Monthly Archives: February 2015

Obamacare and Taxes? It’s Complicated…

In a January Think Tank post, I noted potential complications the health-care law’s interactions with the tax code could present for millions of filers this season. In just the past week, we’ve seen:

* Many recipients of federal subsidies have been required to repay some of that money when they filed their taxes. Although some people overestimated their 2014 income when they applied for subsidies, and received a larger-than-expected refund as a result, the majority of subsidy recipients (52%) did the opposite, according to an H&R Block analysis released Tuesday. Those who underestimated their income and collected oversize subsidy payments in 2014 have seen their refunds reduced, H&R Block said, by an average of $530—or, approximately 17%—as the federal government collects the overage.

* Some filers are paying an average $172 in taxes for non-compliance with the individual mandate, the H&R Block analysis said.

* On Friday, the Obama administration announced that about 800,000 recipients of subsidies had been mailed incorrect tax forms. If these households have not yet filed their 2014 taxes, their tax returns—and thus their refunds—will be delayed until they receive the corrected form from the federal government.

*The administration also said Tuesday that the estimated 50,000 households that had received incorrect tax forms and had already filed their 2014 taxes would not be required to repay monies to the federal government if, because of the incorrect forms, they had underpaid their tax and subsidy obligations. The announcement did not explain why an error discovered in January was not made public until last week, or how much this leniency will cost the federal government, or whether the office or contractor responsible for the mistake will face financial penalties for its error.

Last week, the administration announced a special extension of the Obamacare enrollment period, from March 15 to April 30, for households that discovered during the tax-filing season that they were subject to the individual mandate tax. The administration said that the enrollment extension would be limited to individuals who attest they were unaware of the mandate tax penalty before filing their taxes, and that it would not return in future years. There is, however, no independent verification of people’s claims about the tax penalty, and the administration could easily find reasons to implement an open-enrollment extension in the future.

The administration’s enrollment strategy seems inclined toward leniency—for the policy reason of trying to enroll as many individuals as possible and for the political reason of avoiding actions that could make the law more unpopular. Some advocates of a longer enrollment period have cited the ability to “diminish hostility” toward the law as one reason to allow Americans a second bite at the enrollment apple.

This raises two questions. First, whether and how much executive actions such as the forgiveness associated with the tax form errors will cost taxpayers. Second, whether future administrations, which may not be as favorably inclined toward the health-care law, will take as many steps to cushion citizens from adverse effects of the law.

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

When CMS Post Opens Again, Will Obama Step Up?

When Marilyn Tavenner steps down as head of the Centers for Medicare and Medicaid Services this month, one of the federal government’s most powerful positions will once again come open. History and President Barack Obama’s actions toward the post suggest that finding a replacement might prove difficult.

Before Ms. Tavenner was confirmed in May 2013, CMS had gone without a permanent, Senate-confirmed administrator for nearly seven years—since Mark McClellan left the agency in the fall of 2006. The Bush administration nominated Kerry Weems, a career civil servant, to replace Mr. McClellan; Mr. Weems received a polite hearing from the Senate Finance Committee in July 2007, but a CMS policy memo issued shortly afterward regarding the Children’s Health Insurance Program angered Senate Democrats. The committee’s chairman, Max Baucus (D-MT), refused to bring the nomination to a vote, and Mr. Weems served as acting administrator for the rest of the Bush administration.

Upon taking office, President Obama waited nearly 15 months—until his health-care legislation was passed—to nominate Don Berwick to run the agency that would oversee much of the law’s implementation. Mr. Berwick’s history of writings proved so inflammatory that Democrats, despite having an overwhelming Senate majority, refused to advance his nomination. Mr. Berwick received a controversial recess appointment from President Obama in July 2010 but was forced to leave CMS in December 2011 when his temporary appointment expired because the Senate had not voted on his confirmation.

While serving in the Senate in 2007-08, Mr. Obama stood by as Sen. Baucus and Majority Leader Harry Reid (D-NV) put Mr. Weems’s confirmation on ice. And as president, Mr. Obama failed to demand a vote from his fellow Democrats when they decided not to advance Mr. Berwick’s nomination, likely seeking to spare vulnerable incumbents from taking a position on a nominee with a controversial record. Given the president’s history of remaining quiet about a Democratic Senate not confirming CMS nominees, he has little standing to complain should the Republican-controlled Senate choose not to advance his choice to succeed Ms. Tavenner.

Even before Obamacare, the Centers for Medicare and Medicaid Services had a budget larger than that of the Pentagon; since the law passed, its subsidies, regulations, or both affect the insurance of basically every American with health coverage. The CMS administrator’s job is critical. But President Obama’s actions have contributed to a lack of permanent leadership in CMS for most of the past eight years. We’ll see whether that pattern persists after Ms. Tavenner departs.

As a health policy analyst for the Senate Republican Policy Committee from January 2010 through April 2012, Chris researched Don Berwick’s nomination to the Centers for Medicare and Medicaid Services.

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

How Obama’s Budget Delays Fiscal Pain

In its 2016 budget, the Obama administration proposed approximately $400 billion in health-care savings. While this would include some modest changes to Medicare benefits, the overall document postpones most of the fiscal pain until after President Barack Obama leaves office.

The budget proposes additional increases to Medicare means-testing: reducing federal Part B and Part D subsidies to higher-income households. It also would increase the Medicare Part B deductible, introduce a Part B surcharge for beneficiaries who purchase rich supplemental Medigap coverage, and introduce home health co-payments. The latter three changes would apply only to new beneficiaries—and all the changes would take effect in 2019, more than a year after President Obama leaves office.

In its updated economic outlook last month, the Congressional Budget Office made clear that the United States faces an entitlement problem. CBO’s Figure 1-3 shows that Social Security, health programs, and interest represent 84% of the increase in federal spending over the coming decade. With an average of 10,000 baby boomers retiring every day, President Obama’s proposals would permanently exempt approximately 14 million individuals who will join Medicare by January 2019—making the task of bringing entitlement commitments into balance that much more difficult.

President Obama has a history of prioritizing political expediency over fiscal rectitude. His first submission proposing additional Medicare cost-sharing—in September 2011—delayed the implementation until 2017. Obamacare has followed the same course: Two of the law’s biggest long-term “pay-fors”—provisions slowing the growth in insurance exchange subsidies and the law’s “Cadillac tax“—won’t take effect until a new president is in office. A third provision, the controversial Independent Payment Advisory Board, has been left unaddressed by the administration.

This strategy of pursuing dessert before spinach—of kicking tough choices down the road to future political leaders—may lead to short-term political gains but could result in long-term fiscal and political pain. Unsustainable trends will not continue forever—and whenever the fiscal reckoning comes, voters are unlikely to look kindly on those whose actions helped bring about the mess.

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

Weakening Obamacare’s Individual Mandate — And the Law

A New York Times article last weekend explained how the administration has moved to lessen the impact of Obamacare’s individual mandate “to avoid a political firestorm.” But there is a cost to taking political cover: President Barack Obama’s executive actions to blunt the mandate’s impact on the public will give future administrations an opportunity further to undermine the mandate and, with it, much of the health-care law.

This tax filing season brings the first enforcement of two main Obamacare provisions: the repayment of excess insurance subsidies received by individuals and the individual mandate. As I wrote in a Think Tank post last month, the complex provisions, and the Internal Revenue Service’s limited resources for customer assistance, are likely to result in headaches for millions of Americans.

To cushion the blow, the Treasury Department has administratively created exemptions to the individual mandate beyond the numerous exemptions written into the Affordable Care Act itself. The Times reported “more than 30 types of exemptions from the penalty for not having insurance.” The administration released data suggesting that, while as many as 6 million people will face the mandate penalty, up to five times as many—15 million to 30 million Americans—will receive exemptions from it.

Creating numerous exemptions for political reasons could cause policy headaches down the road. One could occur if insurers believe the mandate has become ineffective at drawing in healthy individuals and, fearing an influx of costly, sicker patients, decide to exit the exchanges en masse. It’s also possible that a future administration—relying on the Obama administration’s unilateral actions on health care and immigration—could create additional exemptions or other forms of leniency for mandate violators, thereby hastening the insurer exodus.

In the 2008 Democratic primaries, then-Sen. Obama famously opposed the individual mandate, citing its application in Massachusetts: “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.” But after having embraced the mandate in 2009 to ease Obamacare’s passage, the administration is now trying to avoid the political dilemma Mr. Obama described seven years ago. Whether and how it does so will have far-reaching policy implications for voters, future administrations, and the future of the law.

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

Phantom Savings in Obama’s Budget

In the president’s budget released this week, the Obama administration proposed approximately $400 billion in health-care savings. While that sounds impressive, the number might actually be less—for one proposal relies on a board that does not yet exist and that the administration has made no effort to establish.

As it has in previous years, the president’s 2016 budget proposal relies on savings achieved by strengthening the Independent Payment Advisory Board–this time to the tune of more than $20 billion. Created as part of Obamacare, IPAB was intended to be a group of non-partisan experts, nominated by the president and confirmed by the Senate, who would make recommendations on slowing the growth of Medicare costs. The recommendations were to take effect automatically unless overruled by Congress.

Although the health-care law was enacted nearly five years ago, the administration has made no attempt to constitute IPAB:

* The president has not nominated members to the board for Senate confirmation;

* The president has signed appropriations legislation rescinding spending reserved for the board, most recently in Section 522 of last year’s “cromnibus” legislation;

* While secretary of health and human services, Kathleen Sebelius testified before Congress in 2011 that her agency would undertake a rule-making process to define “rationing.” Obamacare prohibits IPAB from rationing, but the term is not defined in statute. The administration, however, has not begun such a regulatory process.

When questioned on this issue, the administration has argued that the slowdown in Medicare spending makes the board unnecessary at the moment. Administration officials could also make the accurate—if politically unpopular—assertion that the Department of Health and Human Services has the power to implement Medicare savings proposals unilaterally in the absence of a fully functioning board.

Nevertheless, the administration continues to rely on budgetary savings presumed to come from “strengthen[ing]” a board that President Obama has not moved to establish. That raises questions about its commitment to budgetary savings—and to IPAB itself.

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

CBO Suggests Firms Can Reduce Profits by Dropping Coverage

In its updated economic forecast last week, the Congressional Budget Office made a series of comments regarding Obamacare’s “Cadillac tax.” Most notably, CBO appeared to suggest that employers could increase corporate profits by dropping their health plans for workers.

The budget office had previously noted an interaction between untaxed benefits such as health insurance and taxable wage compensation—namely, that reductions in the latter can lead to increases in the former, thereby increasing federal revenues. Last week, however, CBO went further, suggesting that reducing health benefits could lead to higher corporate profits:

Less employment-based coverage means that nontaxable compensation in the form of health benefits provided by employers will be less and taxable compensation in the form of wages and salaries will be greater, as total compensation is expected to remain roughly the same. And to the extent that wages and salaries do not increase as much as payments for health benefits are reduced, corporate profits—which are also taxable—would increase. Therefore, the decrease in the estimate of employment-based coverage implies higher federal revenues than projected previously.

In other words, CBO believes that dropping health benefits could raise federal revenues not because firms increase their workers’ taxable wages to compensate for the loss of subsidized insurance coverage but because they choose to improve their own bottom lines instead.

This could have both political and policy ramifications. The statement comes as CBO slightly lowered estimates for the number of individuals with employer-sponsored coverage. This will affect policy debates over the future of employer-provided health care (Will firms continue to provide coverage for the foreseeable future?) and the Cadillac tax: Will firms that reduce health benefits to avoid the tax provide higher wages to workers or pocket the savings instead? And it may provide supporters of the health-care law with a new political headache, because nonpartisan analysts are suggesting that corporations may use Obamacare to fatten their own bottom line.

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

How the “Cadillac Tax” Could Drive Obamacare Over a Political Cliff

In its economic forecast last week, the Congressional Budget Office revealed a quandary about Obamacare’s “Cadillac tax”: To make the underlying law fiscally sustainable, the tax may end up increasing at a rate that becomes politically unsustainable.

The nugget about the tax, formally known as a high-premium excise tax and set to take effect in 2018, came in CBO’s updated estimates for the law as a whole, which noted:

CBO and [the Joint Committee on Taxation] expect that premiums for health insurance will tend to increase more rapidly than the threshold for determining liability for the high-premium excise tax, so the tax will affect an increasing share of coverage offered through employers and thus generate rising revenues. In response, many employers are expected to avoid the tax by holding premiums below the threshold, but the resulting shift in compensation from nontaxable insurance benefits to taxable wages and salaries would subject an increasing share of employees’ compensation to taxes. Those trends in exchange subsidies and in revenues related to the high-premium excise tax will continue beyond 2025, CBO and JCT anticipate, causing the net costs of the ACA’s coverage provisions to decline in subsequent years.

In other words, under current projections the tax will grow so quickly that it will exceed the annual rising costs of the law’s new entitlements, causing net spending on Obamacare actually to decline.

The Cadillac tax has always caused the administration political heartburn. In 2008, then-Sen. Barack Obama broadcast the most-aired political ad in a decadeattacking Sen. John McCain for wanting to tax health benefits. The Cadillac tax technically targets insurers, not individuals, but videos of remarks by MIT economist Jonathan Gruber, who advised the administration when the health-care law was being developed, show Mr. Gruber saying that Democrats engaged in semantics about the tax and even “mislabeling” to provide political cover for the president to change his position.

When Obamacare was passed, Mr. Gruber wrote articles—promoted at the time by the administration—saying that the Cadillac tax wasn’t a tax. He argued that, in response to the law’s pressures, firms would reduce their health benefits but increase taxable wages—and that paying taxes on these higher wages amounted to a net plus for individuals rather than a tax increase. But in the face of pressure from labor unions, which remain opposed to the tax, Democrats ultimately decided to delay its implementation until 2018, after President Obama leaves office.

In its analysis last week, CBO made clear that the Cadillac tax, coupled with provisions slowing the growth of insurance exchange subsidies (provisions that some liberal groups want to overturn) is central to making the law fiscally sustainable. The question is whether the effects of the Cadillac tax would be any more politically sustainable in 2018 and beyond than they were in 2009—and what supporters of the law will do if they aren’t.

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

What Is Government’s Role in Comparing Medical Treatments?

The personalized medicine initiative that President Barack Obama announced on Friday was previewed in the State of the Union address and is scheduled for inclusion in the budget to be released Monday. But in devoting federal funds to this, the administration may have made an argument against another type of medical research funded as part of Obamacare.

Section 6301 of the health-care law creates a Patient-Centered Outcomes Research Institute (PCORI), designed to study the comparative effectiveness of treatment options for diseases. Comparative effectiveness research has proven controversial for several reasons. The idea that the price of various treatments are taken into account, using cost metrics to determine coverage decisions for government health programs, raises the specter of rationed care.

But beyond the potential question of government rationing–and whether the restrictions included in Obamacare are sufficient–lies a more nuanced problem: As one administration scientist noted ahead of the president’s announcement on Friday, “Throughout history most medical treatments were designed for the average patient, meaning they can be very successful for some but not for others.” Comparative effectiveness research involves comparing the effects of treatment on average patients or average groups of patients; others may not benefit, or may even be harmed, by the average treatment or course of action.

The challenge for policymakers and medical professionals is how to respond to the growing personalization of medical treatments. In creating PCORI, Obamacare attempted to acknowledge this trend, noting that the institute should engage in “research and evidence synthesis that considers variations in patient subpopulations.” The president’s new initiative may make such research obsolete. It also raises a different question: When personalized medicine may turn patient “groups” into a subpopulation of one, what is the proper role for the federal government in comparing treatments?

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