Monthly Archives: July 2010

Some Historical Perspective on Medicare Spending

Given Medicare’s 45th anniversary today, I wanted to pass along two nuggets showing how Medicare spending has exploded far beyond what Democrats originally projected the cost of the program would be back in 1965:

  • At the time of its enactment in 1965, actuaries for the House Ways and Means Committee projected that in 1990, Medicare Part A would spend $9.1 billion on hospital services and related administration.  In reality, spending in 1990 totaled nearly $67 billion—more than seven times the original estimates.  (Sources: House Ways and Means Committee Print 51-291, Actuarial Estimates and Summary of Social Security Act Amendments of 1965, July 30, 1965, Table 11, p. 33; House Document 102-89, 1991 Annual Report of the Board of Trustees of the Federal Hospital Insurance Trust Fund, Table 6, p. 27.)
  • Prior to its enactment, the Medicare Part B program for physician services was projected to be funded through a $3 monthly premium, supplemented by “federal appropriations of about $500 million a year from general tax revenues.”  According to the most recent Medicare trustees report, in 2008, Medicare Part B relied upon $146.8 billion in federal general revenues—an increase of nearly 4300% in real (i.e. inflation-adjusted) spending.  (Sources: John D. Morris, “Mills to Support Revised Medicare,” New York Times March 11, 1965, p. 18; 2009 Medicare Annual Trustees Report, May 12, 2009, http://www.cms.hhs.gov/ReportsTrustFunds/downloads/tr2009.pdf, Table III.C8, p. 102; CPI Inflation Calculator from Bureau of Labor Statistics, http://www.bls.gov/data/inflation_calculator.htm.)

It’s also worth pointing out that last month the Congressional Budget Office, in its long-term budget outlook, noted (Table 2-1, page 31 of the document) that from 1975 through 2008, excess cost growth in Medicare exceeded that of the private sector by more than half a percent annually (2.5% vs. 1.8%).  This poor record of controlling costs in Medicare leads to several questions regarding the new health care law:

  • Why did Democrats rely on more government price controls and regulation to control costs, steps that have long proven ineffective?
  • Given the history of Medicare vastly exceeding spending projections, how much more will the federal government spend implementing the health care law than the $2.5 trillion cost currently projected as covering the first ten years of full implementation?
  • And what will Democrats do when those health insurance costs explode for the federal government?  Will they ration with their eyes open, as CMS Administrator Dr. Donald Berwick supports?

Getting the Facts Straight on Medicare

In anticipation of Medicare’s 45th anniversary today, the Center for American Progress released a report that attempts to promote Democrats’ closing of the Part D doughnut hole as part of health care “reform.”  The report asserts that “Part D beneficiaries who stay in” the doughnut hole would save an average of 23 percent off their drug spending, while “prescription drug savings will be even greater for the more than half a million” beneficiaries who pass through the doughnut hole.

But the Center for American Progress study misses the point on several fronts.  First, the true savings for beneficiaries in the doughnut hole may in reality be less than they appear; if the richer benefits in the coverage gap just prompt seniors to continue buying more expensive brand-name drugs rather than using less costly generics, they won’t really have “saved” much.  Second, and more importantly, all seniors will be paying higher Part D premiums in order for a select group of beneficiaries to receive richer coverage.  The Congressional Budget Office estimated that “the law would lead to an average increase in premiums for Part D beneficiaries of about 4 percent in 2011, rising to about 9 percent in 2019.”  That means that 27 million seniors will pay higher premiums, but only what the report quantifies as “more than half a million” beneficiaries passing through the doughnut hole will actually receive the full benefit of the discount regime established in the law.  Some would categorize this redistributive scenario as “spreading the wealth around.”

Also in conjunction with the Medicare anniversary, I would direct you to this one-pager previously released regarding the impact of health “reform” on seniors.  Of particular note is the analysis from CBO that the health care law’s changes to Medicare “would not enhance the ability of the government to pay for future Medicare benefits.”

Up Next: Donald Berwick Live

Politico notes that Don Berwick will be hosting a “live web chat on health reform, its changes to Medicare and the program’s anniversary at 12:30 PM today.”  Supposedly the chat will be held at http://www.healthcare.gov/live.  However, less than two hours before the chat is scheduled to begin, there is no information on that webpage on how interested individuals can submit questions to Dr. Berwick.  Does that mean that the Administration is not interested in listening to questions from the American people about how Dr. Berwick plans to implement over half a trillion dollars in reductions to Medicare spending?

Sadly, the apparent lack of transparency for this webcast is consistent with the Administration’s public relations strategy of not making Dr. Berwick available for interviews.  But it’s yet another broken promise from an Administration that pledged “an unmatched level of transparency, participation, and accountability.”  And the fact that Dr. Berwick cannot subject himself to answering questions from Members of Congress in an open hearing speaks to the controversial nature of both his appointment and the health care law he will implement.

More Democrat Disarray over 1099 Reporting

In case you’re interested, the House is having an interesting debate this morning on repealing the 1099 reporting provision.  Rather than allowing an up-or-down vote last night on Rep. Camp’s motion to recommit repealing Section 9006 of the health care law, Democrats pulled their tax legislation from consideration.   They then brought to the House floor this morning under suspension of the rules a separate measure that would repeal Section 9006—paid for by other job-killing tax increases on business—while denying Republicans a vote on Rep. Camp’s alternative, which would not raise taxes on the small businesses who are the engines of job creation.

To recap: Democrats will vote to repeal a portion of the health care law, after having voted to pass it only four short months ago.  Rep. Bill Owens of New York says that this rapid about-face shows that “we listened” to the concerns of small businesses about implementing this legislation.  But if Democrats were really listening to small businesses—or the American people—why did they pass this unpopular and job-killing law in the first place?

Democrats in Retreat over 1099 Reporting Requirements

The Wall Street Journal this morning reports on the troubles that the 1099 business tax reporting requirements included in Section 9006 of the health care law are causing for Democrats in Congress.  Under the provision, vendors and small businesses are required to file Forms 1099 for any goods purchases that total over $600 in the aggregate over the course of a year – which will force all businesses, including small businesses, to file tax forms listing the amount of their annual transactions with vendors like their paper supplier, bottled water distributor, caterer, etc.  The National Taxpayer Advocate has noted this provision will affect 40 million businesses – ten times the number of firms the Administration asserts will benefit from small business tax credits – and has called the paperwork requirements “disproportionate” and “burdensome”.

House leaders pulled pending tax legislation from the floor last night in response to a motion to recommit offered by Rep. Camp that would repeal this onerous requirement; as Politico notes, “The worry was that the amendment would have been far too tempting for Democratic rank-and-file.  The risk of letting any kind of ‘repeal’ pass was too big to chance.”  Instead House leaders hope to craft an “alternative” that purports to address “concerns about overburdening business” while leaving the reporting regime intact.  Similarly, rather than adopting the Johanns 1099 repeal amendment to the small business bill (H.R. 5297) in the Senate yesterday, Democrat leaders instead attempted to offer an alternative that would have required the IRS “to request and consider comments and suggestions from the public” regarding how to implement the 1099 requirements.

In addition to questioning how exactly the IRS can make tax enforcement more “user-friendly,” some may wonder why Democrats are scrambling to leave in place a $17 billion tax increase on struggling businesses at a time of record unemployment.  Is the majority so insistent on keeping every facet of their health care law intact that they are willing to preserve new job-killing taxes and regulations on small firms at a time of significant economic uncertainty?

AARP: Protecting Seniors’ Interests — Or Its Own?

On this 45th anniversary of Medicare, it’s worth examining how the nation’s largest seniors advocacy organization supported legislation that won’t improve Medicare’s solvency – but will help one particular organization’s bottom line.  An article in this week’s National Journal does just that, by interviewing AARP’s new CEO, Barry Rand.  The article points out that the CEO job “is a plum one in the association world – Rand’s predecessor received annual compensation of about $1 billion.  AARP, which includes an advocacy arm, a business service group, and a foundation, has yearly revenue exceeding $1 billion.”

According to its annual financial statements, more than $400 million of that revenue comes directly from United Health Group, and during the interview, the inherent conflict of interest presented by AARP’s outside “royalties” came up:

NJ: AARP’s business arm, which receives royalties for steering members to insurance plans and other business services, generates an enormous sum of money that is used to fund your advocacy work. Doesn’t this arrangement raise a potential conflict of interest? Is AARP advocating positions to make money for AARP, or is it advocating for the good of its members?

Rand: Those who don’t like our advocacy positions use this as a way to try to destroy our trust level and influence. AARP was created by a retired schoolteacher who couldn’t get health insurance. What she found was that if she created a large enough pool [of seniors], it would bring down the cost of insurance, so she worked with insurance companies to design benefit structures for seniors. And that was how AARP was formed–to help seniors. Our for-profit side is totally separate from our nonprofit side, totally separate boards and separate entities.

Given how its CEO claims that the organization’s non-profit and for-profit arms are completely unrelated, it’s worth noting how many backroom deals and exemptions AARP received from the Democrat health legislation when it came to their most lucrative product – Medigap supplemental insurance:

  • EXEMPT from the prohibition on pre-existing condition exclusions, such that AARP can continue to impose waiting periods on vulnerable seniors with pre-existing conditions – as it does currently (Section 1201(2)(A), Page 81 of H.R. 3590);
  • EXEMPT from a $500,000 cap on executive compensation for insurance industry executives, so that AARP can give its CEO more than $1 million in annual compensation – over 78 times the average annual Social Security benefit of $12,738 (Section 9014, Page 1995 of H.R. 3590);
  • EXEMPT from the tax on insurance companies that will total more than $14 billion per year – even though according to its own financial statements AARP generated more money from insurance industry “royalty fees” than it received from membership dues, grant revenues, and private contributions combined (Section 10905(d), Page 2395 of H.R. 3590); and
  • EXEMPT from a requirement imposed on Medicare Advantage plans to spend at least 85 percent of their premium dollars on medical claims – AARP Medigap policies are currently held to a far less restrictive 65 percent standard, and the difference can be used to fund “kickbacks” to AARP paid out of the pockets of its senior citizen members (Section 1103, Page 49 of H.R. 4872).

In the article Mr. Rand claimed that “we are focused on a multimillion-dollar education effort, and we are focused on helping people understand what is in the bill and what the benefits are.”  So it’s worth asking: Will that educational campaign highlight all the special exemptions AARP received for its lucrative Medigap policies as part of the health care bill?  Will AARP point out to its members that it can still impose waiting periods for seniors with pre-existing conditions wanting to buy Medigap plans, as the organization does now?  Or will the non-profit association yield to the pecuniary interests of its for-profit affiliates – and thereby shortchange the organization’s members in the process?

Responses to New CMS Advertising Campaign

In case you missed it, this afternoon’s web chat with CMS Administrator Donald Berwick included the unveiling of a new advertising campaign intended to promote the health care law’s “enhancements” to Medicare.  Video of the ad featuring Andy Griffith can be found here; according to a CMS release, it will “begin running immediately on national cable television stations.”  Here’s the script:

1965 – a lot of good things came out that year, like Medicare.  This year, like always, we’ll have our guaranteed benefits, and with the new health care law, more good things are coming: free check-ups, lower prescription costs, and better ways to protect us and Medicare from fraud.  See what else is new.  I think you’re gonna like it.

There are of course several substantive problems with this message:

  • While the commercial claims “we’ll have our guaranteed benefits,” according to the Medicare actuaries, about 15 percent of hospitals and related Medicare providers could become unprofitable within ten years as a result of the health care law, “possibly jeopardizing access to care for beneficiaries.”
  • The Medicare actuaries also found that projected enrollment in Medicare Advantage plans would be cut in half as a result of the legislation, meaning the benefits to millions of seniors would change as a result of the legislation.  The Congressional Budget Office also found that extra benefits for seniors participating in Medicare Advantage would fall by an average of more than $800 per year by 2019 – making the changes for millions of seniors one for the worse.
  • The commercial claims that the law will “lower prescription costs.”  It doesn’t mention that Part D coverage premiums will rise for all seniors – the Congressional Budget Office estimated that “the law would lead to an average increase in premiums for Part D beneficiaries of about 4 percent in 2011, rising to about 9 percent in 2019” – so that a select few will benefit.

Besides the technical details of the message is the broader question of its impartiality, and the use of taxpayer dollars.  How does the tagline “I think you’re gonna like it” in connection with “the new health care law” not constitute a political endorsement of the measure, and how is this whole advertising campaign a proper use of taxpayer dollars?

Some Perspective on Medicare Nominations

During the Finance Committee confirmation hearing on the Medicare trustees just concluded, Sen. Roberts noted that the Committee was not considering the nomination of Dr. Donald Berwick to head the Centers for Medicare and Medicaid Services (CMS) – the position and the agency that actually implements the program the Medicare trustees oversee.  While Sen. Roberts acknowledged that Chairman Baucus has said he will hold a hearing with Dr. Berwick at some point, he also made the trenchant observation that testimony on a discrete hearing topic (e.g., accountable care organizations) is NOT an adequate substitute to a confirmation hearing, where the full range of a nominee’s experiences and views – including views on how Dr. Berwick plans to implement the 2,700 page health care law – can be examined.

Although Chairman Baucus stated his desire to have Dr. Berwick appear before the Committee at some point, he once again gave no indication as to when that might occur.  He did however state his desire to move “expeditiously” in confirming the Medicare trustees, as none had been in place since the 2007 trustees report.  To that end, Medicare has been without a Senate-confirmed Administrator since 2006 – yet Chairman Baucus did not indicate when he intends to move on Dr. Berwick’s still pending nomination by holding a confirmation hearing, or whether he will do so “expeditiously.”

Small Business Tax Credits: Reality “Doesn’t Meet the Hype”

As the Senate continues to debate a small business bill, I wanted to give a heads-up regarding a Bloomberg story indicating that small businesses have not embraced the tax credits created in the new health care law.  The quotes from brokers across the country speak for themselves:

James Stenger, director of business development for BenefitMall: “The reality is it doesn’t meet the hype…It’s had very little traction so far…The impact is a lot less than the crafters of this provision thought it would be, at least in New Jersey.”

Russ Childers, a broker in Americus, Georgia: “The income [cut-off for credit eligibility] hurts the worst…It fell short of what was needed to help businesses.”

Steven Selinsky, incoming president of the National Association of Health Underwriters: “It’s just not doing what we had hoped.”

Todd Page, vice president of sales at JLBG Health in Warrenville, Illinois: “We’ve really wanted it to work, because we’d sell more,” said “It just hasn’t worked out, and most firms have been disappointed.”

Thomas Harte, president of Landmark Benefits Inc: “We’re not seeing more people becoming insured as a result of a subsidy coming their way.”

While many small businesses will not be eligible for the tax credits created under the law, they will all pay higher taxes as a result of the measure – taxes and higher premiums for those who buy health insurance, higher taxes on investment income and capital gains, and a 1099 reporting requirement that the National Taxpayer Advocate estimated will affect 40 million businesses – ten times the number of firms the Administration asserts will benefit from small business tax credits.  To many struggling small firms, this combination of burdensome new regulations, higher taxes, and an ineffective tax credit represents the furthest thing from health care “reform.”

Washington Post Fact Check: Health Care Law STILL Unpopular

While the Washington Post has an article this morning outlining a single poll in which support for the health care law appears to have risen, it’s worth looking at the broader trendlines – and the below chart from pollster.com shows that, taken over an average of polls, support for the law has actually DROPPED since mid-May.  For instance, a CBS News poll released earlier this month found that support for the law dropped by seven points since May, while opposition to the law rose.

It’s also worth noting that, according to the aggregate polling data used by pollster.com, opponents of Democrats’ health “reform” have outnumbered supporters for a year, since last July – a trend which, as the graph below illustrates, shows no signs of changing, a single poll (and favorable headlines from same) notwithstanding.

Polling Data