Category Archives: Medicare

Democrats’ Hypocrisy on the Trump Budget

As expected, the Left had a harsh reaction to President Trump’s first budget on its release Tuesday. Bernie Sanders called the proposed Medicaid reductions “just cruel,” the head of one liberal think-tank dubbed the budget as a whole “radical,” and on and on.

But if liberals object to these “draconian cuts,” there’s one potential solution: Look in the mirror.

Liberals’ supposed outrage over reductions to entitlements largely serving poor people would look slightly less disingenuous if they hadn’t made the same hyperbolic comments about reducing entitlement spending on middle-class and wealthy retirees. If the Left believes the budget reduces spending from anti-poverty programs too deeply, that in part stems from the president’s (flawed) conclusion that Social Security and Medicare reforms are too politically toxic to propose.

And exactly who might be to blame for creating that toxic environment?

Democrats Are Using The ‘Mediscare’ Playbook

Democrats have spent the past several political cycles running election campaigns straight out of the “Mediscare” playbook. In case anyone has forgotten, political ads have portrayed Republicans as literally throwing granny off a cliff.

This rhetoric about Republican attempts to “privatize” Medicare came despite several inconvenient truths:

  1. The “voucher” system Democrats attack for Medicare is based upon the same bidding system included in Obamacare;
  2. The Congressional Budget Office concluded one version of premium support would, by utilizing the forces of competition, actually save money for both seniors and the federal government; and
  3. Democrats—in Nancy Pelosi’s own words—“took half a trillion dollars out of Medicare” to pay for Obamacare.

Given the constant attacks from Democrats against entitlement reform, however, Donald Trump made the political decision during last year’s campaign to oppose any changes to Medicare or Social Security. He reiterated that decision in this week’s budget, by proposing no direct reductions either to Medicare or the Social Security retirement program. Office of Management and Budget Director Mick Mulvaney said the president told him, “I promised people on the campaign trail I would not touch their retirement and I would not touch Medicare.”

That’s an incorrect and faulty assumption, of course, as both programs rapidly spiral toward insolvency. The Medicare hospital insurance trust fund has incurred a collective $132.2 billion in deficits the past eight years. Only the double-counting created by Obamacare continues to keep the Medicare trust fund afloat. The idea that President Trump should not “touch” seniors’ retirement or health care is based on the fallacious premise that they exist beyond the coming decade; on the present trajectory, they do not, at least not in their current form.

Should Bill Gates Get Taxpayer-Funded Healthcare?

That said, the president’s reticence to “touch” Social Security and Medicare comes no doubt from Democrats’ reluctance to support any reductions in entitlement spending, even to the wealthiest Americans. When Republicans first proposed additional means testing for Medicare back in 2011, then-Rep. Henry Waxman (D-CA) opposed it, saying that “if [then-House Speaker John] Boehner wants to have the wealthy contribute more to deficit reduction, he should look to the tax code.”

In other words, liberals like Henry Waxman, and others like him, wish to defend “benefits for billionaires”—the right of people like Bill Gates and Warren Buffett to receive taxpayer-funded health and retirement benefits. Admittedly, Congress passed some additional entitlement means testing as part of a Medicare bill two years ago. But the notion that taxpayers should spend any taxpayer funds on health or retirement payments to “one-percenters” would likely strike most as absurd—yet that’s exactly what current law does.

As the old saying goes, to govern is to choose. If Democrats are so violently opposed to the supposedly “cruel” savings proposals in the president’s budget, then why don’t they put alternative entitlement reforms on the table? From eliminating Medicare and Social Security payments to the highest earners, to a premium support proposal that would save seniors money, there are potential opportunities out there—if liberals can stand to tone down the “Mediscare” demagoguery. It just might yield the reforms that our country needs, to prevent future generations from drowning in a sea of debt.

This post was originally published at The Federalist.

Summary of Fiscal Year 2018 Budget

UPDATE: The official White House budget document, posted on Tuesday, revealed an additional policy proposal, extending a series of mandatory spending programs included in the 2015 Medicare Access and SCHIP Reauthorization Act (MACRA) for two more years. These programs include community health center funding, the National Health Service Corps, abstinence education programs, health profession opportunity grants, and other related public health programs. These proposals would cost a total of $9.9 billion over a decade, of which the majority ($7.2 billion) would go toward community health centers.

Some conservatives may be concerned that the Trump Administration’s proposal for a temporary, two-year extension of these mandatory spending provisions would effectively re-create the scenario caused by the Medicare sustainable growth rate — which saw mandatory spending being extended in piecemeal increments, so as to hide the spending’s full deficit impact.

Original post follows below…

Late Monday afternoon, a document briefly appeared on the Department of Health and Human Services website as the Fiscal Year 2018 Budget in Brief. It’s unclear whether the document was a draft of the HHS budget, or merely a case of a staffer posting the official document online too early (our money would be on the latter). It also must be noted that other budget materials—the White House/Office of Management and Budget document, as well as supplemental materials from the Treasury and others—provide more detail and information not present solely within the HHS budget.

That said, based on the review of the document posted, the health budget seems in many respects functionally incoherent:

  • It proposes significant entitlement savings from Medicaid, over and above those included in Obamacare repeal, while proposing no direct savings from Medicare—a program that will spend more than $9 trillion in the coming decade, and which faces insolvency by 2028;
  • It grants states more flexibility with regards to Medicaid reform, while with respect to medical liability reform, it prescribes a solution from Washington—one that conservatives have argued is inconsistent with Tenth Amendment principles; and
  • It assumes $250 billion in savings from Obamacare repeal—more than the most recent estimate of the House legislation—a “magic asterisk” not likely to be achieved, but one on which the budget relies in order to achieve balance within a decade.

A summary of the document follows below.  We will have further information on the budget in the coming days, as more materials get released.

Discretionary Spending

While press reports in recent days have focused on the amount of “cuts” proposed in the President’s budget, it’s worth noting the HHS budget’s overall spending levels. When it comes to budget authority, the budget would spend $1.113 trillion in Fiscal Year 2018, which is a 1.24% reduction compared to the $1.127 trillion preliminary number for the current fiscal year, and a 0.54% reduction compared to the $1.119 trillion for Fiscal Year 2016.

Furthermore, the HHS budget actually increases the number of full-time equivalents (FTEs) within the Department—from 77,499 in FY16, to 79,505 in FY17, to 80,027 in FY18.

When compared to Fiscal Year 2017 amounts, the budget calls for the following changes in discretionary spending by major HHS divisions (tabulated by budget authority):

  • $850 million (31.0%) reduction for the Food and Drug Administration, as the Administration proposes increasing FDA user fees to compensate for reductions in taxpayer funding;
  • $449 million (4.2%) reduction for the Health Services and Resources Administration;
  • $55 million (1.1%) reduction for the Indian Health Service;
  • $1.3 billion (17.2%) reduction for the Centers for Disease Control;
  • $5.78 billion (18.2%) reduction for the National Institutes of Health;
  • $385 million (9.3%) reduction for the Substance Abuse and Mental Health Services Administration; and
  • $379 million (9.6%) reduction for the discretionary portion of the Centers for Medicare and Medicaid Services program management account.

Food and Drug Administration:  As noted above, the budget envisions a “recalibration” of how to pay for FDA pre-market review activities. Specifically, the budget would increase industry user fees “to fund 100 percent of cost for pre-market review and approval activities” for brand and generic prescription drugs and medical devices.

Medicare Proposals (Total savings of $22.6 Billion, including interactions)

Medicare Appeals:  Proposes new mandatory spending of $127 million in Fiscal 2018, and $1.27 billion over a decade, to address the pending backlog of Medicare appeals.

IPAB Repeal:  Repeals Obamacare’s Independent Payment Advisory Board (IPAB), at a cost of $7.6 billion over a decade. While opposing Obamacare’s notion that a board of unelected bureaucrats should be empowered to make rulings lowering Medicare spending nationwide, some conservatives may also oppose efforts to repeal a spending constraint on our nation’s largest health care entitlement without any similar efforts to control the program’s large (and growing) outlays.

Liability Reform:  Achieves Medicare savings of $31.4 billion from medical liability reforms. The reforms would impose caps on non-economic damages, provide safe harbors for physicians based on following clinical guidelines, allow for the creation of health courts, provide for a three-year statute of limitations, eliminate joint and several liability, allow courts to modify contingency arrangements, and provide for periodic payments for large jury awards.

The proposal would yield total savings of $55 billion overall. The largest share of $31.4 billion would come from Medicare—in part because a portion of physician fees are based on medical liability insurance payments. Medicaid savings would total $399 million. Much of the remaining $23.2 billion would come from revenue interactions with the current exclusion from employer-provided health insurance—i.e., a lowering of health insurance costs and premiums resulting in workers receiving slightly less of their compensation as pre-tax health benefits, and slightly more of their compensation as after-tax cash wages.

While supporting the concept of liability reform generally, some conservatives may be concerned that the budget’s proposals violate the principles of federalism. States can enact liability reforms on their own—and many states like Texas have done so, without any mandates from Washington. Some conservatives may therefore view this proposal as an example of “big government conservatism” inconsistent with the Tenth Amendment.

Medicaid and Other Health Proposals (Total savings of $627 Billion)

The HHS document notes that “the budget includes a net savings to Medicaid of $627 billion over 10 years, not including additional savings to Medicaid as a result of the Administration’s plan to repeal and replace Obamacare.”

Medicaid Reform:  Assumes $610 billion in savings (again, over and above Obamacare repeal) from Medicaid reform, giving states the choice between a per capita cap or a block grant beginning in 2020. The document specifically notes that this proposal will allow states to promote solutions that encourage work and promote personal responsibility.

State Children’s Health Insurance Program:  Assumes a two-year reauthorization of the State Children’s Health Insurance Program (SCHIP). The budget also proposes eliminating two Obamacare-related provisions—the increase in the enhanced federal match rate for SCHIP, and the maintenance of effort requirements imposed on states—in both cases at the end of the current fiscal year.

The budget would cap the level at which states could receive the enhanced federal SCHIP match at 250 percent of the federal poverty level ($61,500 for a family of four in 2017). Some conservatives would argue that this provision is one way to ensure federal funds are directed towards the vulnerable populations that need them most; guidance issued by the Bush Administration in 2007 provides other examples of potential policies to include.

Finally, the budget also proposes undoing an Obamacare change that required states to transition certain children off of SCHIP and into expanded Medicaid, allowing states to re-enroll these children into SCHIP.

On net, the SCHIP extension would save the federal government $5.8 billion over ten years, reflecting new costs to the SCHIP program ($13.9 billion), savings to Medicaid ($16.7 billion), and savings to other federal health programs ($3 billion).

Liability Reform:  As noted above, the budget assumes an additional $399 million in Medicaid savings from enacting liability reform.

Repeal of Obamacare

The budget assumes a net of $250 billion in savings from an Obamacare repeal/replace measure, savings accruing to both HHS and Treasury. Some conservatives, noting that the most recent score of Obamacare legislation showed a net savings of only $150 billion—with more new spending added since then—may question whether or not this assumption is realistic.

A Fiscally Irresponsible Bill

Last week the Wall Street Journal, in endorsing House Republicans’ American Health Care Act, highlighted the legislation’s “fiscal bonus.” Yes, the bill’s Medicaid reforms warrant praise as a good effort to control entitlement spending. But that meritorious effort notwithstanding, the bill contains numerous structural flaws, with potentially more on the way, that could bust budgets for decades to come.

Some of the same leaders decrying or explaining away Congressional Budget Office scores showing large coverage losses due to the bill have proved far too willing to take the bill’s supposed deficit savings at face value. But a good CBO score doesn’t necessarily mean legislation will reduce the deficit; instead, it means that lawmakers and staff have worked hard to achieve a good CBO score.

CBO scores have inherent limitations — notably, the discipline (or lack thereof) on the part of lawmakers to adhere to a bill’s parameters. Two years ago this month, the Wall Street Journal endorsed a Medicare “doc fix” bill that increased the deficit by more than $140 billion in its first decade alone. In doing so, the editorial page argued that Congress’ “cycle[s] of fiscal deception” required a return to “honest budgeting,” stopping budget games by making spending increases more transparent.

Given this history, one question naturally follows: Does the American Health Care Act engage in similar cycles of fiscal deception likely to bust future budgets? Many signs point to yes. First, the bill expands access to Obamacare’s subsidy regime for calendar years 2018 and 2019. CBO believes the bill will reduce entitlement spending only slightly in its first few fiscal years — by $29 billion next year, and $42 billion the following — as the individual mandate’s repeal will cause some to drop coverage.

But in fiscal year 2020 — when the Obamacare entitlements would end and the new tax credit would begin — the bill assumes a massive $100 billion net reduction in entitlement spending. Net entitlement spending would fall still further, to $137 billion in fiscal year 2021, which begins on October 1, 2020, mere weeks before the presidential election.

With the bill’s major “cliff” in entitlement spending coming in a year divisible by four, it’s fair for conservatives to question whether these reductions will ever go into effect, and the promised deficit reduction will ever be achieved. If the “transition” provisions end up extended in perpetuity, conservatives will end up with “Obamacare Max” — an expanded Obamacare subsidy regime available to millions more individuals.

Second, the bill does not even attempt to undo the fraudulent entitlement accounting created by Obamacare. Section 223 of the reconciliation measure passed in January 2016 transferred $379.3 billion of that bill’s deficit savings back to the Medicare trust fund. That provision represented a recognition that, as vice presidential candidate Paul Ryan said on the campaign trail back in August 2012, “President [Obama] took $716 billion from the Medicare program—he raided it—to pay for Obamacare.” Not only does Speaker Ryan’s bill not attempt to make Medicare whole from the Obamacare “raid,” the managers amendment released Monday evening consumed much of the bill’s supposed savings.

Third, while conservatives have focused on the bill’s tax credits as a new entitlement, the measure effectively creates a second new entitlement, this one for insurers. CBO’s estimate of possible premium reductions by 2026 hinged in no small part on creation of a “Patient and State Stability Fund,” and use of grants from the fund to subsidize insurers’ high-cost patients. However, the bill stops federal payments to the “Stability Fund” in 2026—and therefore the score does not take into consideration that this $10-15 billion annual bailout fund for health insurers could become permanent.

Fourth, reports suggest that House lawmakers are relying upon a bipartisan group in the Senate to repeal outright Obamacare’s “Cadillac tax” (delayed until 2026 in the most recent bill), which would worsen deficits in future decades. Leadership sources pushing this move would then argue that the bill blows a hole in the budget not because it spends more money, but because it reduces revenue.

However, the 2016 reconciliation bill repealed all of Obamacare’s tax increases and its new entitlements, while leaving the deficit virtually unchanged over the next 50 years. By contrast, if lawmakers create two entitlements — the new tax credit regime and the “Stability Fund” — while also repealing the “Cadillac tax,” they will create a fiscal hole likely to reach into the trillions. To borrow a phrase, the American Health Care Act doesn’t have a revenue problem, it has a spending problem.

Budgetary “out-years” gimmicks brought us the Medicare “doc fix” mess in the first place, which should embolden conservatives to recognize fiscal chicanery and legerdemain when they see it.

Positive Medicaid reforms notwithstanding, the structure on which the American Health Care Act is based does fiscal responsibility a disservice. A conservative-controlled Congress can and should do better.

This post was originally published at the Washington Examiner.

Summary of House Republicans’ Managers Amendment

UPDATE: On March 23, the Congressional Budget Office released an updated cost estimate regarding the managers amendment. CBO viewed its coverage and premium estimates as largely unchanged from its original March 13 projections. However, the budget office did state that the managers package would reduce the bill’s estimated savings by $187 billion — increasing spending by $49 billion, and decreasing revenues by $137 billion. Of the increased spending, $41 billion would come from more generous inflation measures for some of the Medicaid per capita caps, and $8 billion would come from other changes. Of the reduced revenues, $90 billion would come from lowering the medical care deduction from 7.5 percent to 5.8 percent of income, while $48 billion would come from accelerating the repeal of Obamacare taxes compared to the base bill.

Updated ten-year costs for repeal of the Obamacare taxes include:

  • Tax on high-cost health plans (also known as the “Cadillac tax”)—but only through 2026 (lowers revenue by $66 billion);
  • Restrictions on use of Health Savings Accounts and Flexible Spending Arrangements to pay for over-the-counter medications (lowers revenue by $5.7 billion);
  • Increased penalties on non-health care uses of Health Savings Account dollars (lowers revenue by $100 million);
  • Limits on Flexible Spending Arrangement contributions (lowers revenue by $19.6 billion);
  • Medical device tax (lowers revenue by $19.6 billion);
  • Elimination of deduction for employers who receive a subsidy from Medicare for offering retiree prescription drug coverage (lowers revenue by $1.8 billion);
  • Limitation on medical expenses as an itemized deduction (lowers revenue by $125.7 billion)
  • Medicare tax on “high-income” individuals (lowers revenue by $126.8 billion);
  • Tax on pharmaceuticals (lowers revenue by $28.5 billion);
  • Health insurer tax (lowers revenue by $144.7 billion);
  • Tax on tanning services (lowers revenue by $600 million);
  • Limitation on deductibility of salaries to insurance industry executives (lowers revenue by $500 million); and
  • Net investment tax (lowers revenue by $172.2 billion).

 

Original post follows:

On the evening of March 20, House Republicans released two managers amendments to the American Health Care Act—one making policy changes, and the other making “technical” corrections. The latter amendment largely consists of changes made in an attempt to avoid Senate points-of-order fatal to the reconciliation legislation.

In general, the managers amendment proposes additional spending (increasing the inflation measure for the Medicaid per capita caps) and reduced revenues (accelerating repeal of the Obamacare taxes) when compared to the base bill. However, that base bill already would increase the deficit over its first five years, according to the Congressional Budget Office.

Moreover, neither the base bill nor the managers amendment—though ostensibly an Obamacare “repeal” bill—make any attempt to undo what Paul Ryan himself called Obamacare’s “raid” on Medicare, diverting hundreds of billions of dollars from that entitlement to create new entitlements. Given this history of financial gimmickry and double-counting, not to mention our $20 trillion debt, some conservatives may therefore question the fiscal responsibility of the “sweeteners” being included in the managers package.

Summary of both amendments follows:

Policy Changes

Medicaid Expansion:           Ends the enhanced (i.e., 90-95%) federal Medicaid match for all states that have not expanded their Medicaid programs as of March 1, 2017. Any state that has not expanded Medicaid to able-bodied adults after that date could do so—however, that state would only receive the traditional (50-83%) federal match for their expansion population. However, the amendment prohibits any state from expanding to able-bodied adults with incomes over 133% of the federal poverty level (FPL) effective December 31, 2017.

With respect to those states that have expanded, continues the enhanced match through December 31, 2019, with states receiving the enhanced match for all beneficiaries enrolled as of that date as long as those beneficiaries remain continuously enrolled in Medicaid. Some conservatives may be concerned that this change, while helpful, does not eliminate the perverse incentive that current expansion states have to sign up as many beneficiaries as possible over the next nearly three years, to receive the higher federal match rate.

Work Requirements:           Permits (but does not require) states to, beginning October 1, 2017, impose work requirements on “non-disabled, non-elderly, non-pregnant” beneficiaries. States can determine the length of time for such work requirements. Provides a 5 percentage point increase in the federal match for state expenses attributable to activities implementing the work requirements.

States may not impose requirements on pregnant women (through 60 days after birth); children under age 19; the sole parent of a child under age 6, or sole parent or caretaker of a child with disabilities; or a married individual or head of household under age 20 who “maintains satisfactory attendance at secondary school or equivalent,” or participates in vocational education.

Medicaid Per Capita Caps:              Increases the inflation measure for Medicaid per capita caps for elderly, blind, and disabled beneficiaries from CPI-medical to CPI-medical plus one percentage point. The inflation measure for all other enrollees (e.g., children, expansion enrollees, etc.) would remain at CPI-medical.

Medicaid “New York Fix:”               Reduces the federal Medicaid match for states that require their political subdivisions to contribute to the costs of the state Medicaid program. Per various press reports, this provision was inserted at the behest of certain upstate New York congressmen, who take issue with the state’s current policy of requiring some counties to contribute towards the state’s share of Medicaid spending. Some conservatives may be concerned that this provision represents a parochial earmark, and question its inclusion in the bill.

Medicaid Block Grant:        Provides states with the option to select a block grant for their Medicaid program, which shall run over a 10-year period. Block grants would apply to adults and children ONLY; they would not apply with respect to the elderly, blind, and disabled population, or to the Obamacare expansion population (i.e., able-bodied adults).

Requires states to apply for a block grant, listing the ways in which they shall deliver care, which must include 1) hospital care; 2) surgical care and treatment; 3) medical care and treatment; 4) obstetrical and prenatal care and treatment; 5) prescription drugs, medicines, and prosthetics; 6) other medical supplies; and 7) health care for children. The application will be deemed approved within 30 days unless it is incomplete or not actuarially sound.

Bases the first year of the block grant based on a state’s federal Medicaid match rate, its enrollment in the prior year, and per beneficiary spending. Increases the block grant every year with CPI inflation, but does not adjust based on growing (or decreasing) enrollment. Permits states to roll over block grant funds from year to year.

Some conservatives, noting the less generous inflation measure for block grants compared to per capita caps (CPI inflation for the former, CPI-medical inflation for the latter), and the limits on the beneficiary populations covered by the block grant under the amendment, may question whether any states will embrace the block grant proposal as currently constructed.

Implementation Fund:        Creates a $1 billion fund within the Department of Health and Human Services to implement the Medicaid reforms, the Stability Fund, the modifications to Obamacare’s subsidy regime (for 2018 and 2019), and the new subsidy regime (for 2020 and following years). Some conservatives may be concerned that this money represents a “slush fund” created outside the regular appropriations process at the disposal of the executive branch.

Repeal of Obamacare Tax Increases:             Accelerates repeal of Obamacare’s tax increases from January 2018 to January 2017, including:

  • “Cadillac tax” on high-cost health plans—not repealed fully, but will not go into effect until 2026, one year later than in the base bill;
  • Restrictions on use of Health Savings Accounts and Flexible Spending Arrangements to pay for over-the-counter medications;
  • Increased penalties on non-health care uses of Health Savings Account dollars;
  • Limits on Flexible Spending Arrangement contributions;
  • Medical device tax;
  • Elimination of deduction for employers who receive a subsidy from Medicare for offering retiree prescription drug coverage;
  • Limitation on medical expenses as an itemized deduction—this provision actually reduces the limitation below prior law (Obamacare raised the threshold from expenses in excess of 7.5% of adjusted gross income to 10%, whereas the amendment lowers that threshold to 5.8%);
  • Medicare tax on “high-income” individuals;
  • Tax on pharmaceuticals;
  • Health insurer tax;
  • Tax on tanning services;
  • Limitation on deductibility of salaries to insurance industry executives; and
  • Net investment tax.

“Technical” Changes

Retroactive Eligibility:       Strikes Section 114(c), which required Medicaid applicants to provide verification of citizenship or immigration status prior to becoming presumptively eligible for benefits during the application process. The section was likely stricken for procedural reasons to avoid potentially fatal points-of-order, for imposing new programmatic requirements outside the scope of the Finance Committee’s jurisdiction and/or related to Title II of the Social Security Act.

Safety Net Funding:              Makes changes to the new pool of safety net funding for non-expansion states, tying funding to fiscal years instead of calendar years 2018 through 2022.

Medicaid Per Capita Cap:   Makes changes to cap formula, to clarify that all non-Disproportionate Share Hospital (DSH) supplemental payments are accounted for and attributable to beneficiaries for purposes of calculating the per capita cap amounts.

Stability Fund:          Makes technical changes to calculating relative uninsured rates under formula for allocating Patient and State Stability Fund grant amounts.

Continuous Coverage:         Strikes language requiring 30 percent surcharge for lack of continuous coverage in the small group market, leaving the provision to apply to the individual market only. With respect to the small group market, prior law HIPAA continuation coverage provisions would still apply.

Re-Write of Tax Credit:      Re-writes the new tax credit entitlement as part of Section 36B of the Internal Revenue Code—the portion currently being used for Obamacare’s premium subsidies. In effect, the bill replaces the existing premium subsidies (i.e., Obamacare’s refundable tax credits) with the new subsidies (i.e., House Republicans’ refundable tax credits), effective January 1, 2020.

The amendment was likely added for procedural reasons, attempting to “bootstrap” on to the eligibility verification regime already in place under Obamacare. Creating a new verification regime could 1) exceed the Senate Finance Committee’s jurisdiction and 2) require new programmatic authority relating to Title II of the Social Security Act—both of which would create a point-of-order fatal to the entire bill in the Senate.

In addition, with respect to the “firewall”—that is, the individuals who do NOT qualify for the credit based on other forms of health coverage—the amendment utilizes a definition of health insurance coverage present in the Internal Revenue Code. By using a definition of health coverage included within the Senate Finance Committee’s jurisdiction, the amendment attempts to avoid exceeding the Finance Committee’s remit, which would subject the bill to a potentially fatal point of order in the Senate.

However, in so doing, this ostensibly “technical” change restricts veterans’ access to the tax credit. The prior language in the bill as introduced (pages 97-98) allowed veterans eligible for, but not enrolled in, coverage through the Veterans Administration to receive the credit. The revised language states only that individuals “eligible for” other forms of coverage—including Medicaid, Medicare, SCHIP, and Veterans Administration coverage—may not qualify for the credit. Thus, with respect to veterans’ coverage in particular, the managers package is more restrictive than the bill as introduced, as veterans eligible for but not enrolled in VA coverage cannot qualify for credits.

Finally, the amendment removes language allowing leftover credit funds to be deposited into individuals’ health savings accounts—because language in the base bill permitting such a move raised concerns among some conservatives that those taxpayer dollars could be used to fund abortions in enrollees’ HSAs.

Obamacare versus the American Health Care Act

A PDF version of this document can be found on the Texas Public Policy Foundation website.

Obamacare

House GOP Proposal

Refundable tax credit entitlement

Check

Section 1401, Page 129

Check

Page 23 of Ways and Means bill

Raid Medicare to pay for new entitlement

Check

“President [Obama] took $716 billion from the Medicare program—he raided it—to pay for Obamacare” (Rep. Paul Ryan)

Check

Medicare savings RETAINED to pay for Ryancare entitlement spending

Allow illegal aliens to receive new entitlement

Check

“Insufficient and ineffective verification methods…allow for illegal immigrants to access the Exchange and subsidies” (Rep. Tom Price)

Check

Retains same verification system—Page 41 of Ways and Means bill

Federal bailouts for health insurers

Check

Sections 1341-42, Page 124

Check

Page 45 of Energy and Commerce bill

Medicaid expansion to able-bodied adults

Check

Section 2001, Page 198

Check

Page 5 of Energy and Commerce bill

Federal control of insurance markets
  • Pre-existing conditions

Check

Section 1201(1), Page 64

Check

Page 61 of Energy and Commerce bill

  • Insurance Exchanges

Check

Section 1311, Page 88

Check

RETAINED

  • 26-year-old mandate

Check

Section 1001(1), Page 34

Check

RETAINED

  • Essential health benefits

Check

Section 1302(b), Page 78

Check

RETAINED

  • Medical loss ratios

Check

Section 1001(1), Page 40

Check

RETAINED

  • Annual/lifetime limits

Check

Section 1001(1), Page 33

Check

RETAINED

  • Prevention and contraception mandate

Check

Section 1001(1), Page 33

Check

RETAINED

  • Actuarial value

Check

Section 1302(d), Page 82

X

Repealed in 2020—Page 65 of Energy and Commerce bill

 

Memo to Congress on Obamacare: Take My Coverage–Please!

Last week, Vox ran a story featuring individuals covered by Obamacare, who live in fear about what the future holds for them. They included people who opened small businesses because of Obamacare’s coverage portability, and worry that the “career freedom” provided by the law will soon disappear.

Unfortunately, but perhaps unsurprisingly, Vox didn’t ask this small business owner—who also happens to be an Obamacare enrollee—for his opinions on the matter. Like the enrollees in the Vox profile, I’m also incredibly worried about what the future holds, but for a slightly different reason: I’m worried for our nation about what will happen if Obamacare ISN’T repealed.

What Obamacare Hasn’t Done For Me

Unlike many of the individuals in the Vox story, I am a reluctant Obamacare enrollee—literally forced to buy coverage on the District of Columbia’s Exchange because Washington, D.C. abolished its private insurance market. (While I did contemplate moving to Virginia, where I could at least purchase an Obamacare-compliant plan without going through an Obamacare-mandated website, such changes aren’t easy when one owns one’s own home.)

While in generally decent health, I have some health concerns: mild hypertension (controlled by medications), mild asthma, and allergies that have worsened in the past few years. I’ve gone through two reconstructive surgeries on my ankle, which I’ve chronicled in a prior article. Under “research” previously published by the Obama Administration, my health conditions classify me as one of the 129 million people with a pre-existing condition supposedly benefiting from the law.

Yet while my health hasn’t changed much since Obamacare passed and was implemented, my health insurance policy has already been cancelled once. The replacement I was offered this year included a 20 percent premium increase, and a 25 percent increase in my deductible.

If Obamacare was repealed, or if insurers stopped offering coverage, it would be an inconvenience, no doubt. I don’t know what options would come afterwards. That would depend on actions by Congress, the District of Columbia, and the insurance community. But having already lost my coverage once, and gone through double-digit premium and deductible increases, how much worse can it really get?

Obamacare Will Raise the Deficit

Conversely, I am greatly worried about what will happen if Congress doesn’t repeal Obamacare. Our nation is nearly $20 trillion in debt—yet Obamacare would spend nearly $2 trillion more on health coverage in the next 10 years.

I know what liberals are saying: “But Obamacare will reduce the deficit!” Yes, the Congressional Budget Office did issue a score saying the law will lower the deficit. But consider all the conditions that must be met for Obamacare to lower the deficit. If:

  • Annual Medicare payment reductions that will render more than half of all hospitals unprofitable within the next 10 years keep going into effect; and
  • Provisions that will, beginning in 2019, reduce the annual increase in Exchange insurance subsidies—making coverage that much more unaffordable for families—go into effect; and
  • An unpopular “Cadillac tax” that has already been delayed once—and which the Senate voted to repeal outright on a bipartisan 90-10 vote in December 2015—actually takes effect in 2020 (which just happens to be an election year); then

The Congressional Budget Office estimates that the law will reduce the deficit by a miniscule amount. But if any of those conditions aren’t met, then the law becomes a budget-buster. And if you think all those conditions will actually come to pass, then I’ve got some land to sell you.

Obamacare’s Unspoken Opportunity Costs

Even if you believe in raising taxes to reduce the deficit, Congress has already done that. Except that money wasn’t used to lower the deficit—it’s been used to pay for Obamacare. Even some liberals accept that you can only tax the rich so much, at which point they will stop working to avoid paying additional income in taxes. Obamacare brought us much closer to that point, without doing anything to put our fiscal house in order.

Likewise, the law’s Medicare payment reductions are being used to both pay for Obamacare and extend the life of the Medicare trust fund (at least on paper, if not in reality). If it weren’t for the gimmick of this Obamacare double-counting, the Medicare trust fund would have become insolvent this year. Instead, budgetary smoke-and-mirrors have allowed Democrats to postpone the day of fiscal reckoning—making the day that much worse when it finally arrives.

We Just Can’t Afford Obamacare

Whether they’re liberal websites, Democratic leaders, or Republican politicians attempting to cover as many Americans as Obamacare in their “replacement,” no one dares utter the four words that our country will soon face on any number of fronts: “We can’t afford it.”

But the fact of the matter is, we can’t afford Obamacare. Not with trillions of dollars in debt, 10,000 Baby Boomers retiring every day, and the Medicare trust fund running over $130 billion in deficits the past eight years. Our nation will be hard-pressed to avoid all its existing budgetary and financial commitments, let alone $2 trillion in spending on yet more new entitlements.

So, to paraphrase Henny Youngman, take my health coverage—please. Repeal Obamacare,  even if it means I lose my health coverage (again). Focus both on reducing health costs and right-sizing our nation’s massive entitlements.

Failing to do so will ultimately turn all 300-plus million Americans into the “faces of Obamacare”—victims of a debt crisis sparked by politicians and constituents who want more government than the public wants to pay, and our nation can afford.

This post was originally published at The Federalist.

One Easy Way to Start Reforming Entitlements

During his election campaign and the subsequent presidential transition, Donald Trump expressed a high degree of discomfort with reducing Medicare benefits. His position ignores the significant financial peril Medicare faces—a whopping $132.2 billion in deficits for the Part A (Hospital Insurance) trust fund over the past eight years.

That said, there is one easy way in which the new administration could advance the cause of entitlement reform: allow individuals—including wealthy individuals, like, say, Donald Trump—to opt out of Medicare.

Under current Social Security Administration (SSA) practice dating back to at least 1993, individuals who apply for Social Security benefits are automatically enrolled in Medicare Part A (hospital coverage). While Medicare Part B (physician coverage) requires a separate application process and monthly premium payment, Part A is effectively mandatory for all Social Security recipients. Individuals who do not wish to enroll can do so only by not applying for Social Security benefits. Put another way, the federal government holds individuals’ Social Security benefits hostage as leverage to forcibly enroll them in Medicare Part A.

If you think the government holding benefits hostage to forcibly enroll seniors—even wealthy ones—in taxpayer-funded Medicare sounds more than a little absurd, you wouldn’t be the first one. Several years ago, several conservatives—including former House Majority Leader Dick Armey—filed a lawsuit in federal court, Hall v. Sebelius, seeking to overturn the SSA guidance. The plaintiffs wanted to keep their previous private coverage, and did not wish to lose the benefits of that coverage by being forcibly enrolled in Medicare Part A.

We Have A Roadmap To Remedy This Problem

Unfortunately, both a federal district court and the Court of Appeals for the District of Columbia agreed with the federal government. The majority opinions held that the underlying statute distinguished being “entitled” to Medicare Part A benefits from “enrolling” in Part B, meaning the government was within its rights to deny the plaintiffs an opportunity to opt out of Part A.

However, a dissent at the Court of Appeals by Judge Karen LeCraft Henderson can provide a roadmap for the Trump Administration to remedy the absurd scenario of individuals being forcibly enrolled in a taxpayer-funded program. Judge Henderson held that the Social Security Administration had no statutory authority to prohibit (via its Program Operations Manual System, or POMS) individuals from disclaiming their Medicare Part A benefits. While the law “entitles” individuals to benefits, it does not give SSA authority to force them to claim said benefits. SSA published guidance in its program manual exceeding its statutory grant—without even giving the public the opportunity for notice-and-comment before establishing its policy.

It’s Time To End The SSA’s Kafka-esque Policies

During the Cold War, East German authorities referred to the barriers surrounding West Berlin as the “Anti-Fascist Protective Wall”—implying that the Berlin Wall stood not to keep East Berliners in East Germany, but West Berliners out. One can’t help but notice a similar irony in the Medicare opt-out policies developed by the Social Security Administration. After all, if Medicare is so good, why must SSA hold individuals’ Social Security benefits hostage to keep them enrolled in the program?

The Trump Administration can easily put an end to the Social Security Administration’s Kafka-esque policies—and take one small step towards reforming entitlements—by instructing the new Commissioner of Social Security to work with the Centers for Medicare and Medicaid Services to develop a means for individuals to opt out of the Medicare Part A benefit. The savings from such a policy would likely be modest, but why should the federal government force the expenditure of taxpayer dollars on benefits that the beneficiaries themselves do not wish to receive?

The simple answer: it shouldn’t. Perhaps Bernie Sanders or Elizabeth Warren view forcible enrollment in Medicare as “punishment” for wealthy seniors. But at a time when our nation faces nearly $20 trillion in debt, individuals of significant means—whether Bill Gates, Donald Trump, or even Hillary Clinton—shouldn’t be forced to accept taxpayer-funded benefits. The Trump Administration eliminating this government absurdity would represent a victory for fiscal responsibility—and sheer common sense.

This post was originally published at The Federalist.

Big Hospital’s Obamacare Hypocrisy

As Republicans prepare legislation to repeal Obamacare, the health care industrial complex has raised a host of concerns. Notably, two hospital associations recently released a report highlighting the supposed negative implications of the reconciliation bill Congress passed, and President Obama vetoed, in January 2016.

While the hospitals allege that repealing Obamacare would decimate their industry, their report cleverly omits four inconvenient truths.

1. They Pushed Bad Ideas Because They Expect Bailouts

In August 2010 at an American Enterprise Institute forum, then-Medicare actuary Rick Foster engaged in a discussion with Chip Kahn, president of the Federation of American Hospitals, about the effects of Obamacare. The non-partisan actuary asked Kahn a simple question: Why did his industry agree to a series of so-called productivity adjustments, which lower hospitals’ Medicare reimbursement rates every year forever, in exchange for a one-time increase in their number of insured patients?

Kahn gave a simple, yet cynical, reply: “You could say, did you make a bad deal, and fortunately, I don’t think I’ll probably be working after 2020 [Laughter.]….I’m glad my contract only goes another six years. [Laughter.]”

Fast-forward those six years to last fall, when the Congressional Budget Office (CBO) analyzed the effects of various Obamacare provisions on hospital margins. The report concluded that even under the best-case scenario—in which hospitals achieve a level of efficiency non-partisan experts doubt they can reach—the revenue from Obamacare’s coverage expansions will barely offset the negative effects of the productivity adjustments. Under the worst-case scenario, more than half of hospitals could become unprofitable by 2025, and the entire industry could face negative profit margins.

Responding to the CBO report, the Federation of American Hospitals put out a statement from none other than Chip Kahn, wailing that “Medicare cuts are taking a punishing toll on the hospitals that serve all of us.” Translation: “Save me from my own stupidity—and the bad deal I cut six years ago!”

Kahn knew full well in August 2010 that Obamacare would eventually decimate his industry, through the cumulative effect of year-over-year reductions in Medicare payments. The laughter during his comments demonstrates Kahn thought it was one big joke. He and his colleagues cynically calculated first that they wouldn’t be around when those payment reductions really started to bite; and second that Congress would bail the hospitals out of their own bad deal—essentially, that hospitals are “too big to fail.”

2. Hospitals Supported Raiding Medicare to Pay for Obamacare

Last year’s reconciliation bill essentially undid the fiscal legerdemain that allowed Obamacare to pass in the first place. In the original 2010 legislation, Democrats used savings from Medicare both to improve the solvency of Medicare (at least on paper) and to fund the new entitlements.

The reconciliation bill would have repealed the new entitlements, and—in a truly novel concept—used Obamacare’s Medicare savings to…save Medicare. Instead, the hospital industry wants to continue the budget gimmickry that allows Medicare money to be spent twice and used for other projects.

3. Hospitals Believe Entitlements Are for Them, Not You

Last year, researchers from MIT released a major paper using the Oregon Health Insurance Experiment—in which winners of a random lottery won the right to Medicaid benefits, while others did not—to calculate the utility of Medicaid coverage. The study found that most beneficiaries valued their coverage at between 20 and 40 cents on the dollar. In other words, if given the choice between Medicaid coverage valued at $3,000 and cash in the amount of $1,500, most beneficiaries would take the cash.

In theory, individuals receiving cash contributions in lieu of Medicaid coverage could improve their health in all sorts of ways—buy healthier food, obtain transportation to a higher-paying job, move to a better apartment closer to parks and recreation. But who would object to giving patients cash to improve their health instead of insurance? You guessed it: Hospitals.

Hospitals view Medicaid as their entitlement, not their patients’. That’s why hospitals have worked so hard for Obamacare’s Medicaid expansion. It’s also why they wouldn’t support diverting money from coverage into other programs (e.g., education, housing, nutrition, etc.) that could actually improve patients’ health more than insurance, which has been demonstrated not to improve physical health outcomes.

4. Insisting Health Care Is Their Personal Jobs Program

Hospitals will claim that repealing Obamacare will cost industry jobs, just as they pushed for states to expand Medicaid as a way to create jobs. But economic experts on both sides of the aisle find this argument frivolous at best. As Zeke Emanuel, a former Obama administration official, has noted: “Health care is about keeping people healthy or fixing them up when they get sick. It is not a jobs program.”

Likewise, conservative economist Katherine Baicker has questioned “The Health Care Jobs Fallacy.” All spending will create jobs, one way or another. After all, if you’re looking to keep people employed, paying them to dig ditches and fill them in again will do the trick. But Baicker notes that it’s a far different thing to argue that health care represents the bestand most efficient use of resources—better than, say, building roads and bridges, lowering taxes, or even repaying the deficit.

The health-care sector seems to believe they have a God-given right to consume at least one-sixth of the economy (and growing). Rebutting hospitals’ argument—that they, and only they, can create jobs—might represent the first step in lowering health costs, which would help non-health sectors of the economy grow more quickly.

This post was originally published at The Federalist.

Reforming Medicaid, Beginning on Day One

A recent article listing five ways in which Health and Human Services Secretary-designee Tom Price could reform health care surprisingly excluded solutions for our nation’s largest taxpayer-funded health care program—Medicaid. That’s right: While Medicare spends more federal dollars, state and federal taxpayers spend more on Medicaid overall. With federal program spending scheduled to top $400 billion next fiscal year, and Medicaid consuming a large and growing share of state budgets, Dr. Price should waste no time making critically important reforms.

Ultimately, conservatives should work to convert Medicaid into either a block grant or per capita cap, where states would receive fixed payments from the federal government in exchange for additional flexibility to manage their programs as they see fit. While Congress must approve the legislative changes necessary to create a block grant or per capita cap, Dr. Price and Centers for Medicare and Medicaid Services Administrator-designee Seema Verma—who has a great deal of experience managing state Medicaid programs—can take steps, beginning on Day One, to give states more flexibility and freedom to experiment.

The prime place for Price and Verma to start lies in Medicaid’s “1115 waivers,” so named for the section of the Social Security Act (Section 1115) that created them. Under the 1115 process, HHS can waive certain requirements under Medicaid and the State Children’s Health Insurance Program (SCHIP) for “any experimental, pilot, or demonstration project which, in the judgment of the Secretary, is likely to assist in promoting the objectives” of the programs.

Unfortunately, such waiver authority is only as effective as the Administration that chooses to exercise it—or not, as has been the case for much of the last eight years. One section of Obamacare actually increased the bureaucracy associated with 1115 waivers, requiring states to undertake a lengthy process, including a series of hearings, before applying for a waiver (because Obamacare itself was written in such a transparent manner). Subsequent legislative changes have sought to streamline the process for states requesting extensions of waivers already granted.

However, Dr. Price and Ms. Verma can go further in allowing states to reform Medicaid. They can, and should, upon taking office immediately propose a template waiver application for states to utilize. They can also publicly indicate their intent to approve blanket waivers—that is, waiver applications meeting a series of policy parameters will be automatically approved. While Congress should ultimately codify state flexibility into law—so no future Administration can deny states the ability to implement needed reforms—the new Administration can put it into practice while waiting for Congress to act.

As to the types of waivers the Trump Administration should look favorably upon, House Republicans’ “Better Way” proposal and a report issued by Republican governors in 2011 provide two good sources of ideas:

Work Requirements: Despite repeated requests, the Obama Administration has steadfastly refused to allow states to impose a requirement that able-bodied Medicaid beneficiaries either work, look for work, or prepare for work through enrollment in job-training programs. Because voluntary job-referral programs have led to impressive success stories, states should have the ability to impose work requirements for Medicaid recipients.

Cost-Sharing and Benefit Design: Whether through enforceable yet reasonable premiums, modest co-payments, Health Savings Account-like mechanisms, or a combination of all three, states should have greater freedom to utilize consumer-directed health care options for beneficiaries. These innovations would not only turn Medicaid into a product more closely resembling other forms of health insurance, they can also help reduce costs—thus saving taxpayers money.

Premium Assistance and Wellness Incentives: Current regulatory requirements for premium assistance—in which Medicaid pays part of the cost associated with an eligible individual’s employer-based insurance—have proven ineffective and unduly burdensome. States should have more flexibility to use Medicaid dollars to subsidize employer coverage, without providing additional wrap-around benefits. Likewise, states should have the ability to offer incentives for wellness and healthy behaviors in their Medicaid programs, just as successful employers like Safeway have done.

Payment Reforms and Managed Care: With health care moving away from a fee-for-service model, in which doctors and hospitals get paid for each service performed, states should have the ability to innovate. Some may wish to implement bundled payments, which would see Medicaid providing a lump-sum payment for all the costs of a procedure (e.g., a hip replacement and associated post-operative therapy). Others may benefit from a waiver of the current requirement that Medicaid beneficiaries have the choice of at least two managed care plans—a requirement that may not be feasible in heavily rural areas and states.

Program Integrity: With fraud endemic in federal health care programs, states should receive flexibility to track down on scofflaws—for instance, the ability to hire contingency fee-based contractors, and more scrupulously verify beneficiary eligibility and identity. By monitoring suspicious behavior patterns through the use of “big data,” these efforts could save both Washington and the states billions.

Reforming a program that will cost state and federal taxpayers an estimated $607.2 billion this fiscal year will not be easy, and will not happen overnight. But the sprawling program’s vast size and scope also demonstrate why the new Administration should start its work immediately. While Congress can and should fundamentally reform Medicaid, HHS can use blanket 1115 waivers to allow states to experiment as soon as they can. In this way, the “laboratories of democracy” can drive the innovation needed to bring Medicaid into the 21st century, lowering health costs and saving taxpayers money.

No, Medicare Enrollees Haven’t “Earned” All Their Benefits

In his interview with 60 Minutes that aired Sunday night, Speaker of the House Paul Ryan made a compelling case for reforming Medicare. But in trying to make a political point about the need to maintain the status quo for beneficiaries in retirement, Speaker Ryan actually understated the problems the program faces:

We have to make sure that we shore this program up. And the reforms that we’ve been talking about don’t change the benefit for anybody who is in or near retirement. My mom’s now enjoying Medicare. She’s already retired. She earned it. But for those of us, you know, the X-Generation on down, it won’t be there for us on its current path. So we have to bring reform to this program for the younger generation, so that it’s there for us when we retire, and so that we can keep cash flowing to current generations’ commitments. And the more we kick the can down the road, the more we delay, the worse it gets.

There’s just one problem with this explanation: the benefits Ryan claimed his mother’s generation “earned” don’t begin to match the money paid into the system.

Money In Doesn’t Equal Money Out

Strictly speaking, the benefits Ryan’s mother receive are “earned,” in the sense that beneficiaries must pay into the Social Security system for 40 quarters to qualify for Medicare eligibility. But in the actuarial sense of “earned” benefits—“I’m only getting back all the money I paid in during my working life”—most beneficiaries receive benefits that vastly exceed their payroll tax contributions to Medicare.

In its 2015 document highlighting the long-term budget outlook, the Congressional Budget Office (CBO) conducted an analysis of average payroll taxes paid and benefits received. It found the latter exceeded the former by a wide margin—a margin that will grow over time:

Under the assumption that all scheduled benefits are paid, real average lifetime benefits (net of premiums paid) for each birth cohort as a percentage of lifetime savings will generally be greater than those for the preceding cohort. For example, benefits received over a lifetime are projected to equal about 7 percent of lifetime earnings for people born in the 1940s, on average, but 11 percent for people born in the 1960s. By contrast, real average lifetime payroll taxes relative to lifetime earnings will rise from 2 percent in the 1940s cohort to almost 3 percent for the 1960s cohort.

Both the text and accompanying chart come with a significant caveat: Medicare payroll taxes fund only a share of overall Medicare spending, and that share has declined significantly in recent years—from 67 percent in 2000 to about 40 percent last year. General revenue covers a growing (currently about 47 percent) percentage of Medicare’s finances; individuals do pay a portion of the federal government’s general revenue through income taxes, but it’s harder to differentiate what portion of an individual’s income taxes fund Medicare in any given year.

Regardless, the CBO analysis confirms that benefits paid out continue to rise thanks to skyrocketing health costs—and that taxes paid into the system cannot keep up. A similar CBO analysis conducted earlier this year for the 2016 long-term budget outlook likewise determined that Social Security benefits paid out will exceed taxes taken in for most seniors. (Unlike Medicare, Social Security is funded entirely by payroll taxes, so the gap between benefits and taxes is smaller, but still significant.) Both CBO reports echo research undertaken by the Urban Institute, whose most recent analysis found that a couple earning average wages who retired last year will receive $1,038,000 in Medicare and Social Security benefits after paying in only $683,000 in payroll taxes.

We Have To Fix Our Medicare System

Phasing in changes like premium support for Medicare makes both political and policy sense—to give Americans time to adjust and plan for major changes to entitlement programs, and to try and head off campaigns designed to scare current seniors. On the other hand, CBO believes the premium support proposal included in House Republicans’ budget this year would save seniors 6 percent on out-of-pocket health costs annually—raising the obvious question of why seniors should be shut out of the opportunity to save money.

No matter the details, the fact that most seniors receive more in benefits than they paid in payroll taxes speaks to the urgent need to right-size our entitlements. Regardless of how we do it, our nation will be much better off if we confront these problems sooner rather than later. Because continuing our Lake Wobegon system—in which everyone receives more than they paid in—will guarantee a fiscal crisis of epic proportions.

This post was originally published at The Federalist.