Monthly Archives: May 2014

The VA Scandal and Medicare

The federal government adjusts its payment policies, the health-care system tailors its practices to meet those new policies, and a variety of unexpected—and perverse—consequences result.

This isn’t just one aspect of the VA scandal. It also describes the effects of physician payment policies in Medicare.

In the case of the Department of Veterans Affairs, decisions to tie performance bonuses to patient waiting times apparently resulted in attempts to manipulate the appointment system. Incidents reported in Pennsylvania, Wyoming and New Mexico illustrate how compensation and bonuses drove decisions about patient care. The New York Times reported that one Albuquerque whistleblower alleged:

“Clinic staff were instructed to enter false information into veterans’ charts because it would improve the data about clinic availability. . . . The reason anyone would care to do this is that clinic availability is a performance measure, and there are incentives for management to meet performance measures.”

In Medicare, the sustainable growth rate (SGR) mechanism established in 1997 placed an overall cap on physician spending, with an eye toward cutting payments in future years if Medicare spending exceeded the defined thresholds. But this measure, ostensibly to cut costs, only pushed the problem elsewhere. Doctors have responded to the prospect of cuts in reimbursement rates by increasing the volume of services provided. Physician spending per beneficiary increased more than 70 percent from 2000 to 2011, while reimbursement rates grew only 11 percent in the same period. Congress routinely acts to undo the projected reimbursement cuts, and the SGR has not appreciably reduced Medicare’s overall costs.

So how do these stories tie together? Clearly, health-care systems respond to incentives set by the federal government. But Washington has not proved nimble enough to avert the unintended consequences of those responses. While Gen. Eric Shinseki’s resignation as secretary of veterans affairs may stanch the political bleeding for the Obama administration, the underlying problems go far beyond one man—and even the VA. Both issues will take big-picture thinking, and actions, to repair.

This post was originally published at the Wall Street Journal’s Think Tank blog.

IT Failure at the Immigration Courts

One of the most underreported stories in Washington is a massive IT failure—lasting more than a month—that slowed legal proceedings at the nation’s immigration courts.

In its reporting last week, Politico quoted Dana Marks, the president of the National Association of Immigration Judges, describing the work environment: “We are now limping along, keeping the system running with paper clips and scotch tape.  It’s appalling.”

“Look at all the publicity over” HealthCare.gov, Ms. Marks went on. “Shouldn’t this have the same level of outcry and shock?  This is the docketing system for cases involving 360,000 people allegedly in US illegally.  Not all are removable, but it’s a law enforcement function.”

Reports of chaos in the nation’s immigration courts will do little to allay the concerns of House Republicans who think that the Obama administration will not—or cannot—faithfully implement any immigration legislation Congress might pass.

The immigration courts’ IT meltdown–the Justice Department announced Monday that the electronic databases that went offline April 12 are functioning again–represents another prominent example of botched implementation by federal agencies. It comes amid congressional inquiries into allegations of mismanagement and misconduct at the Department of Veterans Affairs. And the Washington Post reported this week on another facet of the troubled launch of HealthCare.gov: “The government may be paying incorrect subsidies to more than 1 million Americans for their health plans in the new federal insurance marketplace and has been unable so far to fix the errors.”

President Obama came into office attempting to restore faith and trust in government. Individually and collectively, these competency difficulties can only detract from his objective.

This post was originally published at the Wall Street Journal’s Think Tank blog.

The Medicaid Conundrum

Two recent articles on California’s fiscal situation illustrate the mixed messages coming from some states, which face rising costs from expanding Medicaid under the Affordable Care Act even as they grapple with a reduced, and frequently fickle, tax base.

On Tuesday, the Los Angeles Times highlighted the growing cost of Medicaid in the Golden State—namely, a $1.2 billion hole in the state’s budget.  While California’s Medicaid enrollment exceeded projections by 1.4 million, many of those new enrollees had already been eligible for the program. The federal government provides states a 100% Medicaid match through 2016, but that’s only for those individuals newly eligible under the 2010 health-care law; if individuals who had already been eligible for but not enrolled in Medicaid come out of the woodwork, states will pay a portion of those costs. In 2012, the Department of Health and Human Services estimated that states would pay an average of 43% of those enrollees’ Medicaid costs in this fiscal year.

On Thursday, The Wall Street Journal reported on the “income tax yo-yo” California and many other states are facing. A recent Rockefeller Institute report found that state revenue declined in the first quarter of 2014, and many states are reporting shrinking surpluses or projected deficits. Meanwhile, economists at the Federal Reserve Bank of Chicago have noted the increasingly uncertain nature of state tax collections.

Some states opted to expand Medicaid under the health-care law, raising costs and budgetary pressures at a time of volatile tax revenue. In some cases, the result has been cognitive dissonance. California Gov. Jerry Brown was quoted in Thursday’s Journal saying: “We can’t spend at the peak of the revenue cycle—we need to save that money, as much of it as we can.”  But two days earlier, Mr. Brown had expressed pride in the “huge social commitment” that health-care expansion represented in his state—even as it caused a billion-dollar overspend.

Ultimately, states that expand Medicaid could face pressure to cut other important services, whether health-related or in areas such as corrections or education. Recent trends have moved toward reductions because when an irresistible force such as a shrinking tax base meets an immovable object—the rising costs from expanding Medicaid—something has to give.

This post was originally published at the Wall Street Journal’s Think Tank blog.

Premium Increases and Obamacare Subsidies

In his Monday Think Tank post previewing political and policy battles over insurance premium increases, Drew Altman wrote that “85% of those who purchase insurance in the new marketplaces will get a government subsidy in the form of a tax credit to help defray the cost of the premium. That means that most people buying in the exchanges won’t pay much even if their premium cost goes up significantly” in 2015.

But in a few years, many exchange purchasers could face the full brunt of premium increases.

An obscure component of the Affordable Care Act, the secondary indexing provision, was added during the budget reconciliation process to help reduce the bill’s costs after the first 10 years. Wonky details can be found in a May 2011 Congressional Budget Office (CBO) analysis, but two points stand out:

One, if spending on exchange subsidies exceeds a defined percentage of gross domestic product, beginning in 2019 the subsidies will grow much more slowly in future years.

Two, since the 2012 Supreme Court decision made Medicaid expansion optional for states, the CBO projects more individuals will qualify for exchange subsidies—making it highly likely that overall spending on subsidies will exceed the GDP cap established in the health-care law, and triggering the secondary indexing starting in 2019.

The 2011 CBO analysis included a hypothetical example of the impact secondary indexing could have on federal insurance subsidies and premium increases: a 6 percent annual premium increase would require enrollees to pay 10.2% to 12% more for their health insurance because federal subsidies would rise only 2.7% to 5.5%.

In other words, a significant share of costs would shift from the federal government to individuals. That’s why the CBO previously called some of the law’s provisions “difficult to sustain for a long period.”

With such indexing looming in the not-too-distant future, there are two questions: whether this provision of the Affordable Care Act will be amended—and, if so, how: by raising taxes or cutting other programs to pay for this new spending, or by increasing the federal deficit substantially. Or whether the country would accept a new status quo in which the Affordable Care Act requires Americans to purchase increasingly unaffordable health insurance.

This post was originally published at the Wall Street Journal’s Think Tank blog.

Federal Funding and State Health Insurance Exchanges

Conservatives have long argued that “first dollar” insurance coverage helps raise the cost of health care, as people tend to overconsume services they perceive as free. Implementation of state insurance exchanges appears to confirm that hypothesis: Several states that used “free” federal dollars to build complicated exchanges may end up scrapping them.

Officials in Maryland and Massachusetts are trying to determine whether their tech-troubled exchanges can be salvaged in time for the next open season of the Affordable Care Act. Oregon officials voted last month to scrap the state’s problematic exchange and switch to the federal system. In general, states building less complicated exchanges suffered fewer technical glitches. Oregon Gov. John Kitzhaber said last year that “one could argue in retrospect we bit off more than other states.”

The Kaiser Family Foundation has tracked the nearly $4.7 billion in federal spending on health-care exchanges in 14 states and the District of Columbia. Perhaps more significant than the sums at issue is the fact that all of the states’ exchange funding came from federal coffers.

Would Massachusetts officials still have wanted to create “the absolute Rolls-Royce of any health exchange” had they been required to pay its costs—which could approach nearly $300 million? Would the Bay State have chosen to redesign the state portal while also exploring a backup move to the federal exchange had federal dollars not been funding its Plan B and Plan C?

In Oregon, would officials have tried to re-create the “entire” computer infrastructure of the state Department of Human Services had such efforts come out of the state social services department’s budget?

It is, of course, impossible to answer these questions definitively. But state officials almost certainly would not have been stingier with federal dollars than with their own funds. And constraining their ambitions might have produced more functional exchanges.

This post was originally published at the Wall Street Journal’s Think Tank blog.