Monthly Archives: January 2015

Who’s Going to Pay for This Obamacare Wish List?

I wrote in this space last June that supporters of the president’s health-care law had not made many specific suggestions about how to amend or otherwise change the Affordable Care Act. Last week, the advocacy group Families USA attempted to change that, releasing its “Health Reform 2.0” agenda of how to expand on Obamacare. But the paper also raises an important question for the law’s supporters—including presidential candidates running in 2016: How to pay for the myriad promises that liberal groups want to add to the health-care agenda?

The Families USA paper includes a full—and costly—wish list of new spending programs related to the law, including:

* Fixing the “family glitch,” in which families are ineligible for federal insurance subsidies if one member of the family has an offer of “affordable” employer-sponsored health coverage;

* Extending funding for children’s health insurance, a program that Obamacare funded only through September;

* Increasing federal cost-sharing subsidies—raising the amount of subsidies, currently provided to families with incomes under 250% of the federal poverty level, so as further to reduce deductibles and co-payments, and potentially raising the income cutoff for subsidies;

* Making permanent an increase in Medicaid reimbursement rates included in Obamacare that expired on Dec. 31, 2014;

* Extending coverage to immigrant populations (the report does not specify whether such coverage should also apply to the undocumented); and

* Increasing federal premium subsidies. Amending the current subsidy set-up in this way would necessitate two changes to current law, both of which would require an increase in federal spending. Congress would need to repeal the provision, set to kick in after 2019, scheduled to reduce the subsidies’ annual rate of growth; then lawmakers would have to pass the subsidy increase that Families USA advocates.

The proposal also contains numerous mandates on insurance plans—for instance, to cover adult dental care, all forms of pediatric care, and expand access to provider networks. These would come at a cost, raising insurance premiums for individuals and families—and raising costs for the federal government as well, related to the 87% of exchange participants receiving premium assistance subsidies.

While specific cost estimates for these proposals are unavailable, they are likely to be substantial. Cost concerns meant that the children’s health insurance program received funding for just a two-year extension in Obamacare. Likewise, the Medicaid reimbursement bump was so expensive—$8.3 billion—that lawmakers financed it for only 2013 and 2014 as part of the law. And Families USA’s proposed changes to the subsidy regime could cost far more: a 2011 study found that fixing just the “family glitch” could increase spending by nearly $50 billion per year.

In other words, a liberal group has proposed spending hundreds of billions—at minimum—on expanding Obamacare programs. And other than some suggestions about using government-imposed price controls—“direct intervention in pricing may ultimately be necessary”—the Families USA report contains precious little on paying for these expanded entitlements. It may have answered the “What?” when it comes to proposed “fixes” to the law, but it did not answer the “How much?” And as the law remains divisive, and federal debt continues to rise, the latter question must remain on the public agenda for some time to come.

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

More CBO Transparency Could Have Prevented Obamacare’s CLASS Debacle

Mere days into a Republican Congress, Democrats are making charges of ideological bias when it comes to the majority’s handling of the Congressional Budget Office (CBO). Last Friday, a group of leading Senate Democrats wrote a letter to Speaker Boehner specifically noting that “a CBO director should not be required to revise the score of the Affordable Care Act in order to please partisan interests.” It’s an ironic charge, given that it’s far from partisan to question why the CBO failed to perform analyses that could have predicted the collapse of an $86 billion Obamacare program—exactly what happened under its current director, Doug Elmendorf.

The program in question, Community Living Assistance Services and Supports, or CLASS, was designed to provide cash benefits for those needing long-term services and supports. CLASS made it into Obamacare at the behest of then-Sen. Ted Kennedy, and over the objections of both Republicans and moderate Democrats, who considered it fiscally unsustainable; then-Senate Budget Committee Chairman Kent Conrad (D-ND) famously dubbed CLASS “a Ponzi scheme of the first order, the kind of thing Bernie Madoff would have been proud of.” And so it proved—in October 2011, less than two years after the law’s passage, the Department of Health and Human Services determined CLASS could not be implemented in a fiscally solvent manner, and in January 2013, Congress repealed it entirely.

But Congress and the American people could have been spared this trouble had CBO performed a more thorough analysis of CLASS. In 2009, the budget agency assumed that CLASS’ administrative expenses would remain confined to three percent of premiums, even though HHS’ own actuary later called this requirement “unrealistic and undesirable.” The actuary hired by HHS went on to estimate total expenses at 20 percent of premiums—nearly seven times the level specified in the law.

The unrealistically low administrative expenses go to the heart of CLASS’ structural flaws. The program proved fiscally unsustainable because it faced a classic actuarial death spiral—a lack of healthy people paying into the pool to fund benefits for those needing care.

Had CBO formally analyzed CLASS’ administrative expenses, it likely would have concluded that the unrealistic assumptions written into the law meant premiums would eventually have to rise, benefits fall, or both, to meet the shortfall—making the program even more unattractive to healthy individuals, and further imperiling its solvency. The Congressional Budget Office does have models to estimate the cost of insurance; with Obamacare, it stated in November 2009 that insurance Exchanges would reduce the administrative costs of individually-purchased coverage. But when it came to CLASS, CBO did not perform a similar analysis.

Likewise, CBO at no point attempted to quantify the potentially massive costs to states that CLASS would have imposed. The program would have required state Medicaid programs to create a benefit eligibility system similar to that used by the Social Security disability insurance program. That program costs nearly $3 billion to administer every year—meaning CLASS could easily have imposed costs to states of $20-30 billion over a decade.

Within HHS, officials expressed concern that CLASS would “create significant new burdens on the states.” Coming at a time when governors of both parties were criticizing the “mother of all unfunded mandates” in the form of Obamacare’s Medicaid expansion, a CBO finding that CLASS imposed mandates on states in the billions, or tens of billions, would have prompted bipartisan outrage—and could have scuttled the program entirely. But from its introduction to its repeal, CBO at no point even acknowledged the significant cost to states associated with CLASS.

In fairness to CBO, the months leading up to Obamacare’s passage were by far the busiest in my time as a Capitol Hill staffer. Lack of enough hours and lack of sleep could, and did, cause details to slip through the cracks; to quote Nancy Pelosi, we really did have to pass the bill to find out what was in it. But that neither excuses nor explains why CBO has not publicly acknowledged the shortcomings outlined above, and what if anything it needs to change—whether in resources, oversight, or both—to improve its analysis going forward.

Judging from his silence on CLASS, Dr. Elmendorf may view protecting his office’s budget analysts as a prime objective of a CBO director. As much as I value loyalty, CBO’s prime loyalty should lay to Congress—and ultimately to the public, which funds both CBO and the programs it analyzes. While Dr. Elmendorf has taken measures to release more information publicly—developments I welcome—such steps generally fall into the realm of making CBO less opaque, rather than truly transparent.

Democrats’ political posturing aside, it’s not partisan to ask for a public explanation why an independent budget office did not produce analyses that could have revealed the instability of an $86 billion “Ponzi scheme” before Congress enacted it into law. In fact, the principles of good governance should compel the Congressional Budget Office in exactly this direction. Hopefully CBO’s next director, whoever he or she is, will move more rapidly down the road of this much-needed transparency.

This post was originally published at the Washington Examiner.

Harvard and “Free” Health Care

New York Times article earlier this week on changes to Harvard University’s health plan has drawn attention from all sides of the political spectrum. While New York magazine’s Jonathan Chait asserts that the developments at Harvard show the growth of conservative principles, one could also argue they demonstrate the inability of a liberal approach to health plan design to control costs.

The changes at Harvard, which have prompted pushback from many faculty, include the introduction of a $250 deductible and other cost-sharing—i.e., coinsurance and co-payments—for doctor visits, hospitalizations, and certain other procedures. The Times article, quoting the university’s enrollment guide, blames Obamacare as one of the culprits for the changes:

The university said it “must respond to the national trend of rising health care costs, including some driven by health care reform,” in the form of the Affordable Care Act. The guide said that Harvard faced “added costs” because of provisions in the health care law that extend coverage for children up to age 26, offer free preventive services like mammograms and colonoscopies and, starting in 2018, add a tax on high-cost insurance, known as the Cadillac tax.

Some on the right have seized on the irony of the Harvard faculty—many of whom, the Times notes, supported the health care law, and worked to aid its passage—complaining about its ramifications on their own coverage. But the larger irony is that the supposed benefits of the law do not come without costs—that the “free preventive services” discussed in the article and often touted by Obama administration officials really aren’t free. Those costs just get shifted elsewhere, as in the new cost-sharing just announced.

Many on the left firmly believe in health insurance as prepaid health care—that policies should cover all procedures free, or nearly free, of charge. But decades of rising costs have forced many businesses to alter their health plans, adding cost-sharing provisions and in many cases empowering patients to serve as better health care consumers. In many cases these reforms, such as Health Savings Accounts (HSAs), have worked to reduce health costs; a 2012 Health Affairs study found that expanded HSA usage could lower health spending by as much as 9.1%. It’s these principles to which Harvard has turned—at least in part because the mandates in Obamacare left them few remaining options.

Still, Harvard’s new $250 deductible is quite modest compared with that of many other employers. A recent Kaiser Family Foundation report found the average deductible last year exceeded $1,200 for single coverage.

Mr. Chait argues that the Harvard story shows that Obamacare promotes conservative principles when it comes to patient cost-sharing. But he avoids mentioning the obvious: Harvard included such “reforms” only when it had no other choice—because the liberal premise of “free” health care proved too costly to sustain.

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

Obamacare’s Taxing Complications

We’ve seen few administrative controversies with Obamacare’s second open-enrollment season, but as a Wall Street Journal article noted last week, the start of the 2014 tax-filing season could bring a new wave of public discontent.

This tax-filing season brings the first enforcement of the Affordable Care Act’s individual mandate–the complexity of which could become a boon for tax-preparation firms. The instructions for completing the mandate exemption form run 12 pages, list 19 types of exemptions (with multiple codes), and include worksheets that may require individuals to go to their state exchange’s Web site to find the monthly premiums that will determine whether they had access to “affordable” coverage.

This added documentation could confuse those used to filing short, simple tax returns. Potential bad outcomes include: filers could give up, and pay the mandate tax even though they qualify for an exemption; filers could feel compelled to hire a tax preparer to sort through the issues for them; or filers could complete the form incorrectly and find their refund held in limbo while the IRS works to resolve the errors.

Meanwhile, Americans who purchased insurance last year and obtained federal premium subsidies will have to reconcile their income and taxes owed with the subsidies they received—which were based on estimated income. The Journal article cited an H&R Block analysis that as many as half of the 6.8 million individuals who received subsidies will have to repay a portion of them.

One tax model estimates the average repayment at $208, but some families may owe more. Congress has twice raised the repayment amounts to as much as $2,500 for families at the higher end of the income-eligibility range, the Journal noted. In addition, families whose income exceeds the eligibility range—more than four times the federal poverty level, or $95,400 for a family of four last year—by even one dollar have to repay their entire subsidy, which could run many thousands of dollars.

Because many families of modest means rely on their tax refund as the major financial windfall for the year, provisions in the health law that reduce, or eliminate, those refunds could prove quite unpopular. Significantly, many filers hit by the individual mandate or the subsidy repayment provisions will not discover the impact on their tax returns until after Obamacare’s open-enrollment period ends on Feb. 15; as things stand, those individuals will not be able to adjust their insurance options, and they could face penalties for both 2014 and 2015 as a result.

More complexity for filers, more work for tax preparers, and smaller refunds for millions of Americans are a recipe for more controversy around the health-care law—as well as bureaucratic and political headaches in the weeks leading up to April 15.

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