise costs and encourage additional employers to drop their existing coverage offerings.

Whistleblower Provisions:  The bill establishes whistleblower protections against employees who file complaints regarding actual or potential violations of the Act’s provisions, and permits employees to bring actions for damages under provisions in the Consumer Product Safety Act.  Some Members may be concerned that these provisions would increase the number of lawsuits filed against firms by disgruntled employees, raising the cost of health care—exactly the opposite effect of the bill’s purported goal.

Reinsurance for Pre-Medicare Retirees:  The bill would finance reinsurance payments to employers (including multiemployer and other union plans) who offer coverage to retired workers aged 55 to 64 who are not eligible for Medicare.  The Trust Fund would pay 80 percent of claim costs for all retiree claims exceeding $15,000, subject to a maximum of $90,000; payments must be used to reduce overall insurance premiums and “shall not be used for administrative costs or profit increases.”  Some Members may be concerned that such reinsurance programs, by providing federal reimbursement of high-cost claims, would serve as a disincentive for employers to monitor the health status of their enrollees.  The language establishing the Retiree Reserve Trust Fund states that the $10 billion in expenditures for reinsurance “shall not be taken into account” for budgetary purposes—which many Members may view as a budgetary gimmick designed to mask the overall bill’s true costs.

Creation of Exchange:  The bill creates within the federal government a nationwide Health Insurance Exchange.  Uninsured individuals would be eligible to purchase an Exchange plan, as would those whose existing employer coverage is deemed “insufficient” by the federal government.  Once deemed eligible to enroll in the Exchange, individuals would be permitted to remain in the Exchange until becoming Medicare-eligible—a provision that would likely result in a significant movement of individuals into the bureaucrat-run Exchange over time.  New Medicaid beneficiaries may enroll in Exchange plans, but may not enroll in Medicaid while in an Exchange plan.

Employers with 10 or fewer employees would be permitted to join the Exchange in its first year, with employers with 11-20 employees permitted to join in its second year.  Larger employers might be eligible to join in the third year, if permitted to do so by the Commissioner.

One or more States could establish their own Exchanges, provided that no more than one Exchange operates in any State.  However, the federal Commissioner would retain enforcement authority, and further could terminate the State Exchange at any time if the Commissioner determines the State “is no longer capable of carrying out such functions in accordance with the requirements of this subtitle.”

Exchange Benefit Standards:  The bill requires the Commissioner to establish benefit standards for Exchange plans—basic (covering 70 percent of expenses), enhanced (85 percent of expenses), premium (95 percent of expenses), and premium-plus (premium coverage plus additional benefits for an enumerated supplemental premium).  Cost-sharing may be permitted to vary by only 10 percent for each benefit category, such that a standard providing for a $20 co-payment would allow plans to define co-payments within a range of $18-22.  Some Members may be concerned that these onerous, bureaucrat-imposed standards would hinder the introduction of innovative models to improve enrollees’ health and wellness—and by insulating individuals from the cost of health services, could raise health care costs.

State Benefit Mandates:  State benefit mandates would continue to apply to plans offered through the Exchange—but only if the State agrees to reimburse the Exchange for the increase in low-income subsidies provided to individuals as a result of an increase in the basic premium rate attributable to the benefit mandates.  Some Members may note that Democrat Members repeatedly criticized Republicans for overriding State mandates during debate in previous Congresses on the introduction of Association Health Plans.

Requirements on Exchange Plans:  The bill requires plans offered in the Exchange to be State-licensed; plans shall also be required to contract with certain provider entities and must include “culturally and linguistically appropriate services and communications.”  Carriers also may not “use coercive practices to force providers not to contract with other entities” offering coverage through the Exchange.  However, the bill places no such prohibitions on the government-run plan, thus permitting the Department of Health and Human Services to use its authority to set conditions of participation in a way that would undercut private insurance plans and effectively drive them out of business.

The bill gives the Commissioner the power to reduce out-of-network co-payments if the Commissioner determines a plan’s network is inadequate, turning the plan into a fragmented and archaic fee-for-service delivery model that does nothing to coordinate care.  The Commissioner also has authority to impose monetary sanctions, prohibit plans from enrolling new individuals, or terminate contracts.

Enrollment:  The bill requires the Commissioner to engage in outreach regarding enrollment, establish enrollment periods, and disseminate information about plan choices.  The Commissioner is required to develop an auto-enrollment process for subsidy-eligible individuals who do not choose a plan.  Some Members may note that nothing in the bill prohibits the Commissioner from auto-enrolling all individuals in the government-run plan—thus creating a single-payer system through bureaucratic fiat.

The bill includes language requiring participants in Exchange plans to pay premiums directly to the plans themselves, and not through the Exchange.  Some Members may view this provision as being inserted because the Congressional Budget Office would score premiums to insurance carriers routed through governmental entities (i.e. Exchanges) as part of the federal budget—and therefore an attempt to mask the true nature of the government takeover of health care the legislation contemplates.

Newborns born in the United States who are “not otherwise covered under acceptable coverage” shall automatically be enrolled in Medicaid; SCHIP eligible children shall be enrolled through the Exchange.  The bill provides for individuals in new Medicaid expansion populations to join the Exchange, if they so choose; beneficiaries failing to choose an Exchange plan would be enrolled in Medicaid—and existing Medicaid beneficiaries would not be given a choice to enroll in Exchange plans.

Risk Pooling:  The bill requires the Commissioner to establish “a mechanism whereby there is an adjustment made of the premium amounts payable” to plans to reflect differing risk profiles in a manner that minimizes adverse selection—and allows the Commissioner to determine all of the details of this mechanism.

Trust Fund:  The bill creates a Trust Fund for the Exchange, and permits “such amounts as the Commissioner determines are necessary” to be transferred from the Trust Fund to finance the Exchange’s operations.  The Trust Fund would collect amounts received from taxes by individuals not complying with the individual mandate, employers failing to provide adequate health coverage, and general government appropriations.  Some Members may be concerned that this open-ended source of appropriations for the bureaucrat-run Exchange would by definition constitute unfair competition against employer-provided insurance.

Government-Run Health Plans:  The bill requires the Department of Health and Human Services to establish a “public health insurance option” that “shall only be made available through the Health Insurance Exchange.”  The bill states the plan shall comply with requirements related to other Exchange plans, and offer basic, enhanced, and premium plan options.  However, the bill does not limit the number of government-run plans nor does it give the Exchange the authority to reject, sanction, or terminate the government-run plan; therefore, some Members may be concerned that the bill’s headings regarding a “level playing field” belie the reality of the plain text.

The government-run plan would be empowered to collect individuals’ personal health information, posting a significant privacy risk to all Americans.  The government-run plan would have access to federal courts for enforcement actions—a significant advantage over private insurance plans, whose enrollees may sue in State courts.

The bill gives the government-run health plans $2 billion in “start-up funds”—as well as 90 days’ worth of premiums as “reserves”—from the Treasury, with repayment—not including interest—to be made over a 10-year period.  The bill requires the Secretary to establish premium rates that can fully finance the cost of benefits, administrative costs, and “an appropriate amount for a contingency margin” as developed by the Secretary.  Some Members may be concerned that this provision would allow the Secretary to determine the plan’s own capital reserve requirements, which could be significantly less than those imposed on private insurance carriers under State law, and question why Democrats who criticized banks for maintaining insufficient reserves are now permitting a government-run health plan to do the exact same thing—unless their motive is to give the government-run health plan a built-in bias.

The bill provides that the government-run plan shall pay Medicare rates for at least its first three years of operation.  Physicians also participating in Medicare as well as the government-run plan shall receive a 5 percent bonus for its first three years; reimbursement rates for pharmaceuticals within the government-run plan would be “negotiated” by the Secretary—a provision which, with respect to Medicare Part D, the Congressional Budget Office has stated would not result in any appreciable savings when compared to negotiations undertaken by private health plans.

While the bill states that the Secretary “may utilize innovative payment mechanisms” to improve health outcomes and achieve other objectives, it also states that the Secretary must set payment rates “consistent with” provisions pointing to Medicare payment rates as the benchmark.  Given estimates from the Lewin Group that as many as 114 million individuals could lose access to their current coverage under a government-run plan—and that a government-run plan reimbursing at the rates contemplated by the legislation would actually result in a net $16,207 decrease in reimbursements per physician per year, even after accounting for the newly insured—many Members may oppose any effort to include a government-run plan in any health reform legislation.

The bill requires Medicare providers, including physicians, to participate in the government-run plan unless they opt-out of said participation, and provides that all providers who accept the government-run plan’s reimbursement rates shall be considered “preferred physicians”—regardless of their quality or expertise—and creates a new category of “participating, non-preferred physicians” who agree to abide by balance billing requirements similar to those in Medicare.  Other providers may participate in the government-run plan only if they agree to accept the plan’s reimbursement rates as payment in full. Some Members may be concerned that these provisions would therefore compel providers to accept Medicare-level reimbursements, which the Congressional Budget Office has noted are 20-30 percent below private health insurance payment levels.

The bill requires the Secretary to “establish conditions of participation for health care providers” under the government-run plan—however it includes no guidance or conditions under which the Secretary must establish those conditions.  Many Members may be concerned that the bill would allow the Secretary to prohibit doctors from participating in other health plans as a condition of participation in the government-run plan—a way to co-opt existing provider networks and subvert private health coverage.

Finally, the bill also allows the Secretary to apply Medicare anti-fraud provisions to the government-run plan.  Some Members, noting that Medicare has been placed on the Government Accountability Office’s high-risk list since 1990 due to fraud payments totaling more than $10 billion annually, may question whether these provisions would be sufficient to prevent similar massive amounts of fraud from the government-run plan.

“Low-Income” Subsidies:  The bill provides for “affordability credits” through the Exchange—and only through the Exchange, again putting employer health plans at a disadvantage.  Subsidies could be used only for basic plans in the first two years, and all plans thereafter.  Individuals with access to employer-sponsored insurance whose group premium costs would exceed 11 percent of adjusted gross income would be eligible for subsidies.

The bill provides that the Commissioner may authorize State Medicaid agencies—as well as other “public entit[ies]” to make determinations of eligibility for subsidies, and exempts the subsidy regime from the five-year waiting period on federal benefits established as part of the 1996 welfare reform law (P.L. 104-193).  Some Members may be concerned that, despite the bill’s purported prohibition on payments to immigrants not lawfully present, the first provision could enable State agencies—who have no financial incentive not to enroll undocumented workers in a federal subsidy program—to permit non-eligible individuals, including those unlawfully present, to qualify for health care subsidies, and that the second would give individuals a strong incentive to emigrate to the United States in order to obtain free federal welfare benefits.

Premium subsidies provided would be determined on a six-tier sliding scale, such that individuals with incomes under 133 percent of the Federal Poverty Level (FPL, $29,327 for a family of four in 2009) would be expected to pay 1.5 percent of their income, while individuals with incomes at 400 percent FPL ($88,200 for a family of four) would be expected to pay 11 percent of their income.  Subsidies would be capped at the average premium for the three lowest-cost basic plans.  Members may also note that as subsidies would be based on adjusted gross income, individuals with total incomes well in excess of the AGI threshold could qualify for subsidies—such that a family of four with $100,000 of total earnings could qualify for subsidies if $12,000 of that income was placed in a 401(k) plan and therefore not counted for purposes of calculating the AGI limits.

The bill further provides for cost-sharing subsidies, such that individuals with incomes under 133 percent FPL would be covered for 97 percent of expenses, while individuals with incomes at 400 percent FPL would have a basic plan covering 70 percent (the statutory minimum).  Some Members may be concerned that these rich benefit packages, in addition to raising subsidy costs for the federal government, would insulate plan participants from the effects of higher health spending, resulting in an increase in overall health costs—exactly the opposite of the bill’s purported purpose.

Income for determining subsidy levels would be verified through the Treasury Department and the Internal Revenue Service.  The bill provides for self-reporting of changes in income that could affect eligibility for benefits—provisions that could invite fraud by individuals seeking to claim additional benefits.

“Pay-or-Play” Mandate on Employers:  In order to meet acceptable coverage standards, the bill requires that employers offer coverage, and contribute to such coverage at least 72.5 percent of the cost of a basic individual policy—as defined by the bureaucrats on the Health Benefits Advisory Council—and at least 65 percent of the cost of a basic family policy, for full-time employees.  Employers must also auto-enroll their employees in group coverage, with an appropriate opt-out mechanism, in order to comply with the mandate.  The bill further extends the employer mandate to part-time employees, with contribution levels to be determined by the Commissioner, and mandates that any health care contribution “for which there is a corresponding reduction in the compensation of the employee” will not comply with the mandate—which many Members may be concerned would dictate terms of business practices in a way that will increase overall costs for employers, encouraging them to lay off workers.

Employers must comply with the mandate by “paying” a tax of 8 percent of wages in lieu of “playing” by offering benefits that meet the criteria above.  In addition, beginning in the Exchange’s second year, employers whose workers choose to purchase coverage through the Exchange would be forced to pay the 8 percent tax to finance their workers’ Exchange policy—even if they offer other coverage to their employees.

The bill includes a limited exemption for small businesses from the employer mandate—those with total payroll under $250,000 annually would be exempt, and those with payrolls of between $250,000 and $400,000 would be subjected to lower tax penalties (2-6 percent, as opposed to 8 percent for firms with payrolls over $400,000).  However, as these limits are not indexed for inflation, the threshold amounts would likely become increasingly irrelevant over time, as virtually all employers would be subjected to the 8 percent payroll tax.

The bill amends ERISA to require the Secretary of Labor to conduct regular plan audits and “conduct investigations” and audits “to discover non-compliance” with the mandate.  The bill provides a further penalty of $100 per employee per day for non-compliance with the “pay-or-play” mandate—subject only to a limit of $500,000 for unintentional failures on the part of the employer.

Some Members may be concerned that the bill would impose added costs on businesses with respect to both their payroll and administrative overhead.  Given that an economic model developed by Council of Economic Advisors Chair Christina Romer found that an employer mandate could result in the loss of up to 5.5 million jobs, some Members may oppose any effort to impose new taxes on businesses, particularly during a recession.  Some Members may find the small business exemption insufficient—no matter at what level it would be set—since the threshold level could always be modified in the future to finance shortfalls in the government-run plans, and result in negative effects at the margins (e.g. a restaurant owner not hiring an additional worker—or increasing wages—if such actions would eliminate his small business exemption and subject him to an 8 percent payroll tax).  Some Members may also be concerned that the bill’s mandates—coupled with a potential new $500,000 tax on small businesses for even unintentional deviations from federal bureaucratic diktats—would effectively encourage employers to drop their existing coverage due to fear of inadvertent penalties, resulting in more individuals losing access to their current plans and being forced into the government-run health plan.

Individual Mandate:  The bill places a tax on individuals who do not purchase “acceptable health care coverage,” as defined by the bureaucratic standards in the bill.  The tax would constitute 2.5 percent of adjusted gross income, up to the amount of the national average premium through the Exchange.  The tax would not apply to dependent filers, non-resident aliens, individuals resident outside the United States, and those exempted on religious grounds.  “Acceptable coverage” includes qualified Exchange plans, “grandfathered” individual and group health plans, Medicare and Medicaid plans, and military and veterans’ benefits.

Some Members may note that for individuals with incomes of under $100,000, the cost of complying with the mandate would be under $2,000—raising questions of how effective the mandate will be, as paying the tax would in many cases cost less than purchasing an insurance policy.  Despite, or perhaps because of, this fact, some Members may be concerned that the bill language does not include an affordability exemption from the mandate; thus, if the many benefit mandates imposed raise premiums so as to make coverage less affordable for many Americans, they will have no choice but to pay an additional tax as their “penalty” for not being able to afford coverage.  Therefore, some Members may agree with then-Senator Barack Obama, who in a February 2008 debate pointed out that in Massachusetts, the one State with an individual mandate, “there are people who are paying fines and still can’t afford [health insurance], so now they’re worse off than they were.  They don’t have health insurance and they’re paying a fine.”  Thus this provision would not only violate then-Senator Obama’s opposition to an individual mandate to purchase insurance—it would also violate his pledge not to raise taxes on individuals making under $250,000.

Small Business Tax Credit:  The bill provides a health insurance tax credit for small businesses, equal to 50 percent of the cost of coverage for firms where the average employee compensation is less than $20,000, establishing a perverse incentive to keep wages low.  Firms with 10 or fewer employees are eligible for the full credit, which phases out entirely for firms with more than 25 workers.  Individuals with incomes of over $80,000 do not count for purposes of determining the credit amount.  Some Members may question how an individual making $80,000 would have qualify as “highly-compensated” for purposes of the small business tax credit, but—if in a family of four—would be eligible for “low-income” subsidies available to families with incomes under $88,200 per year.

Tax Increases

Tax on Small Businesses:  The bill imposes a new “surtax” on individuals with incomes over $350,000, that would ultimately raise rates by 2 percent on individuals with incomes between $350,000-$500,000, 3 percent on individuals with incomes between $500,000-$1,000,000, and 5.4 percent on individuals with incomes over $1 million.  The tax would apply beginning in 2011.  The bill provides that the first two “surtax” levels would remain at 1 and 1.5 percent (instead of 2 and 3 percent, respectively) if the Office of Management and Budget certifies in 2012 that at least $675 billion in federal health reform savings would occur as a result of the bill’s passage.  The Joint Committee on Taxation estimates that such provisions would raise taxes by $544 billion over ten years.  As more than half of all high-income filers are small businesses, many Members may be concerned that this provision would cripple small businesses and destroy jobs during a deep recession.  Members may also be concerned that the “federal health reform savings” would never materialize, particularly during the short time window available prior to such certification—resulting not only in higher federal spending, but additional job-crushing taxes on small businesses.

Worldwide Interest:  The bill delays for an additional ten years the application of worldwide interest allocation provisions first enacted into law (but never implemented) in 2004, which JCT estimates would raise $26.1 billion over ten years.  Some Members may be concerned that, in addition to increasing taxes on businesses during a recession, further extension of these provisions would create undue uncertainty for many firms in an uncertain enough economic climate.

Treaty Benefits:  The bill would limit the treaty benefits for certain deductible payments made by members of multinational entities in the U.S. that are controlled by foreign parent corporations in nations that hold tax treaties with the U.S.  The bill prohibits certain previously negotiated taxes reductions on payments to foreign affiliates under current tax treaties.  Some Members may be concerned that this provision would violate previously negotiated treaties and impose higher taxes on foreign companies with affiliates that create jobs in the U.S.  Some Members may also be concerned this provision could harm U.S. business by spurring retaliatory acts from foreign companies.  JCT scores this provision as raising $7.5 billion over ten years.

Economic Substance:  The bill codifies the economic substance doctrine—which is used to prohibit tax benefits on transactions that are deemed to lack “economic substance.”  The bill states that a transaction has economic substance only if the transaction changes the taxpayer’s “economic position” in “a meaningful way” and the taxpayer has a “substantial purpose” for entering into the transaction.  In addition, the bill would impose a 20 percent penalty on understatements attributable to a transaction lacking economic substance (40 percent in cases where certain facts are not disclosed).  Some Members may be concerned that this provision would impose new burdens of proof and new liability penalties on taxpayers for making routine business decisions related to taxes.  JCT scores this provision as raising $3.6 billion over ten years.

Division B—Medicare and Medicaid Provisions

This division contains a significant expansion of Medicaid, fully paid for by the federal government, provisions to increase Medicare physician reimbursements without offsets, cuts to Medicare Advantage plans that would cause millions of seniors to lose their current plans, and other expansions of the Medicare and Medicaid programs.  Details of the division include:

Medicare Provisions

Part A Market Basket Updates:  The bill freezes skilled nursing facility and inpatient rehabilitation facility payment rates for 2010.  The bill also incorporates an Administration proposal to reduce market basket updates to reflect productivity gains made throughout the entire economy, effective in 2010.  The bill permits the Centers for Medicare and Medicaid Services (CMS) to recalibrate and adjust the case mix factor for skilled nursing facility payments and to revise and reduce the payment system for non-therapy ancillary services at same.

Disproportionate Share Hospital Payments:  The bill requires a study of Medicare Disproportionate Share Hospital (DSH) payments’ effectiveness on reducing the number of uninsured individuals and directs the Secretary to reduce disproportionate share hospital (DSH) payments to hospitals, beginning in 2017, by up to 50 percent if there is a reduction in the number of uninsured by 8 percentage points during the 2012-14 period.

Physician Payment Provisions:  The bill provides for an increase in Medicare physician reimbursements for 2010 equal to the increase in medical inflation, and recalibrates the Sustainable Growth Rate (SGR) mechanism such that year 2009 physician expenditures shall be used as the new baseline for computing whether total physician payments exceed the SGR targets.  The bill also exempts physician-administered drugs from the SGR formula and establishes two separate conversion factors—one for evaluation and management services, including primary care and preventive services, and one for all other services provided.  Thus evaluation and management services and all other specialist services would receive different annual payment rates, based on the growth of each service over time; the former would also receive a higher conversion factor under the bill—GDP growth plus two percent for evaluation and management services, as opposed to GDP growth plus one percent for all other services.

The bill provides for bonus payments of 5 percent for physicians participating in counties within the lowest 5 percent of total Medicare spending for 2011 and 2012, extends incentive payments under the Physician Quality Reporting Initiative through 2011 and 2012, and requires ambulatory surgical centers to submit cost and quality data to CMS.  The bill reduces market basket updates for outpatient hospitals, ambulance services, laboratory services, and durable medical equipment not subject to competitive bidding to reflect productivity gains in the overall economy, increases the presumed utilization of imaging equipment—so as to reduce overall payment levels for imaging services—includes provisions regarding oxygen suppliers and bond requirements for durable medical equipment, and draws down existing funds in the Medicare Improvement Fund.

Hospital Re-Admissions:  The bill reduces payments to hospitals with higher-than-expected re-admission rates based on their overall case mix, excluding planned or unrelated re-admissions.  The provision could reduce overall hospital payments by no more than 1 percent in 2012 and 5 percent in 2015 and subsequent years.  Hospitals receiving more than $10 million in DSH funds annually would receive a 5 percent increase in their DSH payments to provide for transitional services for patients post-discharge.  The bill provides for payment reductions in up to 1 percent for post-acute care providers (i.e. skilled nursing facilities, inpatient rehabilitation facilities, home health agencies, and long-term care hospitals) in instances where beneficiaries were readmitted within 30 days after discharge, and creates a pilot program for bundling post-acute care services.

Home Health:  The bill freezes home health agency payment rates in 2010, accelerates the implementation of case mix changes for 2011, so as to reduce the effect of “up-coding” or changes to classification codes, and requires CMS to re-base the entire prospective payment classification system by 2011—or reduce all home health payments by 5 percent.  The bill also reduces market basket updates for home health agencies to reflect productivity gains in the overall economy.

Physician-Owned Hospitals:  The bill would essentially eliminate these innovative facilities by imposing additional restrictions on so-called specialty hospitals by limiting the “whole hospital” exemption against physician self-referral.  Specifically, the bill would only extend the exemption to facilities with a Medicare reimbursement arrangement in place as of January 1, 2009, such that any new specialty hospital—including those currently under development or construction—would not be eligible for the self-referral exemption.  The bill would also place restrictions on the expansion of current specialty hospitals’ capacity, such that any existing specialty hospital would be unable to expand its facilities, except under limited circumstances.  Given the advances which physician-owned hospitals have made in increasing quality of care and decreasing patient infection rates, some Members may be concerned that these additional restrictions may impede the development of new innovations within the health care industry.

Geographic Adjustment Factors:  The bill requires an Institute of Medicine study regarding the accuracy of Medicare geographic adjustment factors, as well as directions to the Secretary to revise geographic adjustment factors for Medicare payment systems in a way that would not result in an overall reduction in payment rates.

Medicare Advantage:  The bill reduces Medicare Advantage (MA) payment benchmarks to traditional Medicare fee-for-service levels over a three-year period.  Some Members may be concerned that this arbitrary adjustment would reduce access for millions of seniors to MA plans that have brought additional benefits—undermining Democrats’ pledge that if Americans like the coverage they have, they will be able to keep it under health reform.

Even though no other Medicare provider is paid on the basis of quality, the bill provides for a quality improvement adjustment for MA plans of up to 3 percent, along with an additional one percent increase for improved quality plans, based on re-admission rates, prevention quality, and other related measures.  Incentive payments would be available to the top quintile of plans, and the top quintile of most improved plans.  However, the Secretary may disqualify plans as not highly ranked, irrespective of their quantitative performance, “if the Secretary has identified deficiencies in the plan’s compliance.”  The bill also requires CMS to make annual adjustments to MA plan payments to reflect differences in coding patterns between MA plans and government-run Medicare, and eliminates the three month open-enrollment period for Medicare Advantage plans, confining changes in enrollment to the period between November 1 and December 15.  The bill extends reasonable cost contract provisions through 2012, and limits CMS’ waiver authority for employer group MA plans unless 90 percent of enrollees reside in a county in which the MA organization offers an eligible plan.

The bill imposes requirements on MA plans to offer cost-sharing no greater than that provided in government-run Medicare, and imposes price controls on MA plans, limiting their ability to offer innovative benefit packages.  Specifically, the bill requires MA plans to report their ratio of total medical expenses to overall costs (i.e. a medical loss ratio), requires plans with a medical loss ratio of less than 85 percent to offer rebates to beneficiaries, prohibits plans with a medical loss ratio below 85 percent for three consecutive years from enrolling new beneficiaries, and excludes plans with a medical loss ratio below 85 percent for five consecutive years.  Particularly as the Government Accountability Office noted in a report on this issue that “there is no definitive standard for what a medical loss ratio should be,” some Members may be concerned about this attempt by federal bureaucrats to impose arbitrary price controls on private companies.  Again, this policy would encourage plans to keep seniors sick, rather than manage their chronic disease.

The bill also gives the Secretary blanket authority to reject “any or every bid by an MA organization,” as well as any bid by a carrier offering private Part D Medicare prescription drug coverage.  Some Members may be concerned that this provision gives federal bureaucrats the power to eliminate the MA program entirely—by rejecting all plan bids for nothing more than the arbitrary reason than that an Administration wishes to force the 10 million beneficiaries enrolled in MA back into traditional, government-run Medicare against their will.

Part D Provisions:  The bill extends price controls, via Medicaid drug rebates, to all dually eligible beneficiaries participating in both Medicare and Medicaid, and requires that such rebates be deposited into a new account to finance the elimination of the Part D “doughnut hole” as described below.  Some Members may be concerned that expanding prescription drug price controls into the only part of Medicare that consistently comes in under budget would constitute the further intrusion of government into the health care marketplace, and do so in a way that harms the introduction of new breakthrough drugs and treatments.  Some Members may also note that CBO has previously stated that an expansion of the Medicaid drug rebate to Medicare would result in drug companies raising private-sector prices—potentially resulting in higher prices for many Americans.

The bill slowly phases in prescription drug coverage in the Medicare Part D “doughnut hole,” by increasing the initial coverage limit and decreasing the annual out-of-pocket maximum; the transition phases in starting in 2011, but would only be 55 percent complete in 2019 (i.e. ten years from now).  Some Members may believe this provision constitutes a budgetary gimmick designed to mask the full cost of filling in the doughnut hole by extending such costs well outside the ten-year budgetary window.

The bill also requires drug manufacturers, as a condition of participation in Part D, to sign a “discount agreement” providing discounts of 50 percent to beneficiaries in the “doughnut hole” prior to its elimination.  The total price (exclusive of the discount) would be used towards determining when the beneficiary reaches the out-of-pocket maximum that triggers catastrophic coverage under the Part D benefit.  Given the ostensibly voluntary nature of the agreement with pharmaceutical manufacturers that led to this provision, some Members may question why the bill links participation in the Part D program to these “voluntary” discounts—one that amounts to a form of price control.

The bill would expand current law protections against formulary changes by permitting beneficiaries to change plans whenever a plan is “materially changed…to reduce the coverage…of the drug.”  Thus the bill would now allow beneficiaries to switch Part D plans whenever a plan changes its formulary that would result in higher cost-sharing requirements.  Some Members may be concerned that this provision—which essentially prohibits plans from adjusting their formularies to reflect new generic drugs coming on the market mid-year—would result in higher administrative costs and lack of stability for plans.

Other Provisions:  The bill extends certain hospital re-classifications for two years, as well as a two-year extension of certain ambulance provisions and the therapy caps exceptions process.  The bill expands the Medicare entitlement, effective in 2012, to include coverage of immunosuppressive drugs for end-stage renal disease patients no longer eligible for Medicare benefits due to a kidney transplant.  The bill also establishes a demonstration program on the use of patient decision-making aids, to educate beneficiaries regarding their treatment options, and expands the definition of physician services to include consultations regarding end-of-life decision-making.  Some Members may be concerned that this latter provision would result in government-paid consultations encouraging assisted suicide or other forms of euthanasia.

Expansion of Subsidy Programs:  The bill expands the asset test definition for the low-income subsidy program under Part D, allows the release of tax return data for purposes of determining eligibility, and increases the maximum amount of assets permissible to $17,000 for an individual and $34,000 for couples.  Some Members, noting that the asset tests were already expanded and simplified in legislation enacted last year (P.L. 110-275), may question the need for a further expansion of federal welfare benefits in the form of low-income subsidies.

The bill applies the low-income subsidy asset tests to the Medicare Savings Program—but only for 2010 and 2011, which some Members may view as a budgetary gimmick designed to mask the true cost of the bill.  The bill also eliminates all cost-sharing for dual eligible beneficiaries receiving home and community-based services who would otherwise be institutionalized in a nursing home, and permits individuals to self-certify their asset eligibility for low-income subsidy programs, and to obtain reimbursement from plans for cost-sharing retroactive to the date of purported eligibility for subsidies—provisions that could serve as an invitation for fraudulent activity.

The bill eliminates current law random assignment of dual eligible beneficiaries in Part D plans, requiring CMS to develop “an intelligent assignment process…to maximize the access of such individual to necessary prescription drugs while minimizing costs to such individual and the program.”  Some Members may question precisely how bureaucrats at CMS would be able to ascertain the best plan choice for individual seniors.

Language Services:  The bill requires a study by CMS regarding language communication and “ways that Medicare should develop payment systems for language services,” and authorizes a demonstration project of at least 24 grants of no more than $500,000 to providers to expand language communication and interpretation services.

Accountable Care Organizations:  The bill establishes a pilot program to create accountable care organizations (ACOs) designed to improve coordination of care and improve system efficiencies.  ACOs would include a group of physicians, including a sufficient number of primary care physicians, and could also include hospitals and other providers.  ACOs would be eligible to receive a portion (as determined by CMS) of the savings from a reduction in projected spending under Parts A, B, and D for beneficiaries enrolled in the ACO.  ACOs would also be permitted to receive their payments on a partially-captitated basis, as determined by CMS.  The Secretary may make the pilot program permanent, provided that the CMS Chief Actuary certifies that the program would reduce Medicare spending.

Medical Home Pilot:  The bill would establish a pilot program to provide medical home services for beneficiaries—with such medical home “providing first contact, continuous, and comprehensive care.”  Specifically, the bill provides for monthly risk-adjusted payments for medical home services provided to sicker-than-average Medicare beneficiaries (i.e. those above the 50th percentile), as well as payments for community-based medical home services provided to beneficiaries with multiple chronic illnesses.  The bill provides a total of $1.7 billion in additional funding for payments under the pilot programs.  The Secretary may make the pilot programs permanent, provided that the CMS Chief Actuary certifies that the permanent program would reduce estimated Medicare spending.

Primary Care Provisions:  The bill provides a 5 percent increase in reimbursements for physicians and other primary care providers beginning in 2011, and a 10 percent increase for providers practicing in underserved areas.  These increases would be in addition to the overall physician reimbursement changes outlined above.

Prevention and Mental Health:  The bill eliminates co-payments and cost-sharing for certain preventive services.  While supporting the encouragement of preventive care, some Members may believe that a blanket waiver of all cost-sharing for a list of services would encourage unnecessary or superfluous consumption of these treatments.  The bill also expands the list of Medicare covered services to include marriage, family therapist, and mental health counselor services.  Some Members may be concerned that this provision could result in non-Medicare beneficiaries (i.e., spouses and family members under age 65) receiving free mental health services from the federal government.

Comparative Effectiveness Research:  The legislation includes language regarding the comparative effectiveness of various medical services and treatment options.  The bill would establish another government center for comparative effectiveness research to gauge the effectiveness of medical treatments, a commission of federal bureaucrats and others to set priorities, and a trust fund in the U.S. Treasury to support the research.  The trust fund’s research would be financed by transfers from the cash-strapped Medicare Trust Funds, along with new taxes on insurance plans imposed on a per capita basis.  While the bill includes a prohibition on the Center using its research to mandate treatment options, some Members may be concerned that the bill includes no prohibition on other agencies (i.e. the Centers for Medicare and Medicaid Services) using comparative effectiveness research—including cost-effectiveness research—to make coverage and/or reimbursement decisions, which could lead to government rationing of life-saving drugs, therapies, and treatments.

Nursing Home Provisions:  The bill includes nearly 100 pages of requirements and regulations with respect to nursing facilities (reimbursed through Medicaid) and skilled nursing facilities (reimbursed through Medicare) providing nursing home care, including requirements for the public disclosure of entities exercising operational and functional control of nursing facilities, as well as those who “provide management or administrative services…or accounting or financial services to the facility”—provisions which some Members may view as overly broad and likely to increase administrative costs without providing meaningful disclosure.

The bill requires facilities to have compliance and ethics programs in operation that meet standards set in federal regulations, as well as specific parameters laid out in the bill.  The bill requires facilities to “use due care not to delegate substantial discretionary authority to individuals whom the organization knew, or should have known through the exercise of due diligence, had a propensity to engage in criminal, civil, and administrative violations”—broad requirements which some Members may view as potentially extending liability to an entire organization for one individual’s misdeeds.

The bill requires CMS to implement a quality assurance and performance improvement program for facilities, requires facilities to submit plans to meet best practice standards under such program, and calls for a GAO study examining the extent to which large multi-facility nursing home chains are under-capitalized and whether such conditions, if present, adversely impact care provided.

The bill creates a standardized complaint form for facilities and imposes requirements on States to maintain complaint processes that employees, patients, and patients’ friends and family members are not retaliated against for lodging a complaint.  The bill extends federal whistleblower protections to any current or former employee of a facility regarding good faith complaints made about that facility and permits victims of discrimination to pursue action against the facility in United States district court.  The bill permits successful whistleblower plaintiffs to receive damages as well as “reasonable attorney and expert witness fees,” and prohibits any contractual arrangement from waiving or infringing upon whistleblowers’ rights.  Some Members could be concerned that these provisions would constitute an invitation to lawsuits against nursing home facilities, the cost of which could significantly hinder the facility’s ability to provide quality patient care.

The bill modifies existing penalty provisions to allow fines—imposed by CMS in the case of skilled nursing facilities and States in the case of nursing facilities—of up to $100,000, in instances where facilities’ deficiencies are “found to be a direct proximate cause of death of a resident,” and up to $3,050 per day for “any other deficiency” found not to cause “actual harm or immediate jeopardy.”  Penalties for incidental, first-time infractions may be reduced if the facility self-reports the infraction and takes remedial action within ten days.  The bill notes that “some portion of” the penalties collected “may be used to support activities that benefit residents.”

The bill establishes a two-year pilot program to create a national monitor to oversee “large intrastate chains of skilled nursing facilities and nursing facilities” that apply to participate in the program, requires facilities to provide at least 60 days’ notice prior to their closure, and adds dementia management and resident abuse to the list of required training courses for nurses aides working in relevant facilities.

Quality Improvement:  The bill establishes a new program of national priorities for quality improvement and directs the Agency for Healthcare Research and Quality to help develop a series of quality measures that can assess patient care and outcomes in consultation with a group of stakeholders.

Disclosure of Physician Relationships:  The bill imposes new reporting requirements on drug and device manufacturers and distributors to disclose their financial relationships with physicians and other health care providers.  Specifically, manufacturers and distributors would be required to disclose the details behind any “transfer of value directly, indirectly, or through an agent,” with some limited exceptions.  A “transfer of value” includes any drug sample, gift, travel, honoraria, educational funding or consulting fees, stocks, or other ownership interest.  The bill establishes a new federal standard, but allows States to exceed the federal standard.

The bill authorizes penalties of between $1,000 and $10,000 for each instance of non-reporting, up to a maximum fine of $150,000; knowing violations of non-reporting carry penalties of between $10,000 and $100,000 for each instance, up to a maximum find of the greater of $1,000,000 or 0.1 percent of total annual revenues—which for large companies could significantly exceed $1 million.  Some Members may be concerned at the significant penalties imposed for even incidental and unintentional non-compliance with the rigorous disclosure protocols established in the bill—and further question whether this disclosure would provide meaningful information to patients.

The bill further permits State Attorneys General to bring actions pursuant to this section upon notifying the Secretary about a specific case.  Some Members may be concerned that this provision would result in additional lawsuits, which, coupled with the millions of dollars in potential fines above, would further raise costs for manufacturers and discourage the development and diffusion of life-saving breakthroughs.

Health Care Infections:  The bill requires hospitals and ambulatory surgical centers participating in Medicare or Medicaid to submit public reports on hospital-acquired infections to the Centers for Disease Control, and requires such information to be made publicly available.

Graduate Medical Education (GME):  The bill provides for the re-distribution of unused GME training slots, beginning in 2011, to hospitals, provided that no hospital shall receive more than 20 additional positions, and that all re-distributed residency positions be directed towards primary care.  The bill permits activities in non-provider settings to count towards GME resident time, including participation in scholarly conferences and other educational activities.

Anti-Fraud Provisions:  The bill increases funding for anti-fraud efforts by $100 million per year, and also increases penalties imposed on plans offering coverage through MA, Medicaid, or Part D related to knowing mis-representation of facts “in any application to participate or enroll” in federal programs.  The bill also makes eligible for penalties the knowing submission of false claims data, a failure to grant timely access to inspector general audits or investigations, submission of claims when an individual is excluded from program participation.  The bill provisions state that MA or Part D plans providing false information to CMS can be fined three times the amount of the revenues obtained as a result of such mis-representation.  The bill also includes language prohibiting excluded individuals, as well as entities carrying out the directions of individuals whom such entities know to be excluded, from receiving Medicare or Medicaid reimbursements.

The bill permits the Secretary to impose additional screening and oversight requirements—including a moratorium on the enrollment of new providers—in the case of significant risk of fraudulent activity, and requires providers to disclose in applications for enrollment or renewed enrollment current or previous affiliations with providers suspended or excluded from the programs in question.  The bill requires providers to adopt waste, fraud, and abuse compliance programs, subject to a $50,000 fine for non-compliance, and reduces from 36 months to 12 months the maximum lookback period for providers to submit Medicare claims.

The bill requires physicians ordering durable medical equipment (DME) or home health services to be participating physicians within the Medicare program, and requires providers to maintain and provide access to written documentation for DME and home health requests and referrals.  Home health and DME services would require a face-to-face encounter with a provider prior to a physician certification of eligibility.  The bill also extends the Inspector General’s subpoena authority, and requires individuals to return overpayments within 60 days of said overpayment coming to light, subject to civil penalties.  Finally, the bill grants the Inspector General access to all Medicare and Medicaid claims databases, including MA and Part D contract information, and consolidates two existing data banks of information.

Medicaid and SCHIP Provisions

Medicaid ExpansionThe bill expands Medicaid to all individuals—including non-disabled, childless adults not currently eligible for benefits—with incomes below 133 percent FPL ($29,326 for a family of four).  New populations made eligible for Medicaid benefits under this provision would have their benefits fully financed by the federal government—an unprecedented change in the shared responsibility structure of the Medicaid program.

Many Members may be concerned by both the cost and scope of this unprecedented expansion of Medicaid to millions more Americans.  Some Members may believe the 100 percent federal match would provide a strong disincentive for States to take appropriate action to control costs, as well as fraud and abuse, in their Medicaid programs.  Members may also note that a plurality of individuals (44 percent) with incomes between one and two times the poverty level have private health insurance; expanding Medicaid to 133 percent FPL would provide a strong incentive for the employers of these individuals to drop their current coverage so they can instead enroll in the government-run plan.  Moreover, given Medicaid’s history of poor beneficiary access to care, some Members may believe that Medicaid itself needs fundamental reform—and beneficiaries need the choice of access to quality private coverage rather than a government-run plan.

Medicaid/Exchange Interactions:  The bill requires States to accept and enroll individuals documented by the Exchange as having incomes under 133 percent FPL.  The bill also excludes any payments related to erroneous eligibility determinations for Exchange plans from States’ Medicaid error rates—which some Members may be concerned could encourage States to enroll beneficiaries not eligible for benefits.

In general, the bill would require currently eligible Medicaid beneficiaries to remain in the government-run Medicaid program, while giving newly eligible beneficiaries in expansion populations the choice of government-run Medicaid or coverage through Exchange plans.  Some Members may be concerned that these provisions would result in significant disparities among low-income beneficiaries; while some would be “locked in” to government-run Medicaid, others would be permitted a choice (albeit a choice narrowly defined by bureaucratic standards) of coverage options in the Exchange—based largely on arbitrary factors.

The bill imposes maintenance of effort requirements on States, prohibiting the voters or elected leaders of a State from reducing eligibility levels in that State’s Medicaid and SCHIP programs after the bill’s enactment.  Some Members may be concerned that these restrictions—which Tennessee Democrat Gov. Phil Bredesen termed “the mother of all unfunded mandates” on States—and could prompt a scenario envisioned by the head of Washington State’s Medicaid program, whereby States facing severe financial distress may say, “‘I have to get out of the Medicaid program altogether.’”

The bill also requires a study of Medicaid Disproportionate Share Hospital (DSH) payments’ effectiveness on reducing the number of uninsured individuals, and includes a total of $10 billion in Medicaid DSH payment reductions in Fiscal Years 2017-2019, based on the States that have the lowest number of uninsured patients.

Preventive Services:  The bill requires Medicaid to cover certain preventive services, as well as recommended vaccines.  The bill also permits Medicaid coverage of tobacco cessation programs, as well as optional coverage of nurse home visitation services.

Family Planning Services:  The bill includes several provisions related to family planning services.  Specifically, the bill would amend the definition of a “benchmark State Medicaid plan” to require family planning services for individuals with incomes up to the highest Medicaid income threshold in each State.  The bill also permits States to establish “presumptive eligibility” programs for family planning services, which would allow Medicaid-eligible entities—including Planned Parenthood clinics—temporarily to enroll individuals in the Medicaid program for up to 61 days and places no limit on the number of times an individual can be presumptively enrolled by the same entity.  Under this provision, a person could be repeatedly presumptively enrolled in the Medicaid program for years without ever having to document that the individual is actually qualified to receive taxpayer-funded Medicaid benefits.

Some Members may be concerned that these changes would, by altering the definition of a benchmark plan, undermine the flexibility established in the Deficit Reduction Act to allow States to determine the design of their Medicaid plans, expanding the federal government’s role in financing family planning services.  Some Members may also be concerned that the presumptive eligibility provisions would enable wealthy individuals or undocumented aliens to obtain free family planning services—and potentially other health care benefits—financed by the federal government, based solely on a presumption of possible eligibility by Planned Parenthood or other clinics.

Access to Services:  The bill increases reimbursements to Medicaid primary care providers so that all such providers would be paid at Medicare rates by 2012—with the cost of such increased reimbursements fully paid for by the federal government.  Some Members could be concerned this provision would result in States shifting more and more health care bills towards primary care services paid for by federal taxpayers at a higher rate.  The bill requires the Secretary to establish a medical home pilot program for Medicaid, similar to the Medicare program described above, and provides $1.2 billion to finance additional federal costs over the five-year period of the project.

The bill gives States the option to cover “ambulatory services that are offered at a freestanding birth center,” defined as any non-hospital location “where childbirth is planned to occur away from the pregnant woman’s residence,” as well as certain low-income HIV positive individuals at an enhanced federal match.  The bill extends for two additional years the Transitional Medical Assistance (TMA) program that provides Medicaid benefits for low-income families transitioning from welfare to work.  Traditionally, the TMA provisions have been coupled with an extension of Title V abstinence education funding during the passage of health care bills.  However, the Title V funds were excluded from the bill language, and therefore expired on July 1, 2009.  Some Members may be concerned at the removal of the Title V abstinence education funding and the potential end of this program.

The bill requires that stand-alone SCHIP programs must implement 12-month continuous eligibility programs.  Some Members may be concerned that these provisions, in restricting State flexibility, would allow individuals to continue to receive federally-financed benefits long after they became ineligible.

Medicaid Pharmaceutical Price Controls:  With respect to payments to pharmacists, the bill changes the federal upper reimbursement limit from 250 percent of the average manufacturer price (AMP) of the lowest therapeutic equivalent to 130 percent of the volume-weighted AMPs of all therapeutic equivalents.  Manufacturers would be required to provide additional rebates for new formulations (e.g. extended-release versions) of existing drugs.  The bill also increases the minimum Medicaid rebate for single-source (i.e. patented drugs) from 15.1 percent to 22.1 percent, and—for the first time—applies the rebate to drugs purchased by Medicaid managed care organizations, which already have the ability to negotiate lower prices.  Some Members may be concerned that this language, by increasing the Medicaid rebate nearly 50 percent and extending the scope of its price controls, represents a further intrusion of government into the marketplace—and one that could result in loss of access to potentially life-saving treatments, by reducing companies’ incentive to develop new products.

Other Provisions:  The bill provides circumstances under which States can submit reimbursement claims for graduate medical education—a service that has never before been recognized as subject to reimbursement under the original Medicaid statute.  The bill also grants CMS the authority to reject payment for certain “never events” resulting from medical errors and other “health care acquired conditions.”  The bill requires providers to adopt waste, fraud, and abuse programs, extends other anti-fraud provisions and includes a two-year extension of the Qualifying Individual program, which provides assistance through Medicaid for low-income seniors in paying their Medicare premiums.  Some Members may be concerned that the bill also regulates medical loss ratios for Medicaid managed care organizations, requiring the Secretary to hold such organizations to a minimum 85 percent payout—adding a government-imposed price control, and one that the Government Accountability Office has admitted is entirely arbitrary.

The bill would repeal provisions in the Medicare Modernization Act requiring expedited procedures for the President to submit, and Congress to consider, “trigger” legislation remedying Medicare’s funding shortfalls, as well as provisions regarding a Medicare premium support demonstration project scheduled to start in 2010.  At a time when the Medicare Part A Trust Fund is scheduled to be exhausted in 2017, some Members may be concerned that these changes would eliminate provisions designed to have Congress take action to remedy Medicare’s looming fiscal crisis and one possible solution (i.e. premium support).

The bill extends an existing gainsharing demonstration project, requires a new “identifiable office or program” within CMS to focus on protecting dual eligibles, and provides for new grants to States to support home visitation programs for families with children and families expecting children.  The visitation program would be similar to the capped allotment funding mechanism used in SCHIP; federal funding would total $750 million in the first five years, and State allotments would be determined on the basis of each State’s relative proportion of children in families below 200 percent FPL.  The federal government would provide a matching reimbursement rate, starting at 85 percent in 2010 before falling to 75 percent in 2012.  At a time when existing entitlements are fiscally unsustainable, some Members may question the wisdom of establishing yet another federal entitlement—this one a new home visitation program to teach parents “skills to interact with their child.”

Division C—Public Health

This division of the bill would purportedly improve public health and wellness through a variety of federal programs and increased spending.  While supporting the goal of better health and wellness for all Americans, some Members may be concerned by the bill’s apparent approach that additional federal spending ipso facto will improve individuals’ health.  Details of the division include:

New Mandatory Spending:  The bill appropriates $88.7 billion in new mandatory spending over ten years for a “Public Health Investment Fund,” of which $35.3 billion is dedicated to a “Prevention and Wellness Trust.”  This increase in mandatory spending is intended to fund programs established in the bill, as well as other programs in the Public Health Service Act.  Moreover, the language establishing the trust funds states that the nearly $90 billion in expenditures “shall not be taken into account” for budgetary purposes—which many Members may view as a budgetary gimmick designed to mask the bill’s true costs.

Community Health Centers:  The bill authorizes an additional $38.8 billion from the Public Health Investment Fund for grants to community health centers—funding over and above the significant increase provided in the $13.3 billion, five-year reauthorization that passed just last year (P.L. 110-355).  Some Members may be concerned by the significant increase in authorization levels given the federal government’s expected deficit of nearly $2 trillion this year.

Workforce Provisions:  The bill would increase maximum loan repayment levels for participants in the National Health Service Corps from $35,000 to $50,000 per year, further adjusted for inflation, and authorizes an additional $2.9 billion in appropriations for loan repayments.  The bill also creates a new program for primary care in addition to the existing National Health Service Corps, which would fund a loan forgiveness program in exchange for each year of service by an individual in an underserved area.  The bill would also reduce certain student loan interest payments for participants in certain medical loan programs, which data from the Department of Health and Human Services indicates would actually reduce the number of individuals able to access such programs.

The bill would award grants to hospitals and other entities to plan, develop, or operate training programs and provide financial assistance to students with respect to certain medical specialties, including primary care physicians and dentistry, and increase student loan limits for nursing students and faculty.  The bill would further award grants to health professions schools for the training of, and/or financial assistance to, medical residents training in community-based settings, public health professionals, and graduate medical residents in preventive medicine specialties.  The bill would make certain modifications to existing programs for diversity centers and increase loan repayment limits for such programs by $15,000 (plus a new inflation adjustment) per year.  The bill amends provisions relating to grants for cultural and linguistic competence training and authorizes new grants for interdisciplinary training designed to reduce health disparities and to support the operation of school-based health clinics.

The bill would establish a Public Health Workforce Corps with its own scholarship program to address workforce shortages.  The scholarship program would include up to four years of tuition and fees, as well as a $1,269 monthly stipend during the academic year.  The Corps would have a further loan forgiveness program for individuals who commit to at least two years of service, providing up to $35,000 annually in loan forgiveness to participants.

The bill would authorize grants administered by the Secretary of Labor “to create a career ladder to nursing” for “a health care entity that is jointly administered by a health care employer and a labor union” in order to fund “paid leave time and continued health coverage to incumbent workers to allow their participation” in various training programs, or “contributions to a joint labor-management training fund which administers the program involved.”  Some Members may be concerned that this provision would enable labor unions to receive federal grant funds in order to train their members.

Finally, the bill would create a national wellness strategy, two new advisory boards on preventive care, an Assistant Secretary for Health Information, an Advisory Committee on Health Workforce Evaluation and Analysis, and a National Center for Health Workforce Analysis.  Some Members may question the necessity and wisdom of establishing multiple new bureaucracies to attempt to analyze and manage America’s health levels along with the entire health care workforce.

Expanded Price Controls:  The bill expands participation in the 340B program, which reduces the price paid for outpatient pharmaceuticals purchased by certain entities.  Specifically, the bill expands the program to children’s hospitals, critical access hospitals, rural referral centers, and sole community hospitals, while also extending the price control mechanism to inpatient drugs used by such hospitals and facilities.  Some Members may be concerned that this language, by extending the scope of price controls on pharmaceutical products, represents a further intrusion of government price controls into the marketplace—and one that could result in loss of access to potentially life-saving treatments, by reducing companies’ incentive to develop new products.  In addition, the bill would also create a National Medical Device Registry “to facilitate analysis of post-market safety and outcomes data.”

COST AND OTHER CONCERNS

On July 17, the Congressional Budget Office released a preliminary score for certain provisions in the bill—with the noteworthy caveat that with respect to the cost of proposed coverage expansions and insurance reforms, the estimates “is based on specifications provided by committee staff, rather than on a detailed analysis of the legislative language.”  As a result, CBO noted that “our review of that language could have a significant effect on our analysis.”

CostThe House Democrat legislation would increase the federal deficit by approximately $239 billion over ten years, according to CBO’s estimate.  This deficit spending would be on top of record annual deficits projected to top $1.8 trillion this year alone.  Most notably, CBO Director Elmendorf—speaking at a July 15 Energy and Commerce Committee briefing on the bill as introduced—admitted to Members that the Democrat bill would essentially have no impact on the long-term growth of health care costs—the legislation’s purported goal.  Many members may be concerned that spending at least $1.6 trillion to finance a government takeover of health care would not only not help the growth in health costs, but—by creating massive and unsustainable new entitlements—would also make the federal budget situation much worse.

More specifically, CBO estimates that the selected provisions would result in at least $1.6 trillion in federal spending during the 2010-2019 period, including $1.28 trillion to finance coverage expansions—$438 billion for the Medicaid expansions, $773 billion for “low-income” subsidies, $53 billion for small business tax credits, and $15 billion in interactions relating to tax revenues (resulting from changes in employer-sponsored coverage).

Other savings would come from reductions within the Medicare program, of which the biggest are cuts to Medicare Advantage plans (net cut of $162.2 billion), reductions in productivity adjustments to certain market-basket updates for hospitals and other providers (total of $141.7 billion), skilled nursing facility payment reductions (total of $32 billion), various reductions to home health providers (total of $56.8 billion), and reduction in imaging payments ($4.3 billion).

While the net savings from expansion of drug price controls—extending the 340B program to cover inpatient drugs and the Medicaid drug rebate to include dual eligibles in Part D—would save $48 billion over ten years, the CBO scoring table indicates that the cost of eliminating the “doughnut hole” for the Part D benefit—which is phased in over many years, and does not take full effect until well after the 2019 end of the budgetary scoring window—would in time exceed any savings from the discounts provided by the pharmaceutical industry.

Tax Increases:  Offsetting payments would include $29 billion in taxes on individuals not complying with the mandate to purchase coverage, as well as a total of $208 billion in taxes and payments by businesses associated with the “pay-or-play” mandate.  Members may note that the tax from the insurance mandate would apply on individuals with incomes under $250,000, thus breaking a central promise of then-Senator Obama’s presidential campaign.

The Joint Committee on Taxation notes that the bill provisions would increase federal revenues by $581 billion over ten years—over and above the $237 billion in tax increases related to the individual and employer mandates noted above—for a total of $820 billion in tax increases over ten years.  JCT found that the “surtax” would raise nearly $544 billion, the worldwide interest implementation delay would raise $26.1 billion, the treaty withholding provisions would raise $7.5 billion, and the codification of the economic substance doctrine would raise $3.6 billion.  Finally, the tax on health benefits used to finance the Comparative Effectiveness Research Trust Fund would raise $2 billion over ten years.

Out-Year Spending:  The score indicates that of the nearly $1.28 trillion in spending for coverage expansions under the specifications examined by CBO, only $8 billion—or only 0.6%—of such spending would occur during the first three years following implementation.  Moreover, the bill in its final year would spend a total of $254 billion to finance coverage expansions.  As a result, the Democrat bill faces large—and growing—annual deficits in each of the last six years of the budgetary window; according to CBO, deficits will rise from $5 billion in Fiscal Year 2014 to $65 billion in 2019.  Moreover, the more than half a trillion in proposed tax increases would take effect in 2011, while the coverage expansions would not take effect until 2013.  In other words, the Democrat bill spends so much, it needs eight years of higher taxes to finance six years of spending—and even then cannot come into proper balance without relying on budgetary gimmicks.

OMB Director Orszag, testifying before the House Budget Committee in June, asserted that the White House would not support legislation that was not balanced in the long-term—and further stated that the Administration would not support legislation that increased the deficit in the tenth and final year of the budgetary window.  Even taking into account Democrat budgetary gimmicks, H.R. 3200 fails that test—as the bill’s $65 billion deficit in 2019 is nearly double the $38 billion cost of physician payment reform (which would be moved into the budgetary baseline under Democrats’ “fuzzy math.”)

Budgetary Gimmicks:  As noted above, the bill includes several provisions—some of which are not reflected in the CBO score—to mask its true cost.  Most egregiously, the bill includes directed scoring provisions ordering CBO not to score nearly $100 billion in spending included in the plain text of the bill regarding the retiree reinsurance and public health investment funds.  The bill also makes several changes designed to lower the bill’s apparent cost—for instance, reducing a permanent extension of the qualifying individual program to a two-year extension, and by moving most of the cost of filling in the Part D “doughnut hole” to outside the ten-year budget window.

Some Democrats claim their legislation is “deficit-neutral” by excluding the cost of reforming the Sustainable Growth Rate (SGR) mechanism for Medicare physician payments—the total cost of which stands at $285 billion over ten years, according to CBO.  While Members may support reform of the SGR mechanism, many Members may oppose what amounts to an obvious attempt to incorporate a permanent “doc fix” into the baseline—a gimmick designed solely to hide the apparent cost of health “reform.”

Between the $285 billion unpaid-for cost of reforming physician reimbursements, the nearly $100 billion in “phantom” new entitlements created, and the collective interest on the debt necessary to finance these unfunded obligations, the Democrat legislation contains approximately a half-trillion dollars in additional deficit spending within the ten-year budget window—and CBO has already admitted that the long-term outlook for federal spending under the bill would be even worse.

Coverage:  The score also claims that the number of uninsured individuals would be reduced to 17 million by the end of the ten-year budgetary window, a reduction of 37 million in 2019 when compared to current law.  Approximately 30 million individuals would purchase their health insurance from the Exchange, including more than 6 million individuals who would lose their current private health coverage purchased on the individual market and enroll in the government-run Exchange.

The CBO score asserts that employer-based coverage would increase slightly, due to the individual and employer mandates.  However, CBO also notes that because the government-run plan reimburses at Medicare rates, its costs would be approximately 10 percent lower than other forms of coverage.  Particularly as the Lewin Group has indicated that a government-run plan would cause up to 114 million Americans to lose their current coverage, some Members may question CBO’s apparent assumption that employers would not choose to drop their health plans to enroll their workers in a government-run plan with purportedly lower costs than existing coverage.

Undocumented Individuals:  The CBO score notes that the specifications examined would extend coverage to 94 percent of the total population, and 97 percent of the population excluding unauthorized immigrants.  However, the score goes on to note that of the 17 million individuals remaining uninsured, “nearly half”—or about 8 million—would be undocumented immigrants.  Given that most estimates have placed the total undocumented population at approximately 12 million nationwide, some Members may question whether this statement presumes that some undocumented immigrants would obtain health insurance—including health insurance funded by federal subsidies.

Policy Brief: Barack Obama’s “Rock-Solid Deal” with Big Pharma

“But what we will do is, we’ll have the [health care] negotiations televised on C-SPAN, so that people can see who is making arguments on behalf of their constituents, and who are making arguments on behalf of the drug companies or the insurance companies.”

 — Senator Barack Obama, Town Hall Meeting in Chester, Virginia, July 21, 2008

Even as he campaigned on a platform of change and transparency, recent dealings between the pharmaceutical industry and President Obama have led to an “agreement” that provides significant benefits to the President and the former associates of one of his senior advisors—while raising Medicare premiums for seniors:

  • Several weeks ago, the President announced an agreement with the pharmaceutical industry to achieve $80 billion in savings as part of health care “reform.”  Contrary to his campaign promise, no C-SPAN cameras—or other media outlets—were invited in at any point in the discussions.  In fact, the White House only released lists of participants in the back-room discussions after an advocacy group filed a federal lawsuit seeking to obtain the records.
  • Last week, the head of the Pharmaceutical Research and Manufacturers of America (PhRMA) publicly affirmed that drug manufacturers had negotiated a “rock-solid deal” with the Administration—the substance of which the White House re-confirmed last week.
  • In exchange for the President’s sign-off on the “rock-solid deal,” recent press reports indicate that PhRMA has committed up to $150 million to generate publicity in support of the President’s health “reform.”  Those same reports indicate that White House senior advisor David Axelrod’s former firm will produce the ads—a potential conflict of interest for Axelrod, and a clear indication that the media campaign will closely adhere to President Obama’s talking points.
  • Unfortunately, the “rock-solid deal” beneficial for David Axelrod’s former firm will also raise Medicare premiums for seniors.  The Congressional Budget Office has previously found that eliminating the Part D prescription drug “doughnut hole”—as proposed in the PhRMA “deal”—would cause Medicare premiums to rise by 50 percent.

If the Administration is willing to break yet another campaign promise on transparency in order to cut a back-room deal with big drug companies, what promises will it keep?