Monthly Archives: July 2014

GAO’s “I Told You So”

A Government Accountability Office report on last fall’s debacle, released Wednesday in advance of a House Energy and Commerce subcommittee hearing Thursday, details what went wrong. But the bigger questions involve the culture that led administration officials to ignore–and even publicly repudiate–the warning signs that the GAO flagged well before the federal health exchange Web site crashed last October.

Much of the GAO report delves into details of federal contracting policy. But a passage on Pages 3 and 4 illustrates broader problems:

In our June 2013 report on CMS efforts to establish the federal marketplace, we concluded that certain factors–such as the evolving scope of marketplace activities required in each state—suggested the potential for implementation challenges going forward. In comments on a draft of that report, HHS [the Department of Health and Human Services]… expressed its confidence that marketplaces would be open and functioning in every state on October 1, 2013.

The June 2013 GAO report predicted in clear language many of the problems that eventually plagued the federal exchange:

“Much progress has been made, but much remains to be accomplished within a relatively short amount of time,” the report noted. “However, certain factors, such as the still-unknown and evolving scope of the exchange activities CMS will be required to perform in each state, and the large numbers of activities remaining to be performed–some close to the start of enrollment–suggest a potential for implementation challenges going forward. . . . Whether CMS’s contingency planning will assure the timely and smooth implementation of the exchanges by October 2013 cannot yet be determined.”

Despite these warnings, officials asserted that all was well with Affordable Care Act implementation–until the Web site crashed on Oct. 1.

This week’s GAO report notes that the cost of the contract for a new company to repair the federal exchange nearly doubled–from $91 million to $175 million–over the past six months. The administration explained some of the expense, but the GAO noted that not all of the increase is attributable to the reasons the administration cited. “We continue to believe that a further assessment is needed to ensure that costs as well as requirements are under control and that the development . . . is on track to support the scheduled 2015 enrollment process,” the report said.

Part of effective governance involves adhering to contracting procedures that ensure taxpayers receive value for money and establishing an internal culture that acknowledges faults and in which people work in a transparent manner to resolve them. The GAO report demonstrates how the administration fell short in both respects.

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

Obamacare Challenges: Where the Conventional Wisdom Falls Short

Since the U.S. Court of Appeals for the D.C. Circuit struck down an Internal Revenue Service regulation implementing Obamacare, some observers have predicted that the IRS rule would ultimately be upheld. The regulation extends federal subsidies to individuals purchasing insurance from federal exchanges and not just state-run exchanges, as the Affordable Care Act specifies. But when it comes to legal challenges regarding the health-care law, the conventional wisdom has sometimes been wrong.

Consider, for instance, the Supreme Court’s decision upholding Obamacare two years ago. The day that the court ruled in June 2012, President Barack Obama said: “Earlier today, the Supreme Court upheld the constitutionality of the Affordable Care Act.

Actually, the court was more nuanced. On Page 58 of the ruling in National Federation of Independent Business v. Sebelius, the justices wrote: “The Affordable Care Act is constitutional in part and unconstitutional in part.” While the court upheld the individual mandate as a permissible exercise of the taxation power, it struck down provisions of the ACA’s expansion of Medicaid as unconstitutional “economic dragooning that leaves the States with no real option but to acquiesce in the Medicaid expansion.”

Two years later, a digital campaign on the White House Web site argues for states to expand Medicaid under the ACA–and warns of dire consequences for those that do not. But the administration embarked on the campaign because the Supreme Court made Medicaid expansion optional for states.

It’s also worth noting that seven of the nine Supreme Court justices agreed that it was unconstitutional to mandate Medicaid’s expansion. Those seven justices included Stephen Breyer, previously a staffer for Sen. Edward Kennedy, and Elena Kagan, a former solicitor general in the Obama administration. So those predicting that some judges and justices would preserve the IRS rule based solely on which president appointed them to the bench may yet be disappointed.

Legal decisions don’t always break down along party lines or meet political talking points. That’s something to bear in mind as the cases wind through the courts.

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

An Obamacare Bombshell

Just when advocates of Obamacare claimed that the law was taking root and becoming more popular, a federal appeals court tossed a massive monkey wrench in that narrative.

Earlier this morning, the Court of Appeals for the D.C. Circuit overturned an Internal Revenue Service ruling that allows individuals in states where the federal government runs insurance exchanges to receive insurance subsidies.

Because the federal government operates insurance exchanges in 36 states, the ruling—which the Obama administration will almost certainly appeal—places much of the Obamacare regime into question. Conservatives argued repeatedly that the law only allowed for federal subsidies in “an Exchange established by the state.” Supporters of the legislation, while conceding that the law was poorly and hastily drafted, argued that Congress intended to extend subsidies to individuals in both federally-run and state-run exchanges, and that the IRS exercised appropriate discretion in tailoring the rule to meet that intent. Today the Appeals Court clearly disagreed.

The ruling provides yet more evidence of the problems inherent in legislating on such a massive scale, which I noted earlier this morning. Even under the most favorable interpretation taken by the law’s supporters, Congress rushed to pass a sloppily worded document, leaving it to unelected bureaucrats to decipher lawmakers’ true intent. The plaintiffs—and the court in its ruling—believe that the administration clearly overstepped its authority, a fact that will no doubt energize those concerned about the executive exceeding its power. Regardless, either interpretation makes a compelling against future attempts to enact major policy changes on such a broad scale in such a fast manner.

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

Obamacare and the Pitfalls of Congressional Legislating

Weeks before Congress embarked on its final push to put Obamacare on the statute books, then-House Speaker Nancy Pelosi infamously stated that Congress had to pass the bill “so that you can find out what’s in it.” But last week, a staffer at the heart of drafting the legislation admitted that Congress itself failed to comprehend the implications of the provisions it imposed upon the American people.

On Friday, a Capitol Hill newspaper published a story outlining the history of Obamacare’s employer mandate and whether the administration might delay its implementation still further. In the article, Yvette Fontenot—a lobbyist who helped write the bill for then-Senate Finance Committee Chairman Max Baucus and later worked on implementing the legislation at the White House—admitted that when Mr. Baucus’s staff drafted the employer mandate, “we didn’t have a very good handle on how difficult operationalizing the provision would be at that time.”

Indeed, the employer mandate has proved difficult to implement. Defining who counts as a full-time employee across a variety of industries and creating databases to track employees’ hours have taxed regulators and companies alike. While the administration has cited these difficulties in twice delaying the mandate’s implementation, the law’s critics take a different view—believing the administration postponed the mandate to avoid potential stories about job losses prior to the 2014 elections.

Likewise, the import of Ms. Fontenot’s admission. Liberals and supporters of a strong executive might argue that her comments highlight the need for agency rulemaking, rather than placing final authority in the hands of inexpert legislators and overtaxed congressional staff—essentially saving Congress from itself. House Speaker John Boehner obviously disagrees. The Ohio Republican views the impending House vote exploring legal action against the administration as one way for the legislature to regain its authority.

But more broadly, conservatives would argue that Ms. Fontenot’s comments highlight the need for a more deliberative—and more humble—Congress, one quicker to acknowledge its own flaws, and change its processes accordingly. Recall that Max Baucus—the prime congressional author of Obamacare—said four years ago that he didn’t want to “waste my time” reading the legislation, because “we hire experts.” But one of those “experts” now says she didn’t understand how one of the major portions of the bill would work. It makes a very compelling argument that Congress, rather than relying on agency employees to resolve its self-imposed problems, should instead revert to the Hippocratic oath, and focus first and foremost on doing no legislative harm.

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

Entitlement Reform: It’s the Demographics, Stupid

The Congressional Budget Office’s annual long-term budget forecast prompted numerous news articles about a potential slowdown in the growth of health spending and what that would mean for Medicare and other programs. But federal entitlement spending in the short and medium term will be defined much more by the demographics of an aging population–10,000 baby boomers reach retirement age every day–than by whether policymakers can bend the proverbial cost curve in health care.

The CBO admits as much. In Box 1-1 (Pages 22-23) of its report, the budget office compares the relative weight of three factors in increased health spending: the aging of the population; excess cost growth; and newly created (and in the case of Medicaid, expanded) entitlements under Obamacare. Over the next 10 years and the next 25 years, the effects of an aging population exceed the effects of cost growth when it comes to spending on federal programs.

Because demographics put greater pressure on federal entitlement spending over the next generation than excess cost growth, efforts to bend the health-care cost curve–even if successful–miss the larger problem: If per-beneficiary costs rise not a penny, growing numbers of beneficiaries would still create their own fiscal pressures. For instance, under Medicare’s current structure, a couple about to retire stands to receive three times as much in benefits as they paid in Medicare payroll taxes during their working lives.

Resolving the spending pressures in federal entitlements will require more than efforts to reduce the growth in health-care costs. Broader structural reforms–such as additional means-testing for entitlement programs, or a premium support structure for Medicare–must be an important element of the discussion.

The CBO forecasts were not nearly as sanguine as some coverage suggested. Overall debt-to-GDP projections for the next 25 years rose compared with the CBO’s estimates from September, partly because of reduced projections for economic growth. These projections emphasize the need to enact structural entitlement reforms soon–before the demographic wave of the coming years fully hits. Unfortunately, those focused on the idea that “bending the curve” can save them from the tsunami may not recognize the error of their ways until it is too late.

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

Why States Are Hesitating to Expand Medicaid

Just before the July 4 holiday the White House Council of Economic Advisers released a report titled “Missed Opportunities: The Consequences of State Decisions Not to Expand Medicaid.” The Pew Trusts also released a data compilation last week. But that one showed why many states, which had large and growing Medicaid programs even before Obamacare, have not rushed to embrace greater expansion.

Pew examined data from 2000 to 2012 and found large increases in state Medicaid spending even after adjusting for inflation. Nationally, Medicaid spending grew an average of 4% more than inflation every year during this period. All but two state Medicaid programs grew at real (inflation-adjusted) rates greater than 2% annually. In addition, programs in eight states and the District of Columbia grew at rates exceeding 5.9% per year–meaning that spending doubled during the 12-year period, even after accounting for inflation.

Some might argue that robust economic growth, which leads to an expanding revenue base, could allow states to absorb sustained increases in Medicaid spending greater than the level of inflation. But the Commerce Department’s Bureau of Economic Analysis found that inflation-adjusted gross domestic product grew 23.1% from 2000 through 2012. Meanwhile, Medicaid spending grew nearly three times as fast in inflation-adjusted terms: an average of 63% nationally. Only one state, New Hampshire, increased its Medicaid spending at a rate slower than the national economy grew from 2000 through 2012.

So during the decade before Obamacare took effect, states had dramatically increased their Medicaid expenditures—spending well above inflation and exceeding the economic growth their revenue forecasts are based on. Greater Medicaid expenditures have an opportunity cost: Many states have had to divert funds from education or other priorities to cover increased spending on health. Little wonder that many states have decided not to expand Medicaid further. In some respects, it may be smarter to ask why so many decided to embrace expansion.

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

How Proposals for Obamacare Subsidies in 2015 Could Cost Taxpayers

In a Think Tank post last week, I explained why the number of unresolved inconsistencies in applications on the federal insurance exchanges probably exceeds the 2.9 million cited in two recent Department of Health and Human Services reports. Recent HHS proposals could allow many income-related inconsistencies to persist in 2015–potentially risking taxpayer funds.

In its proposed rule and related guidance for the 2015 open-enrollment season, the administration made two key decisions about determining re-eligibility for insurance subsidies. First, the guidance indicates that the exchanges would request updated tax return information solely from the IRS to determine eligibility for 2015 subsidies. Currently, the exchanges determine eligibility using information from the Social Security Administration and other income data sources, as well as tax information.

Second, most individuals who do not respond to requests to update their information would remain eligible for subsidies in 2015 at the same amount they received this year. (Their subsidies would not increase because of higher age or any premium changes.) Only individuals whose incomes appear to vastly exceed the thresholds for subsidies—what’s likely to be a “very small” group, HHS said in its guidance–or those who did not authorize the exchanges to review tax return data would not automatically receive subsidies in 2015.

The administration is seeking to streamline the process to determine eligibility, but the HHS inspector general’s investigations found the existing processes to be largely ineffective. An HHS report last week noted nearly 1 million inconsistencies relating to income reporting on applications. Because that includes only the federally run exchanges and only cases handled through Feb. 23, the number of inconsistencies is probably significantly understated. The inspector general’s office also found that HHS had resolved only about 1% of inconsistencies that occurred on the federal exchange between Oct. 1, 2013, and Feb. 23, though the health-reform law requires the department to resolve issues within 90 days.

With 1 million—and probably many more—applications containing inconsistencies over income, further liberalizing the subsidy eligibility criteria could create more problems. At best, individuals with inconsistencies that persist could eventually be forced to repay excess subsidies for 2014 and 2015. At worst, taxpayers could be on the hook for significant amounts of improperly paid subsidies.

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

What the HHS Reports on the Health Exchanges Didn’t Cover

Recent media reports have highlighted unresolved inconsistencies in applications on the new insurance exchanges, including applications for federal premium and cost-sharing subsidies. Two reports released this week by the inspector general of the Department of Health and Human Services paint a troubling picture—and things could be worse than the reports suggest.

One HHS report examined data from federally run exchanges through Feb. 23 and from state exchanges through last December. Put another way, federal auditors tallied data from the months when the exchanges experienced middling to sluggish enrollment—not the periods when the greatest number of applications were completed.

The inspector general’s report indicates that federally run exchanges had 2.9 million data inconsistencies, of which only 1% had been resolved by late February. But those figures underestimate the number of inconsistencies from the 2014 open-enrollment period—and, unless data resolution has dramatically improved in recent weeks, probably also underestimate the number of inconsistencies still pending.

A separate inspector general’s report also released on Monday found that federally run exchanges, and state-run exchanges in California and Connecticut, in many cases lacked proper procedures for verifying applicant information. As a result, applications that should have been flagged for additional inconsistencies were not. Again, the scope of the verification problem is most likely understated.

When troubles became clear with the exchanges last fall, the focus on fixing immediate technical issues led to deferred work on verification systems. Overall, the reports expose another facet of the failures of—and the after-effects of last fall’s rollout could persist for some time.

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

How Automatic Renewal Could Cost Obamacare Enrollees

Last month I wrote that as the Obamacare open-enrollment period for 2015 approaches, the administration “faces a double-edged sword: Making reenrollment easier could result in premium increases for many individuals, particularly because the most widely subscribed plans have proposed significant rate hikes.” Two developments last Thursday appear to confirm that analysis.

First, the administration released proposed regulations regarding reenrollment for 2015. As some expected, the regulations confirmed that insurance exchanges would reenroll individuals in their existing plans if enrollees remain eligible for qualified health plans through the exchange and the plan in which they were enrolled remains available for renewal.

The same day, consultants at Avalere Health released an analysis showing that most low-cost plans have proposed sizable rate increases for 2015. In seven of the nine states Avalere analyzed, the lowest-cost “silver” plan would change; in six of the nine states, the second-lowest-cost silver plan would change.

These pricing changes have special importance: Federal insurance subsidies are tied to the price of the second-lowest-cost silver plan. Enrollees in plans with premiums greater than that benchmark stand to pay the full difference in premiums–without additional federal subsidies. The Avalere analysis demonstrates how costly such a decision could be. One hypothetical enrollee in Maryland would see her out-of-pocket premiums rise from $58 per month to $94, a 62 percent increase. In this instance, $32 of the $36 monthly premium increase stems from staying in a plan more costly than Maryland’s benchmark premium.

The administration no doubt views auto-enrollment as a way to minimize what even a supporter of the health-care law called the “massive technological challenge” associated with redetermining eligibility. But as The Wall Street Journal reported two weeks ago, the lowest-cost plans for 2014 have recorded some of the highest enrollments this year—and have proposed large increases for 2015. Unless millions of individuals switch plans, they could be in for some nasty spikes in their out-of-pocket premium costs come Jan. 1.

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

How Affordable Is the “Affordable Care Act?”

The Department of Health and Human Services recently released a report making the case for how Obamacare’s premium subsidies have made health insurance more affordable for individuals. But those who do not qualify for federal subsidies appear to find exchange coverage anything but affordable.

As some have noted, a separate HHS report released in May highlighted the fact that during the 2014 open-enrollment period, 13.5 million individuals were found eligible to purchase coverage on state or federal exchanges. Of these, about 8.7 million qualified for federal insurance subsidies. That means nearly 4.8 million individuals were not eligible for subsidies. And while more than three-quarters of the 8.7 million who did qualify for subsidies (or 6.6 million) selected an insurance plan, only 1.2 million of those who did not qualify for subsidies selected a plan.

In other words, only about one-quarter of those not receiving federal insurance subsidies decided that the options offered were worth selecting a plan. It’s possible that even fewer decided to pay their first month’s premium. (Worth monitoring as more data become available: Are unsubsidized individuals not paying insurance premiums at greater rates than those receiving federal subsidies?)

Several studies suggest that Obamacare’s package of mandated benefits and other regulations have increased premium levels substantially. Advocates of the Affordable Care Act say that federal subsidies have made coverage more affordable, but others have argued that using government spending–more than $1 trillion in exchange subsidies and $1.8 trillion in spending on new coverage overall–to mitigate the effects of regulation presents a solution in search of a problem.

So while supporters of the law might argue that taxpayer subsidies have made health insurance more affordable for individuals, evidence suggests that Obamacare has made insurance less affordable for those who do not qualify for subsidies. And insurance subsidies may not be affordable for taxpayers as a whole over the long term.

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