Category Archives: Medicare

Bernie Sanders’ Single-Payer Plan Provides Benefits for Billionaires

On Wednesday, socialist Sen. Bernie Sanders plans to introduce the latest version of his single-payer health-care program. If past practice holds, Sanders will call his plan “Medicare for All.” But if he wants to follow Medicare as his model, then the Sanders plan could easily earn another moniker: Benefits for Billionaires.

An analysis released by the Congressional Budget Office (CBO) in August demonstrates how Medicare currently provides significant financial benefits to seniors at all income levels, including the wealthy. Specifically, the CBO paper analyzed lifetime Medicare taxes paid, and lifetime benefits received, by individuals born in the 1950s who live to age 65.

The non-partisan budget office found that at every income level, seniors received more in Medicare benefits than they paid in Medicare taxes. Men in the highest income quintile—the top 20 percent of income—received a net lifetime benefit from Medicare of nearly $50,000, even after taking into account the Medicare taxes and premiums they paid. Women received an even greater net benefit between taxes paid and benefits received at all income levels, reflecting both longer life expectancy (i.e., more benefits paid out) and shorter working histories (fewer taxes paid in).

The CBO analysis confirms prior work by the Urban Institute—no right-wing think tank—that Medicare pays out more in benefits than it receives in taxes at virtually all income levels. For instance, according to Urban’s most recent study, a high-earning male turning 65 in 2020 will pay in an average of $123,000 in Medicare taxes, but receive an average of $222,000 in benefits.

Melinda Gates Doesn’t Need Government Health Care

Some may quibble with the work by CBO and Urban Institute for containing an important oversight. In analyzing only Medicare benefits and Medicare taxes paid, the two papers omit the portion of Medicare’s financing that comes from general revenues—including the income taxes paid primarily by the wealthy. While it’s difficult to draw a precise link between Medicare’s general revenue funding and any one person’s income tax payments, it’s possible that—particularly for one-percenters—income taxes paid will offset the net cost of their Medicare benefits.

But regardless of those important details, the larger point still holds. Even if her taxes do outweigh the Medicare benefits received, why does Melinda Gates need the estimated $300,000 in health care benefits paid to the average high-income woman born in the 1950s? Does that government spending serve a useful purpose?

Moreover, if Medicare provides a net benefit to the average senior at virtually every income bracket, how does the program as currently constructed represent either 1) social insurance or 2) a sustainable fiscal model? Under an insurance model, some individuals “win” by receiving greater net benefits, while some individuals “lose” by not fully receiving back the money they paid in. But given that multiple analyses have demonstrated that virtually every cohort of seniors currently benefits from Medicare, then the program’s only true “losers” are the future generations of Americans who will fund today’s profligate spending.

We Don’t Have Money to Subsidize the Rich

Yes, Medicare currently does include some means testing for wealthy beneficiaries, in both the Part B (physician) and Part D (prescription drug) portions of the program. But common sense should dictate first that wealthy individuals not only should be able to opt-out of Medicare if they so choose—because, strange as it sounds, the federal government currently forbids individuals from renouncing their Medicare benefits—wealthy seniors should not receive a taxpayer subsidy at all. Whether in Medicare or Sanders’ socialist utopia, the idea that Warren Buffett or Bill Gates warrant taxpayer subsidies defies credulity.

Despite this common-sense logic, liberals continue to support providing taxpayer-funded benefits for billionaires. In 2011, then-Rep. Henry Waxman (D-CA) said “if [then-Speaker John] Boehner wants to have the wealthy contribute more to deficit reduction, he should look to the tax code.” Perhaps Waxman views keeping wealthy seniors in Medicare as a form of punishment for the rich. After all, nearly nine in ten seniors have some form of supplemental insurance, and a form of “insurance” one must insure against may not be considered an unalloyed pleasure.

Regardless, Medicare faces its own financial reckoning, and sooner rather than later. In 2009—the last trustees’ report before Obamacare introduced fiscal gimmicks and double-counting into Medicare—the program’s actuaries concluded Medicare’s Hospital Insurance Trust Fund would become functionally insolvent this year. Given that bleak outlook, neither Medicare nor the American people can afford Sanders’ ill-conceived scheme to provide taxpayer-funded health benefits to wealthy 1-percenters.

This post was originally published at The Federalist.

Liberals’ Hypocrisy on Per Capita Caps

It was, to borrow from Arthur Conan Doyle, the dog that didn’t bark. In releasing the annual report on its finances, Medicare’s actuary last month found that the program would not trigger requirements related to the Independent Payment Advisory Board (IPAB) this year—or for several years to come. Although the Senate and House health-care bills avoided altering Medicare, the IPAB development—or non-development, as it were—should inject some important perspective into the legislative debate.

Many liberal critics of the Republican bills have attacked proposals to impose per capita caps on state Medicaid programs, while conveniently forgetting that Obamacare imposed similar spending caps on Medicare. In fact, Section 3403 of the law empowers IPAB—a board of unelected bureaucrats—to make binding recommendations to Congress reducing program spending if Medicare will exceed statutory limits for spending per beneficiary.

The IPAB non-event should therefore put the harsh rhetoric surrounding Medicaid caps in perspective. After all, how damaging can per capita caps be if spending remains sufficiently low not to trigger them? And why do liberals who claim that health-care delivery reforms implemented by Obamacare can slow Medicare spending not believe that, given sufficient flexibility, states could similarly reform their Medicaid programs to lower costs—as states like Rhode Island already have done?

We Care More About Politics than Policy

Some Obamacare supporters claim that statutory restrictions on IPAB—in enforcing Medicare spending caps, the board may not change Medicare benefits or “ration health care”—will protect Medicare beneficiaries in a way that the current bills do not protect Medicaid recipients. But IPAB’s supposed “protections” have their own flaws. The statute does not define “rationing,” and then-Secretary of Health and Human Services (HHS) Kathleen Sebelius testified in 2011 that HHS would need to draft regulations to do so. But the Obama administration never even proposed rules “protecting” Medicare beneficiaries from rationing under the IPAB per capita caps—so how meaningful can those protections actually be?

When push comes to shove, few liberals can justify their support for per capita caps on Medicare, but opposition to similar caps in Medicaid. One day on Twitter, I posed a simple question to Topher Spiro, of the Center for American Progress (CAP): If the Republican proposals for per capita caps in Medicaid included the same beneficiary “protections” as IPAB creates for Medicare recipients, would he support them? I never received a substantive answer.

Therein lies the problem: Many critics of the Republican Medicaid proposals seem to prioritize political partisanship over policy consistency. Five years ago, CAP made very clear it supports IPAB’s per capita caps on Medicare spending, denouncing a 2012 legislative effort to repeal the board. But earlier this year, the organization denounced as “devastating” Republican proposals for per capita caps on Medicaid. So why exactly does this purportedly non-partisan organization support per capita caps when a Democratic Congress enacts them, but oppose similar caps proposed by a Republican Congress?

It’s Okay, It’s Just Hypocrisy

Likewise, the disability community has raised concerns about the proposed changes to Medicaid, attacking per capita caps as causing “massive cuts in Medicaid services.” But when issuing comments on the bill that became Obamacare in January 2010, the major coalition representing disability groups proposed 73 different recommendations in a document exceeding 5,500 words yet included not a sentence on the Medicare per capita caps ultimately included in the law.

Democratic senators appearing with disability advocates at events to denounce spending caps for Medicaid fail to recognize that they voted for similar caps in Medicare, which provides health coverage to 9 million Americans with disabilities. Moreover, despite being in place for several years, the Medicare caps have yet to be breached. So how damaging is a policy that hasn’t affected Medicare beneficiaries in the slightest, and which Democratic lawmakers themselves have voted for?

In his Sherlock Holmes story “Silver Blaze,” Doyle wrote of the guard dog that didn’t bark because it was friendly with an intruder. Likewise, many liberal advocates and Democratic lawmakers are quite friendly with per capita entitlement caps, already having imposed such caps for Medicare. Particularly given the non-factor of such caps in the Medicare program in recent years, they should perhaps “bark” less in opposing similar caps in Medicaid. Both beneficiaries and taxpayers deserve better than opportunistic—and politically inconsistent—scaremongering.

This post was originally published at The Federalist.

What You Need to Know about Today’s Medicare Trustees Report

Earlier this afternoon, the Medicare trustees released their annual report on the state of the program’s finances. Here’s a quick take about what you need to know in the report:

Insolvency Date:  The insolvency date for the Medicare Hospital Insurance Trust Fund is 2029, one year later than last year’s report. However, remember that, if not for the double-counting in Obamacare (about which see more below), the Trust Fund would ALREADY be insolvent, as in 2009 — the last trustees report prior to Obamacare’s enactment — the trustees projected insolvency for 2017 (i.e., this year).

IPAB NOT Triggered:  Despite prior predictions, this year’s trustees report did NOT trigger a reporting requirement related to the Independent Payment Advisory Board (IPAB). In other words, Medicare spending over the relevant five year period (2015 through 2019) is not projected to exceed the per capita caps established for Medicare in Obamacare itself. Which makes one wonder — if per capita caps for Medicare haven’t yet bit, why are liberals objecting so loudly to per capita caps for Medicaid…?

A Brief Break from Massive Deficits:  For the first time in nearly a decade, the Medicare Part A Trust Fund did NOT run a deficit. However, the small $5.4 billion surplus did not even begin to overcome the $132.2 billion in deficits run by the Medicare program from 2008 through 2015.

Funding Warning:  For the first time since 2013, the trustees issued a funding warning showing that the Medicare program is taking a disproportionate share of its funding from general revenues, thus crowding out programs like defense and education. If a second warning is issued next year, the President will be required to submit legislation to Congress remedying the problem.

Unrealistic Assumptions:  As it has every year since the passage of Obamacare, the trustees issued an alternative scenario, because “absent an unprecedented change in health care delivery systems,” the payment reductions included in Obamacare mean that “access to, and delivery of, Medicare benefits would deteriorate over time for beneficiaries.”

Double Counting:  The actuary also previously confirmed that the Medicare reductions in Obamacare “cannot be simultaneously used to finance other federal outlays and to extend the [Medicare] trust fund” solvency date – rendering dubious any potential claims that Obamacare will extend Medicare’s solvency.  As Nancy Pelosi previously admitted, Democrats “took a half a trillion dollars out of Medicare in [Obamacare], the health care bill” – and you can’t improve Medicare’s solvency by taking money out of the program.

CBO Reveals Its Bias

Since the Congressional Budget Office (CBO) released its analysis of the House-passed health-care bill just before Memorial Day, conservatives have questioned CBO’s assumptions on several fronts—most notably scorekeepers’ almost dogmatic belief that an individual mandate holds the key to enticing tens of millions of Americans to purchase health coverage. But the CBO report revealed another key issue—the budget office’s inherent bias towards liberal cost-saving solutions rather than conservative ones.

That bias stems from one conclusion: Under the bill, a “few million people [CBO didn’t provide a more specific number] would buy policies that would not cover major medical risk.” In these cases, “the policies [purchased] would not provide sufficient financial protection to meet CBO’s definition of insurance coverage,” and “would not provide enough financial protection in the event of a serious and costly illness to be considered insurance.”

At first glance, it seems reasonable for CBO to, when analyzing legislation, determine whether individuals scored as having “insurance” actually possess coverage meeting that definition. However, that position looks more questionable when the budget office acknowledged in a December blog post the administrative and other difficulties in arriving at a uniform definition of private health insurance, which the office did not quantify—either in December or in its score of the House bill.

More importantly, though, at no point has CBO attempted to quantify whether and to what extent Americans—particularly those in government programs—are under-insured due to their inability to obtain medical treatment. Largely due to poor reimbursement levels for physicians and hospitals, some participants in programs like Medicaid may have great financial protection in theory, but little access to care in practice.

Conservative Versus Liberal Goals For Health Care

At the risk of stereotyping, conservatives often prefer less-comprehensive insurance—coverage largely for catastrophic expenses, with patients paying for many routine expenses out-of-pocket. Right-leaning analysts believe that by making costs explicit to patients—to use the wonky phrase, giving patients “skin in the game”—they will make smarter health care choices. By contrast, liberals generally make costs and tradeoffs opaque, supporting generous coverage of most medical procedures, while reducing costs to government through lower provider reimbursement levels often not visible to patients.

Obamacare provides an excellent example of the contrast. Two months after the law passed—while attempting to deflect the criticism that Democrats took money from Medicare to pay for Obamacare—Nancy Pelosi noted that the law included “no change in guaranteed benefits.”

But in reality, the vaunted “Medicare guarantee” that Pelosi and liberals purport to defend doesn’t exist. The law guarantees that the federal government will pay seniors’ doctors and hospitals for treating them, but it doesn’t guarantee that seniors will actually get seen by a doctor.

In government programs, low reimbursement levels can make treatment hard for patients to obtain. At a briefing on “under-insurance” several years ago, an official who used to run one state’s Medicaid program acknowledged the access problem in government programs, admitting that “a Medicaid card [is] a hunting license…a chance to go try to find a doctor.”

Obamacare Made A Bad Situation Worse

On provider reimbursement, Obamacare made a bad situation worse. The nonpartisan Medicare actuary considers a series of payment reductions included in the law so Draconian—by 2040, half of all hospitals, and 90 percent of home health agencies, would be unprofitable—that they will not go into effect, “to ensure Medicare beneficiaries continue to have access to health care services.”

CBO has acknowledged the limitations on access created by Obamacare. In 2014, it noted that the new Exchange plans created that year had lower physician reimbursement levels and narrower provider networks than most employer plans. It has also estimated last fall that, thanks to the Medicare payment reductions included in Obamacare, up to half of all hospitals nationwide could be operating in the red by 2025—which could harm access to care, not just for seniors but all Americans.

However, CBO has not attempted to quantify the effects of these reimbursement reductions on the end-users—patients. It seems somehow perverse that a state Medicaid program could reduce payment levels to such absurdly low levels (99 cents, perhaps?) that no doctor or hospital would treat those patients, yet these individuals would continue to be classified as “insured” by the budget office, while those whose private coverage exceeds CBO’s not-publicly-defined thresholds for “acceptable” insurance would not be.

Some critiques of CBO’s work on the House health care bill appear opportunistic. Protesting that many fewer Americans than CBO projects will drop coverage upon repeal of the individual mandate, without acknowledging that such a scenario would likely obliterate the budgetary savings in the House legislation, seems incongruous at best. But a budget office that examines only one side of the “under-insured” coin—Americans who face high out-of-pocket costs, but not those who cannot access care—likewise seems out of whack. Republicans in Congress should press CBO to quantify both sides of this important health-care issue.

This post was originally published at The Federalist.

AARP’s Own “Age Tax”

Over the past few weeks, AARP—an organization that purportedly advocates on behalf of seniors—has been running advertisements claiming that the House health-care bill would impose an “age tax” on seniors by allowing for greater variation in premiums. It knows of which it speaks: AARP has literally made billions of dollars by imposing its own “tax” on seniors buying health insurance policies, not to mention denying care to individuals with disabilities.

While the public may think of AARP as a membership organization that advocates for liberal causes or gives seniors discounts at restaurants and hotels, most of its money comes from selling the AARP name. In 2015, the organization received nearly three times as much revenue from “royalty fees” than it did from member dues. Most of those royalty fees come from selling insurance products issued by UnitedHealthGroup.

Only We Can Profit On the Elderly

As documented on its tax returns and in congressional oversight reports, AARP royalty fees from UnitedHealthGroup come largely from the sale of Medigap supplemental insurance plans. As the House Ways and Means Committee noted in 2011, while AARP receives a flat-sum licensing fee for branding its Medicare Advantage plans, the organization has a much sweeter deal with respect to Medigap: “State insurance rate filings show that, in 2010, AARP retained 4.95% of seniors’ premiums for every Medigap policy sold under its name. Therefore, the more seniors enroll in the AARP-branded Medigap plan, the more money AARP receives from United.”

So in the sale of Medigap plans, AARP imposes—you guessed it!—a 4.95 percent age tax on seniors. AARP not only makes more money the more people enroll in its Medigap plans, it makes more money if individuals buy more expensive insurance.

Even worse, AARP refused good governance practices that would disclose the existence of that tax to seniors at the time they apply for Medigap insurance. While working for Sen. Jim DeMint in 2012, I helped write a letter to AARP that referenced the National Association of Insurance Commissioners’ Producer Model Licensing Act.

Specifically, Section 18 of that act recommends that states require explicit disclosure to consumers of percentage-based compensation arrangements at the time of sale, due to the potential for abuse. DeMint’s letter asked AARP to “outline the steps [it] has taken to ensure that your Medigap percentage-based compensation model is in full compliance with the letter and spirit of” those requirements. AARP never gave a substantive reply to this congressional oversight request.

Don’t Screw With Obamacare, It’s Making Us Billions

AARP’s silence might stem from the fact that its hidden taxes have made the organization billions. Between 2010—the year Obamacare was signed into law—and 2015, the most recent year for which financial information is available, AARP received $2.96 billion in “royalty fees” from UnitedHealthGroup. During that same period, AARP made an additional $195.6 million in investment income from its grantor trust.

Essentially, AARP makes money off other people’s money—perhaps receiving insurance premium payments on the 1st of the month, transferring them to UnitedHealth or its other insurance affiliates on the 15th of the month, and pocketing the interest accrued over the intervening two weeks. That’s nearly $3.2 billion in profit over six years, just from selling insurance plans. AARP received much of that $3.2 billion in part because Medigap coverage received multiple exemptions in Obamacare. The law exempted Medigap plans from the health insurer tax, and medical loss ratio requirements.

Most importantly, Medigap plans are exempt from the law’s myriad insurance regulations, including Obamacare’s pre-existing condition exclusions—which means AARP can continue its prior practice of imposing waiting periods on Medigap applicants. You read that right: Not only did Obamacare not end the denial of care for pre-existing conditions, the law allowed AARP to continue to deny care for individuals with disabilities, as insurers can and do reject Medigap applications when individuals qualify for Medicare early due to a disability.

The Obama administration helped AARP in other important ways. Regulators at the Department of Health and Human Services (HHS) exempted Medigap policies from insurance rate review of “excessive” premium increases, an exemption that particularly benefited AARP. Because the organization imposes its 4.95 percent “age tax” on individuals applying for coverage, AARP has a clear financial incentive to raise premiums, sell seniors more insurance than they require, and sell seniors policies that they don’t need. Yet rather than addressing these inherent conflicts, HHS decided to look the other way and allow AARP to continue its shady practices.

The Cronyism Stinks to High Heaven

Obama administration officials not only did not scrutinize AARP’s insurance abuses, they praised the organization as a model corporate citizen. Then-HHS Secretary Kathleen Sebelius, when speaking to its 2010 convention, called AARP the “gold standard” in providing seniors with “accurate information”—even though the organization declined requests to disclose the conflicts arising from its percentage-based Medigap “royalties.” However, Sebelius’ tone is perhaps not surprising from an administration whose officials plotted with AARP executives to enact Obamacare over AARP members’ strong objections.

AARP will claim in its defense that it’s not an insurance company, which is true. Insurance companies must risk capital to pay claims, and face losses if claims exceed premiums charged. By contrast, AARP need never risk one dime. It can just sit back, license its brand, and watch the profits roll in. Its $561.9 million received from UnitedHealthGroup in 2015 exceeded the profits of many large insurers that year, including multi-billion dollar carriers like Centene, Health Net, and Molina Healthcare.

But if the AARP now suddenly cares about “taxing” the aged so much, Washington should grant them their wish. The Trump administration and Congress should investigate and crack down on AARP’s insurance shenanigans. Congress should subpoena Sebelius and Sylvia Mathews Burwell, her successor, and ask why each turned a blind eye to its sordid business practices. HHS should write to state insurance commissioners, and ask them to enforce existing best practices that require greater disclosure from entities (like AARP) operating on a percentage-based commission.

And both Congress and the administration should ask why, if AARP cares about its members as much as it claims, the organization somehow “forgot” to lobby for Medigap reforms—not just prior to Obamacare’s passage, but now. AARP’s fourth quarter lobbying report showed that the organization contacted Congress on 77 separate bills, including issues as minor as the cost of lifetime National Parks passes, yet failed to discuss Medigap reform at all.

Given that AARP made more than $3 billion in profits from the status quo—denying care to individuals with pre-existing conditions, and earning more money by generating more, and higher, premiums—its silence makes sense on one level. But if AARP really wants to make insurance markets fair, and stop “taxing” the aged, all it has to do is look in the mirror.

This post was originally published at The Federalist.

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