Category Archives: Social Security

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 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.

Will the “Byrd Bath” Turn Into a Tax Credit Bloodbath?

While most of official Washington waits for word—expected early this week—from the Congressional Budget Office (CBO) about the fiscal effects of House Republicans’ “repeal-and-replace” legislation, another, equally critical debate is taking place within the corridors of the Capitol. Arcane arguments behind closed doors about the nuances of parliamentary procedure will do much to determine the bill’s fate in the Senate—and could lead to a final product vastly altered compared to its current form.

In recent days, House leaders have made numerous comments highlighting the procedural limitations of the budget reconciliation process in the Senate. However, those statements do not necessarily mean that the legislation released last week comports with all of those Senate strictures. Indeed, my conversations with more than half a dozen current and former senior Senate staff, all of whom have long expertise in the minutiae of Senate rules and procedure, have revealed at least four significant procedural issues—one regarding abortion, two regarding immigration, and one regarding a structural “firewall”—surrounding the bill’s tax credit regime.

Those and other procedural questions explain why, according to my sources, Senate staff will spend the coming week determining whether they will need to write an entirely new bill to substitute for the House’s proposed language. The stakes involved are high: Guidance from the parliamentarian suggesting that the House bill contains fatal procedural flaws, meaning it does not qualify as a reconciliation bill, could force the House to repeat the process, starting again with a new, “clean” reconciliation measure.

It is far too premature to claim that any of these potential flaws will necessarily be fatal. The Senate parliamentarian’s guidance to senators depends on textual analysis—of the bill’s specific wording, the underlying statutes to which it refers, and the CBO scores (not yet available)—and arguments about precedent made by both parties. Senate staff could re-draft portions of the House bill to make it pass procedural muster, or make arguments to preserve the existing language that the parliamentarian accepts as consistent with Senate precedents. Nevertheless, if the parliamentarian validates even one of the four potential procedural problems, Republicans could end up with a tax credit regime that is politically unsustainable, or whose costs escalate appreciably.

In 2009, Democratic Senator Kent Conrad famously opined that passing health care legislation through budget reconciliation would make the bill look like “Swiss cheese.” (While Democrats did not pass Obamacare through reconciliation, they did use the reconciliation process to “fix” the bill that cleared the Senate on Christmas Eve 2009.) In reality, it’s much easier to repeal provisions of a budgetary nature—like Obamacare’s taxes, entitlements, and even its major regulations—through reconciliation than to create a new replacement regime. The coming week may provide firsthand proof of Conrad’s 2009 axiom.

“Byrd Rule” and Abortion

The Senate’s so-called “Byrd rule” governing debate on budget reconciliation rules—named after former Senate Majority Leader and procedural guru Robert Byrd (D-WV)— in fact consists of not one rule, but six. The six points of order (codified here) seek to keep extraneous material out of the expedited reconciliation process, preserving the Senate tradition of unlimited debate, subject to the usual 60-vote margin to break a filibuster.

The Byrd rule’s most famous test states that “a provision shall be considered extraneous if it produces changes in outlays or revenues which are merely incidental to the non-budgetary components of the legislation.” If the section in question primarily makes a policy change, and has a minimal budgetary impact, it remains in the bill only if 60 senators (the usual margin necessary to break a filibuster) agree to waive the Byrd point of order.

One example of this test may apply to the House bill’s tax credits: “Hyde amendment” language preventing the credits from funding plans that cover abortion. Such language protecting taxpayer funding of abortion coverage occurs several places throughout the bill, including at the top of page 25 of the Ways and Means title.

Over multiple decades, and numerous parliamentarians, Republican efforts to enact Hyde amendment protections through budget reconciliation have all failed. It is possible that Republicans could in the next few weeks find new arguments that allow these critical protections to remain in the House bill—but that scenario cannot be viewed as likely.

The question will then occur as to what becomes of both the credit and the Hyde protections. Some within the Administration have argued that the Department of Health and Human Services (HHS) can institute pro-life protections through regulations—but Administration insiders doubt HHS’ authority to do so. Moreover, most pro-life groups publicly denounced President Obama’s March 2010 executive order—which he claimed would prevent taxpayer funding of abortion coverage in Obamacare—as 1) insufficient and 2) subject to change under a future Administration. How would those pro-life groups view a regulatory change by the current Administration any differently?

Immigration

A similarly controversial issue—immigration—brings an even larger set of procedural challenges. Apart from the separate question of whether the current verification provisions in the House bill are sufficiently robust, ANY eligibility verification regime for tax credits faces not one, but two major procedural obstacles in the Senate.

Of the six tests under the Byrd rule, some are more fatal than others. For instance, if the Hyde amendment restrictions outlined above are ruled incidental in nature, then those provisions merely get stricken from the bill unless 60 Senators vote to retain them—a highly improbable scenario in this case.

But two other tests under the Byrd rule—provisions outside a committee’s jurisdiction, and provisions making changes to Title II of the Social Security Act—are fatal not just to that particular provision, but to the entire bill, potentially forcing the process to begin all over again in the House. The eligibility verification regime touches them both.

Page 37 of the Ways and Means title of the bill requires creation of a verification regime for tax credits similar to that created under Sections 1411 and 1412 of Obamacare. As Joint Committee on Taxation Chief of Staff Tom Barthold testified last week during the Ways and Means Committee markup, verifying citizenship requires use of a database held by the Department of Homeland Security’s Bureau of Citizenship and Immigration Services (CIS).

That admission creates a big problem: The tax credit lies within the jurisdiction of the Senate Finance Committee—but CIS lies within the jurisdiction of the Senate Homeland Security and Governmental Affairs Committee. And because the Finance Committee’s portion of the reconciliation bill can affect only programs within the Finance Committee’s jurisdiction, imposing programmatic requirements on CIS to verify citizenship status could exceed the Finance Committee’s scope—potentially jeopardizing the entire bill.

The verification provisions in Sections 1411 and 1412 of Obamacare also require the use of Social Security numbers—triggering another potentially fatal blow to the entire bill. Senate sources report that, during when drafting the original reconciliation bill repealing Obamacare in the fall of 2015, Republicans attempted to repeal the language in Obamacare (Section 1414(a)(2), to be precise) giving the Secretary of HHS authority to collect and use Social Security numbers to establish eligibility. However, because Section 1414(a)(2) of Obamacare amended Title II of the Social Security Act, Republicans ultimately did not repeal this section of Obamacare in the reconciliation bill—because it could have triggered a point of order fatal to the legislation.

If both the points of order against the verification regime are sustained, Congress will have to re-write the bill to create an eligibility verification system that 1) does not rely on the Department of Homeland Security AND 2) does not use Social Security numbers. Doing so would create both political and policy problems. On the political side, the revised verification regime would exacerbate existing concerns that undocumented immigrants may have access to federal tax credits.

But the policy implications of a weaker verification regime might actually be more profound. Weaker verification would likely result in a higher score from CBO and JCT—budget scorekeepers would assume a higher incidence of fraud, raising the credits’ costs. House leaders might then have to reduce the amount of their tax credit to reflect the higher take-up of the credit by fraudsters taking advantage of lax verification. And any reduction in the credit amounts would bring with it additional political and policy implications, including lower coverage rates.

Firewall Concerns

Finally, the tax credit “firewall”—designed to ensure that only individuals without access to other health insurance options receive federal subsidies—could also present procedural concerns. Specifically, pages 27 and 28 of the bill make ineligible for the credit individuals participating in other forms of health insurance, several of which—Tricare, Veterans Administration coverage, coverage for Peace Corps volunteers, etc.—lie outside the Finance Committee’s jurisdiction.

If the Senate parliamentarian advises for the removal of references to these programs because they lie outside the Finance Committee’s jurisdiction, then participants in those programs will essentially be able to “double-dip”—to receive both the federal tax credit AND maintain their current coverage. As with the immigration provision outlined above, such a scenario could significantly increase the tax credits’ cost—requiring offsetting cuts elsewhere, which would have their own budgetary implications.

Senate sources indicate that this “firewall” concern could prove less problematic than the immigration concern outlined above. While the immigration provision extends new programmatic authority to the Administration to develop a revised eligibility verification system, the “firewall” provisions have the opposite effect—essentially excluding Tricare and other program recipients from the credit. However, if the parliamentarian gives guidance suggesting that some or all of the “firewall” provisions must go, that will have a significant impact on the bill’s fiscal impact.

Broader Implications

Both individually and collectively, these four potential procedural concerns hint at an intellectual inconsistency in the House bill’s approach—one Yuval Levin highlighted in National Review last week. House leaders claim that their bill was drafted to comply with the Senate reconciliation procedures. But the bill itself contains numerous actual or potential violations of those procedures—and amends some of Obamacare’s insurance regulations, rather than repealing them outright—making their argument incoherent.

Particularly when it comes to Obamacare’s costly insurance regulations, there seems little reason not to make the “ol’ college try,” and attempt to repeal the major mandates that have raised premium levels. According to prior CBO scores, other outside estimates, and the Obama Administration’s own estimates when releasing the regulations, the major regulations have significant budgetary effects. Republicans can and should argue to the parliamentarian that the regulations’ repeal would be neither incidental nor extraneous—their repeal would remove the terms and conditions under which Obamacare created its insurance subsidies in the first place, thus meeting the Byrd test. If successful, such efforts would provide relief on the issue Americans care most about: Reducing health costs and staggering premium increases.

When it comes to the tax credit itself, Republicans may face some difficult choices. Abortion and immigration present thorny—and controversial—issues, either one of which could sink the legislation. When it comes to the bill’s tax credits, the “Byrd bath,” in which the parliamentarian gives guidance on what provisions can remain in the reconciliation bill, could become a bloodbath. If pro-life protections and eligibility verification come out of the bill, a difficult choice for conservatives on whether or not to support tax credits will become that much harder.

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.

Will Medicare Premium Increases Be an Issue in November?

Buried in the Medicare trustees report released Wednesday are a few lines that could cause political controversy. “In 2017 there may be a substantial increase in the Part B premium rate for some beneficiaries,” the actuaries write—which means seniors will find out about increases shortly before Election Day.

Higher-than-expected Medicare spending in 2014 and 2015 set the stage for a large premium adjustment in 2016. But, notably, the absence of inflation thanks to the drop in energy prices last year meant that seniors receiving Social Security benefits did not receive an annual cost-of-living adjustment.

The Medicare statute has a “hold harmless” provision that prevents Part B premiums from rising by more than the amount of a Social Security cost-of-living adjustment. For most beneficiaries, the provision meant that in 2016, they received no such adjustment—but also did not pay a higher Part B premium. However, nearly one-third of beneficiaries—new Medicare enrollees, “dual eligibles” enrolled in both Medicare and Medicaid (in places where state Medicaid programs pay the Medicare Part B premium), and wealthy seniors subject to Medicare means-testing—do not qualify for the provision.

The New York Times noted last fall that the hold-harmless provision, by protecting most beneficiaries, exposed some to higher increases: “If premiums are frozen for 70 percent of beneficiaries, premiums for the other 30 percent must be raised more to cover the expected increase in overall Medicare costs. In other words … the higher Medicare costs must be spread across a smaller group of people.”

Congress, seeing a dynamic in which some seniors could face a nearly 50% increase in premiums, crafted a provision to forestall such a high and sudden spike. The Bipartisan Budget Act capped Part B premium increases for 2016, paid for by a loan from the Treasury that would be repaid by seniors in future years.

The legislative language used, however, allows premium spikes to come back with a vengeance. The Bipartisan Budget Act provided that the Medicare Part B “smoothing” provision would be renewed in 2017—but only if Social Security beneficiaries received no cost-of-living adjustment at all. The trustees report out Wednesday says that beneficiaries are projected to receive a very modest adjustment: 0.2%. Although that change is relatively small, it means that the “smoothing” provisions in last year’s budget deal do not apply—and, as the Wednesday Medicare report notes, premiums for some beneficiaries “need to be raised substantially,” up to nearly $150 per month.

Before the trustees’ report was released, some experts had predicted that a series of payment reductions by the Independent Payment Advisory Board (IPAB) under Obamacare would spark talk of “death panels” in political campaigns this fall. Spending levels did not require the board to convene, making that issue moot for now. But that doesn’t mean that Medicare won’t be an issue on the campaign trail. Democrats raised the Part B premium issue last year; expect to hear much more about it before November.

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

For Presidential Candidates, Some Inconvenient Truths on Entitlements

News coverage regarding Hillary Clinton’s proposal to allow individuals under age 65 to buy into Medicare has focused largely on describing how her plan might work, or how it fits into her Democratic primary battle with socialist Bernie Sanders — the left hand trying to imitate what the far left hand is doing. But these political stories mask a more important policy paradigm: While Sanders and Clinton both want to expand Medicare, the program is broke — and neither Sanders, nor Clinton, nor Donald Trump have admitted that inconvenient truth, or have proposed any specific solutions to fix the problem.

Astute readers may note the verb tense in the preceding sentence. It’s not that Medicare will become insolvent in ten or twenty years’ time — it’s practically insolvent now. The program’s Part A (hospital insurance) trust fund lost a whopping $128.7 billion between 2008 and 2014, according to the program’s trustees. The Congressional Budget Office projected earlier this year that the trust dund would become insolvent within the decade.

But in reality, the only thing keeping Medicare afloat at present is the double-counting budget gimmicks created by Obamacare. In the year prior to the law’s enactment, the program’s trustees estimated that the Part A trust fund would become insolvent by 2017 — just a few short months from now. But within months after Obamacare became law, the trustees pushed back their insolvency estimate twelve years, from 2017 to 2029.

The trustees’ estimates notwithstanding, Medicare hasn’t become more solvent under President Obama — far from it. Instead, the Medicare payment reductions and tax increases used to fund Obamacare are simultaneously giving the illusion of improving Medicare’s insolvency. When former Health and Human Services secretary Kathleen Sebelius was asked at a congressional hearing whether those funds were being used “to save Medicare, or#…#to fund health care reform [Obamacare],” Sebelius replied, “Both.”

The Madoff-esque accounting schemes included in Obamacare do not improve Medicare’s solvency one whit. In fact, they undermine the program, because the illusion of solvency has encouraged politicians to ignore Medicare’s financial shortfalls until it’s too late.

And ignore it they have. Sanders has proposed a “Medicare for all” plan that a liberal think tank this week estimated would cost the federal government $32 trillion over ten years. Hillary Clinton has proposed creating another new entitlement — this one a refundable tax credit of up to $5,000 per family to cover out-of-pocket medical expenses, for which many of the 175 million Americans with employer-sponsored coverage could qualify. And Donald Trump has run ads, in states including Pennsylvania, claiming he will “save Social Security and Medicare without cuts.”

But none of them have provided specifics about how they would reform our existing entitlements to prevent a fiscal collapse and preserve them for current seniors and future generations. The collective silence might stem from the fact that Medicare alone faces unfunded obligations of $27.9 trillion over the next 75 years — and that’s after the Obamacare accounting gimmicks that make Medicare’s deficits look smaller on paper. Shortfalls that large will require making tough choices; greater economic growth will make the deficits more manageable, but we can’t grow our way out of a $28 trillion shortfall.

Reaction to Speaker Paul Ryan’s comments about Trump last week has largely focused on the latter’s tone and temperament in his presidential campaign. But if Ryan has stood for anything in Washington, it is fiscal responsibility and entitlement reform. Conversely, by claiming he can “save Social Security and Medicare without cuts,” Trump is effectively signing Republicans up for a $28 trillion tax increase to “save Medicare” — and more besides for Social Security. Little wonder, then, that the Speaker expressed his reluctance to endorse Trump; at their meeting today, they could well address this topic in detail.

Four decades ago, as Britain plunged into its Winter of Discontent, Prime Minister James Callaghan returned from a South American summit and denied any sense of “mounting chaos.” The next day, the Sun’s famous headline shouted “Crisis? What Crisis?” Clinton, Trump, and Sanders should take note. For while the remaining candidates for president seem more interested in creating new entitlements than in making existing ones sustainable, ultimately voters will not look kindly on those who fiddled while our fiscal future burned.

This post was originally published at National Review.

Fact Check: Paying in to Entitlements

The President just talked about seniors “paying in” to Social Security and Medicare. The problem is, that claim is half true. While individuals obviously do pay in to the Social Security and Medicare programs, most beneficiaries receive more in benefits than they paid in in taxes. An Urban Institute study about the entitlement benefits and taxes recipients will receive (and pay) over their lifetimes found that a senior with average wages retiring this year will have paid $58,000 in Medicare taxes – but will receive over $167,000 in Medicare benefits. The Associated Press ran a story on this issue in December 2010, and its headline was clear: “What You Pay for Medicare Won’t Cover Your Costs.”

Our nation’s entitlement programs are in dire need of reform, to become more sustainable. Perpetuating myths about their long-term viability, which the President’s comments imply by saying individuals fully-fund their benefits when paying into the system, only makes generating the political consensus necessary for true entitlement reform more difficult.

The Mandate & Taxes

Making the rounds on the Sunday shows yesterday, Democrats attempted to sidestep the impact of Thursday’s Supreme Court ruling calling Obamacare’s mandate a tax.  But on this front, as on so many others, a good number of their claims don’t carry water.  Let’s examine them one by one, using quotes from OMB Director Jack Lew’s appearance on This Week:

“The Supreme Court looked at what the structure of the law was, and they saw that 1 percent of the people would be paying this charge if they chose not to avail themselves of health insurance.”

The mandate does NOT just affect one percent of Americans.  If it did, the Administration would not have gone into court attempting to claim the mandate was constitutional because it was “essential” to the larger bill – because something affecting only one percent of Americans is far from “essential.”

The mandate also affects the tens of millions of Americans who will purchase health insurance only because the federal government is forcing them to do so under pain of taxation.  These individuals will be forced to buy a product they may not need, or want, just to comply with a bureaucratic diktat.  Studies have found that between 8 and 24 million people would lose coverage without the mandate.  These are Americans buying insurance not because they want to, but because government is forcing them to.

“These are people who can afford health insurance who choose not to buy it…”

The Congressional Budget Office analyzed this issue back in April 2010.  It found that more than three-quarters of individuals paying the mandate tax will have income of under five times the poverty level – or less than $120,000 for a family of four.  More than 10% of individuals paying the mandate tax will have incomes below the federal poverty level, which this year is $23,050 for a family of four.  Keith Hennessey laid out the numbers here, with a chart I’ve reproduced below.

Income relative to
federal poverty line
# of people
paying tax 
Income range
(single)
Income range
(family of 4)
Below poverty 400,000 $0 – 11,800 $0 – 24,000
100% to 200% 600,000 $11,800 – 23,600 $24K – $48K
200% to 300% 800,000 $23,600 – 35,400 $48K – $72K
300% – 400% 700,000 $35,400 – 47,200 $72K – $96K
400% – 500% 500,000 $47,200 – 59,000 $96K – $120K
> 500% 900,000 > $59,000 >$120K
Total 3,900,000

These numbers raise two issues.  First, does Jack Lew really believe that the 400,000 people making under $24,000 per year should be forced to pay a mandate tax because they are making a “choice” not to buy insurance policies that cost more than a new car?  The second is a famous quote about the effects of an individual mandate: “There are people who are paying fines and still can’t afford [health insurance], so now they’re worse off than they were.  They don’t have health insurance and they’re paying a fine.”  The speaker?  Barack Obama.

“In this law, there’s a $4,000 tax cut for people who need help paying for health insurance.”

According to the Congressional Budget Office, health insurance subsidies under Obamacare will total $75 billion in Fiscal Year 2016.  Additionally, according to CBO, the vast majority ($58 billion in 2016, or more than three-quarters of the $75 billion total) of Obamacare insurance subsidies are pure government spending to individuals who have no income tax liability.  The Joint Committee on Taxation has concluded that Obamacare will result in more than 7 million filers seeing their entire tax liability eliminated.

Liberals may claim that the subsidies are a tax credit offsetting federal payroll taxes paid by low-income individuals.  This obscures two obvious facts.  First, low-income individuals on average get all their payroll taxes back in the form of pension and entitlement benefits – in fact, they already get more back than they pay in, which is why Medicare and Social Security are in such financial distress.  Second, the size of the subsidy — averaging $5,210 per person in 2016 — will be FAR more than most low-income individuals will pay in payroll taxes each year.

The bottom line: The vast majority of the spending on insurance subsidies is NOT a tax cut — it’s yet more government spending on an unsustainable new entitlement.

Democrat spin aside, the facts reveal that the mandate represents a massive tax increase on millions of struggling middle-class Americans — both those directly paying the mandate tax, and those forced to buy health insurance to avoid the mandate tax.  And Obamacare’s supposed “tax cuts” are nothing more than unsustainable new entitlement spending, funded by tax increases elsewhere in the legislation.  No matter how you slice it, that’s not health reform.

Key Points From Today’s Medicare Trustees Report

The official Medicare trustees report has now been posted online here. Here’s a quick take about what you need to know in the report:

  1. Insolvency One Year Closer:  Contrary to predictions made in this space this morning, the insolvency date for the Medicare Hospital Insurance Trust Fund remains at 2024 – despite the 2% sequester cuts scheduled to take effect beginning in January.  In other words, if not for the sequester cuts insisted on by Congress, Medicare’s financial stability would have deteriorated even further.  As it is, we’re still one year closer to Medicare running out of IOUs to cash in to pay its bills (see #3 below).
  1. Obama Economy Making It Worse:  As the Associated Press noted, “Social Security’s finances worsened” – and Medicare’s finances did not improve, sequester notwithstanding – “in part because high energy prices suppressed wages, a trend the trustees see as continuing.  The trustees said they expect workers to work fewer hours than previously projected, even after the economy recovers.”  President Obama’s poor economic record is not only harming workers today, it will harm future generations – seniors in current entitlement programs that are less secure, and children and grandchildren forced to pay the bills for skyrocketing spending – for decades to come.
  1. Deficits as Far as the Eye Can See:  The report once again confirms that the Medicare program is already contributing to the federal deficit, will continue to do so throughout the coming decade, and forever thereafter.  Since 2008, the program has run cash flow deficits; this year’s deficit is expected to total $28.9 billion.  The only thing keeping the program afloat financially is the sale of Treasury bonds in the Medicare Trust Fund – and the redemption of those paper IOUs increases the federal deficit.
  2. Funding Warning:  For the seventh straight year, 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.  While in theory this development should prompt the President to follow his statutory requirement to submit legislation remedying this funding shortfall, the White House has previously refused to do so – relying instead on a signing statement by President Bush to ignore the need for Medicare reform (and also breaking the President’s campaign promises in the process).
  1. Unrealistic Assumptions:  For the third straight year since the passage of Obamacare, the report features a statement of actuarial opinion by the non-partisan Medicare actuary (pages 277-279 of the report), who says “the financial projections shown in this report…do not represent a reasonable expectation for actual program operations.”  The actuary will again issue an alternative scenario for Medicare’s unfunded obligations that he views as more realistic, because the major source of Medicare payment reductions in Obamacare may not be sustained over a long period of time.
  1. 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 Speaker Pelosi admitted last year, 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.
  1. Massive Tax Increases:  Today’s report again confirms that Medicare’s finances are also being bolstered by the extension of the health care law’s “high-income” tax – which is NOT indexed for inflation – to more and more individuals over time.  Page 30 of the report notes that “by the end of the long-range projection period, an estimated 80 percent of workers would pay the higher tax rate.”  As JEC recently reported, these tax increases are part of the $4 trillion in “revenue enhancements” over the next 25 years taking place thanks to Obamacare.  When Democrats talk about raising taxes to reduce the deficit, keep in mind that they have already raised taxes in a way that will harm middle-class families over time – and that those tax increases were used not to reduce the deficit but to pay for new and unsustainable entitlements.
  1. Seniors Losing Coverage, Part I:  Table IV.C1 of the report notes that millions of seniors will lose their current Medicare Advantage plans – enrollment is projected to fall from 13.5 million this year to 9.7 million by 2017.  However, thanks to the waiver/demonstration program announced by the Administration, and criticized by the Government Accountability Office in a report this morning, enrollment in Medicare Advantage will not begin falling until after the President has completed his re-election campaign.
  1. Seniors Losing Coverage, Part II:  Table IV.B10 of the report re-stated prior projections that enrollment in employer-sponsored retiree drug plans will fall from 6.8 million in 2010 to a mere 800,000 by 2016 – a drop of nearly 90%.  This rapid decrease in enrollment occurs thanks to provisions in Obamacare that raise taxes on employers who continue to offer retiree drug coverage.

Obamacare Consultant Admits: Over $800 Billion “Straight to Insurance Companies”

After House Republicans last week released a report outlining how Obamacare penalizes marriage, liberal professor Jonathan Gruber – a paid Obamacare consultant – responded yesterday in an interview posted on the New Republic’s website.  He’s wrong on several key points*, but right on a very important one:

“Most households will never actually get their hands on the credits, so their existing tax liabilities won’t actually change.  In most cases, credits will go straight to insurance companies, to pay for health benefits.”

Democrats’ claims to the contrary, the law and record are very clear about the fact that this massive new entitlement will go straight into the arms of the insurance industry:

  • Section 1412(c)(2)(A) of the law provides that “The Secretary of the Treasury shall make the advance payment under this section of any premium tax credit allowed under section 36B of the Internal Revenue Code of 1986 to the issuer of a qualified health plan on a monthly basis.”
  • Page 37 of the report on the Finance Committee bill states: “The Committee Bill provides a refundable tax credit for eligible individuals and families who purchase health insurance through the state exchanges.  The premium tax credit, which is refundable and payable in advance directly to the insurer, subsidizes the purchase of certain health insurance plans through the state exchanges.”

The Congressional Budget Office’s most recent estimates regarding Obamacare’s insurance subsidies show that from 2014 through 2021, the federal government will spend a whopping $821.2 billion for subsidies that “will go straight to insurance companies,” according to Gruber’s own admission.

Of course, candidate Obama opposed sending subsidies straight to insurance companies when he ran for President, only to flip-flop on this issue when he signed Obamacare:

  • An Obama campaign ad derided Senator McCain’s proposal to subsidize insurance through tax credits: “That tax credit?  McCain’s own Web site said it goes straight to the insurance companies, not to you, leaving you on your own…”
  • Likewise, in a campaign speech, candidate Obama vilified Senator McCain for this policy: “But the new tax credit [McCain’s] proposing?  That wouldn’t go to you.  It would go directly to your insurance company – not your bank account.”

Gruber was attempting to argue that taxpayers’ liability would not change under Obamacare – because the subsidies are paid directly to insurers, individuals who owed the IRS $1,000 would still owe the IRS $1,000 come April 15.  But that misses the point – because someone who sends the IRS a $1,000 tax payment, and then has the IRS subsidize his health insurance to the tune of $5,000, is obviously a net winner when it comes to the Internal Revenue Code.  (Who wouldn’t take that deal?)  The issue is who are the net contributors to the federal budget, and the Joint Committee on Taxation admitted that under Obamacare, another 7-8 million more households will receive more from the federal government in benefits than they pay in taxes.  Which raises the larger question:  What will happen to Obamacare when Democrats run out of other people’s money to spend…?
 

* Some of the other nonsense claims made by Gruber include:

  • He conflates (unwittingly or not) tax refunds at the end of the year with refundable tax credits as a “semantic choice.”  It’s NOT a semantic argument:  The former are for those who overpaid their taxes during the year; the latter are for those that do not pay income taxes at all.
  • He conflates the subsidies under Obamacare to the “large tax refunds that were put in place by the Bush tax cuts,” as both represent spending, in his view.  Again, this view is incorrect.  According to CBO, $103.2 billion of the $140.1 billion – or nearly 75% – of the federal spending on Exchange subsidies in 2021 will be refundable subsidies to people who do not have income tax liability.  Conversely, according to CBO, less than 10% of the cost of the 2001 tax relief act represented outlay effects – i.e., refundable federal spending on those who do not have income tax liability.  In other words, the vast majority of the Bush tax relief was provided to individuals who paid income taxes – and the vast majority of Obamacare’s subsidies are to people who don’t.  You can argue whether each is good or bad policy, but you can’t argue with those facts.
  • Gruber also claims that “the committee’s analysis conveniently ignores the fact that all but the highest wage earners pay significant payroll taxes in the U.S.”  But Democrats have told Republicans for years that those payroll taxes are used solely to fund Social Security benefits, meaning those workers will get their payroll taxes back in future benefits (and especially in the case of low-income workers, will get their payroll taxes back and then some, due to the way Social Security benefits are calculated).  Or does Gruber now want to admit that the Social Security Trust Fund is effectively meaningless, and that those who pay only payroll taxes are funding general government obligations rather than their own retirement benefits…?