Tag Archives: Backroom deals

How Graham-Cassidy’s Funding Formula Gives Washington Unprecedented Power

The past several days have seen competing analyses over the block-grant funding formula proposed in health-care legislation by Sens. Lindsay Graham (R-SC) and Bill Cassidy (R-LA). The bill’s sponsors have one set of spreadsheets showing the potential allocation of funds to states under their plan, the liberal Center on Budget and Policy Priorities has another, and consultants at Avalere (funded in this case by the liberal Center for American Progress) have a third analysis quantifying which states would gain or lose under the bill’s funding formula.

So who’s right? Which states will end up the proverbial winners and losers under the Graham-Cassidy bill? The answer is simple: Nope.

Policy-makers arguing over minute intricacies of the funding formula miss the fact that the bill gives the executive virtually unlimited discretion to change that funding formula. Whether the statutory formula benefits a given state could well matter less than what federal bureaucrats want to do to tilt the formula in favor of, or against, that state.

While the bill’s proponents claim the legislation will increase state authority, in reality the bill gives unelected bureaucrats the power to distribute nearly $1.2 trillion in taxpayer dollars unilaterally. In so doing, the bill concentrates rather than diminishes Washington’s power—and could set the course for the “mother of all backroom deals” to pass the legislation.

A Complicated Spending Formula

To start with, the bill repeals Obamacare’s Medicaid expansion and exchange subsidies, effective in January 2020. It then replaces those two programs with a block grant totaling $1.176 trillion from 2020 through 2026. All else equal, this set of actions would disadvantage states that expanded Medicaid, because the Medicaid expansion money currently being received by 31 states (plus the District of Columbia) would be re-distributed among all 50 states.

From there the formula gets more complicated. (You can read the sponsors’ description of it here.) The bill attempts to equalize per-person funding among all states by 2026, with funds tied to a state’s number of individuals with incomes between 50 percent and 138 percent of the poverty level.

The bill would adjust the funding formula to reflect both risk adjustment and actuarial value—in laymen’s terms, it would work to ensure that states with sicker-than-average individuals get more funding, and that states that choose to offer richer-than-average benefits don’t draw down excess federal funds as a result. Those adjustments would phase in over several years, with the goal of reaching per-person parity among states by 2026.

Thus far, the formula carries a logic to it. For years conservatives have complained that Medicaid’s match rate formula gives wealthy states more incentives to draw down federal funds than poor states, and that rich states like New York and New Jersey have received a disproportionate share of Medicaid funds as a result. The bill’s sponsors claim that the bill “treats all Americans the same no matter where they live.”

Would that that claim were true. Page 30 of the bill demonstrates otherwise.

The Trillion-Dollar Loophole

Page 30 of the Graham-Cassidy bill, which creates a “state specific population adjustment factor,” completely undermines the rest of the bill’s funding formula:

IN GENERAL.—For calendar years after 2020, the Secretary may adjust the amount determined for a State for a year under subparagraph (B) or (C) and adjusted under subparagraphs (D) and (E) according to a population adjustment factor developed by the Secretary.

In other words, if the secretary of Health and Human Services (HHS) doesn’t like the funding formula, he can change it however he likes. That’s a trillion-dollar loophole that leaves HHS bureaucrats with the ultimate say over how much money states will receive.

The bill does say that HHS must develop “legitimate factors” that affect state health expenditures—so it can’t allocate funding based on, say, the number of people who own red socks in Alabama. But beyond those two words, pretty much anything goes.

The bill says the “legitimate factors” for population adjustment “may include state demographics, wage rates, [and] income levels,” but it doesn’t limit the factors to those three characteristics—and it doesn’t limit the amount that HHS can adjust the funding formula to reflect those characteristics either. If a hurricane like Harvey struck Texas three years from now, Secretary Tom Price would be within his rights under the bill to cite a public health emergency and dedicate 100 percent of the federal grant funds—which total $146 billion in 2020—solely to Texas.

That scenario seems unlikely, but it shows the massive and virtually unprecedented power HHS would have under the bill to control more than $1 trillion in federal spending by executive fiat. To top it off, pages 6 through 8 of the bill create a separate pot of $25 billion to subsidize insurers for 2019 and 2020, and tell the Centers for Medicare and Medicaid Services administrator to “determine an appropriate procedure” for allocating the funds. That’s another blank check of $25,000,000,000 in taxpayer funds, given to federal bureaucrats to spend as they see fit.

In an op-ed over the weekend, former Florida Gov. Jeb Bush (R-FL) rightly criticized Obamacare for “put[ting] enormous power in the hands of a few people in Washington.” But the Graham-Cassidy proposal he endorses would imbue federal bureaucrats with an authority over spending the likes of which Obamacare never even contemplated.

Backroom Deals Ahead

With an unprecedented level of authority granted to federal bureaucrats to determine how much funding states receive, you can easily guess what’s coming next. Unnamed Senate staffers already invoked strip-club terminology in July, claiming they would “make it rain” on moderates with hundreds of billions of dollars in “candy.” Under the current version of the bill, HHS staff now have virtual carte blanche to promise all sorts of “state specific population adjustment factors” to influence the votes of wavering senators.

The potential for even more backroom deals than the prior versions of “repeal-and-replace” demonstrates the pernicious power that trillions of dollars in spending delivers to Washington. Draining the swamp shouldn’t involve distributing money from Washington out to states, whether under a simple formula or executive discretion. It should involve eliminating Washington’s role in doling out money entirely.

That’s what Republicans promised when they said they would repeal Obamacare—to end the law’s spending, not work on “spreading the wealth around.” That’s what they should deliver.

This post was originally published in The Federalist.

The Binary Choice Behind a “Skinny” Health Care Bill

Are you for The Swamp—or are you against it?

It’s really that simple. Text of the supposed “skinny” bill—or the “lowest-common denominator” approach, if one prefers—has not yet been released. But based on press reports, it appears the legislation will repeal the individual and employer mandate penalties, along with the medical device tax, and little else, so the House and Senate can set up a conference committee to re-write the bill—if the House does not decide to pass this “skinny” bill outright.

On both process and policy, here are some of the likely consequences if this legislation passes:

  • It will embolden Senate leadership to keep bullying rank-and-file members on future pieces of legislation, pulling bait-and-switch moves at the last minute and daring members to vote no;
  • It will move the health-care debate from an open Senate floor process into a conference committee, where after one token public meeting most legislative work will occur behind closed doors;
  • It will concede that the “world’s greatest deliberative body” cannot deliberate as an institution, and instead empower unelected leadership staff in a secretive process to cobble together a new bill that can pass both chambers;
  • It will continue a process that Republican staffers themselves have described as “making it rain” on moderate senators through various backroom deals and spending sprees—bringing parlance heretofore used in strip clubs to the U.S. Congress;
  • It will raise premiums an estimated 20 percent, by eliminating the individual mandate penalty, but leaving all of Obamacare’s regulations intact;
  • It will all-but-guarantee a future Obamacare bailout, destabilizing insurance markets such that carriers will come running to Congress demanding corporate welfare payments to keep offering exchange coverage; and
  • It will prioritize K Street lobbyists who have fought for years to repeal the medical device tax, virtually guaranteeing that provision will remain in the final legislation, while raising premiums on hard-working American families.

If senators support the above scenarios, then they should vote for the bill. If not, perhaps they should consider another course.

Blast from the Past

Conservatives have seen these games played before—and rejected them. In 2015, House Republican leaders initially offered a bill eerily similar to the rumored “skinny” legislation. That bill repealed the individual and employer mandates, the medical device tax, the “Cadillac tax,” the Obamacare prevention “slush fund,” and a few other ancillary provisions. Conservative groups could have supported it—just to keep the process moving, and continue the momentum for a broader repeal—as leadership is asking them to do right now. They did not because:

The bill would not restore Americans’ health care freedom because it leaves the main pillars of Obamacare in place, nor would it actually defund abortion giant Planned Parenthood. This bill violates an explicit promise made in the budget, which ‘affirm[ed] the use of reconciliation for the sole purpose of repealing the President’s job-killing health care law.’

That statement comes from Heritage Action, which key-voted against passage of the “skinny” repeal bill in 2015. Likewise, in the fall of 2015 conservative senators Mike Lee (R-UT), Marco Rubio (R-FL), and Ted Cruz (R-TX) said publicly they could not support what they viewed as an insufficient attempt at repeal:

On Friday the House of Representatives is set to vote on a reconciliation bill that repeals only parts of Obamacare. This simply isn’t good enough. Each of us campaigned on a promise to fully repeal Obamacare and a reconciliation bill is the best way to send such legislation to President Obama’s desk. If this bill cannot be amended so that it fully repeals Obamacare pursuant to Senate rules, we cannot support this bill. With millions of Americans now getting health premium increase notices in the mail, we owe our constituents nothing less.

As Heritage Action noted, that 2015 “skinny” bill not only didn’t qualify as a repeal measure, it would have undermined the attempt to pass an actual repeal:

The bill does not even touch Obamacare’s main two entitlement expansions: The Medicaid expansion and the Exchange subsidies. The bill leaves all of Obamacare’s new insurance rules and regulations in place. It also leaves many of Obamacare’s taxes in place….

The Obamacare repeal movement has been successful in the last 5 years in keeping full repeal intact. It has recognized that it will be much easier to repeal Obamacare as a whole if all of the mandates and entitlement expansions are repealed at once, since we know that the law is vastly unpopular when taken as a whole. The threat is that ‘repeal’ is defined-down to simply mean repealing a couple high-profile provisions, while allowing the main pillars of the law to continue untouched. This package threatens that very outcome: defining down ‘full repeal’ and jeopardizing the entire repeal effort. [Emphasis mine.]

Need for Consistency

In the past several days, conservatives have attacked Senate moderates—rightly—for flip-flopping on a full repeal of Obamacare, voting for it in 2015 but opposing it now. Those who face a similar situation from the Right—that is, those who opposed a “skinny” bill two years ago—should not fall into the same trap as those from the center. On both policy and process, conservatives should reject the minimalist approach floated by leadership, and continue working to repeal Obamacare.

This post was originally published at The Federalist.

Why the Motion to Proceed Is a Sucker’s Bet

In trying to win support for their Obamacare “repeal-and-replace” bill, Republican Senate leaders are making a process argument to their fellow senators: We know you don’t like the bill, but work to mend it, rather than ending the process. As Sen. John Thune (R-SD), the chairman of the Senate Republican Conference, argued, “We gotta get on the bill.…If we don’t at least get on the bill, we’re never going to know.”

It’s a typical leadership argument: The promised land is only one bad vote away, not two bad votes, not ten bad votes, only one bad vote away. (Until the next bad vote crops up.) But to skeptics of the bill—whether moderate or conservative—that argument should sound like a sucker’s bet.

Without a clear vision of the final legislation and an agreement from 50 Republican senators to preserve that vision on the Senate floor regardless of the amendments offered—both things that Senate Majority Whip John Cornyn (R-TX) last week admitted Republicans do not have—proceeding to the bill will result in a policy morass that could make the confusing events of the past week look tame by comparison.

As things stand now, a successful motion to proceed will result in an amendment process under which various provisions of the bill get struck—due to guidance from the parliamentarian, dissension within the Republican conference, or both. Then, a last-minute substitute amendment from Majority Leader McConnell (R-KY) will attempt to win over or buy off votes (or both), with the hope that he can dare enough Republicans not to kill the legislation just before the finish line. Here are the likely ways the bill could change—and not for the better.

The ‘Byrd Bath Bloodbath’

As I have previously written, the prior versions of the Senate bill had not gone through the “Byrd bath” testing which provisions comply with the Senate’s “Byrd rule” for budget reconciliation. Late last Friday, the Budget Committee minority staff released a list of provisions that could get stricken from the bill for not complying with the “Byrd rule,” including pro-life protections ensuring no taxpayer funding of abortion, or plans that cover abortion; funding for cost-sharing subsidies; a prohibition on Medicaid funding to certain entities, including Planned Parenthood; and a provision imposing waiting periods on individuals lacking continuous health coverage.

Multiple sources indicate that the list produced by Budget Committee Democrats comprised preliminary guidance on a prior version of the legislation. Therefore, that list should not be considered definitive—that all the enumerated provisions will get stricken.

Conversely, provisions not on the list released Friday could fail to pass Byrd muster, not least because the parliamentarian’s guidance can change. In 2015, a provision repealing Obamacare’s risk corridor program was stricken from that year’s reconciliation bill on the Senate floor, because the parliamentarian was persuaded by Democrats’ last-minute arguments.

Regardless of the specifics, the “Byrd bath” will doubtless make it more difficult for Republicans to present a coherent policy vision through budget reconciliation legislation, meaning the bill could change significantly from its introduced version on procedural grounds alone.

Death by Amendments

In calling for Republicans to vote to begin debate on the bill, Sen. Lamar Alexander (R-TN), a close McConnell ally, has argued that senators will “have a virtually unlimited opportunity…on the floor to make amendments to the bill and try to improve it.”

Alexander’s key phrase is “try to,” because the numbers are strongly stacked against Republicans wishing to offer amendments. If three of 52 Senate Republicans—only 5.8 percent of the Republican conference—defect on an amendment vote, the amendment sponsor will have to rely on Democrats to approve the amendment. And why would Democrats vote for any amendment that might help Republicans pass an Obamacare “repeal” bill?

The most likely answer: They won’t. As a result, it appears more likely that the amendment process could see Republicans stripping out other Republicans’ amendments—from Cruz’ “consumer freedom” provision to the various “side deals” included in the bill—than inserting provisions into the bill to win support. After all, if a provision is so popular that it could attract the votes of 50 Senate Republicans, why didn’t McConnell include it in the base bill to begin with?

The ‘Wraparound Bait-and-Switch’

As Politico notes, the myriad amendment votes don’t represent the end of the process—they’re merely the beginning: “At some point, [Senator] McConnell will introduce a substitute that will represent the Senate’s draft bill. It may be different than what is introduced…and could be subject to amendment on the Senate floor next week. The bill, in other words, will be a work in progress until the final vote.”

That’s exactly what happened the first time the Senate considered Obamacare legislation under reconciliation, in 2015. At the end of the process, McConnell laid down a “wrap-around” amendment—essentially, a whole new version of the bill replacing the prior substitute. Reports suggest McConnell could well do the same thing this time round: introduce a new bill just prior to the vote on final passage, then dare recalcitrant Republicans to vote against it.

Conservatives in particular should fear the “wrap-around,” for the new “goodies” potentially lurking in it. With McConnell having roughly $200 billion in taxpayer funds to distribute in the form of “candy” to members, and staff brazenly telling reporters they plan on “making it rain” on moderates by including additional cash for home-state projects, the “wrap-around” could well include all sorts of new last-minute spending intended to buy votes, and not enough time to scrutinize its contents. (Will we have to pass the bill to find out what’s in it?)

If this process works as outlined above, Alexander’s argument about amendments seems less an invitation to offer suggestions in an open process than a call for senators to go to McConnell’s office and work out a special deal behind closed doors in exchange for their vote.

Willing Disbelief

If the Senate votes to proceed to the bill and McConnell’s office turns into a trading floor, with staff “making it rain” taxpayer funds just like they promised, senators will claim themselves “Shocked—shocked!” that the process took an ugly turn.

They shouldn’t be. The signs are as plain as day. If senators have objections to the bill now, they should vote down the motion to proceed, for the bill—likely on substance, and certainly on process—isn’t going to get much better, and almost assuredly will get worse.

This post was originally published at The Federalist.

A Status Update on the Senate Health Care Bill

The past week’s debate on health care has seen more twists and turns than a dime-store movie novel. “Repeal-and-replace” is dead—then alive again. President Trump calls for outright repeal, then letting the law fail, then “repeal-and-replace” again.

As Vince Lombardi might ask, “What the h— is going on out here???”

Never fear. Three simple facts will put the debate in context.

Leadership Is Buying Moderates for ‘Repeal-and-Replace’

Whether in the form of “candy,” “making it rain,” or old-fashioned carve-outs that help states with reluctant senators, Senate leaders are trying to figure out the amount and type of money and incentives that will win enough moderate votes to pass a “repeal-and-replace” bill. Details remain sketchy, but the broader outline is clear: senators don’t want to vote for provisions they approved 18 months ago—when they knew President Obama would veto a repeal measure. And Senate leadership hopes to “solve” this problem essentially by throwing money at it—through new funding for Medicaid expansion states, opioid funding, bailout funds for insurers, programmatic carve-outs for some states, or all of the above (likely all of the above).

Leadership Isn’t Serious about Repeal-Only

Some observers (not to mention some senators) are confused about whether the Senate will vote on a repeal-only measure, or a “repeal-and-replace” bill. But Senate Majority Whip John Cornyn (R-TX) explained leadership’s strategy to Bloomberg Wednesday: “There’s more optimism that we could vote on a repeal-and-replace bill, rather than just a repeal bill….But if there’s no agreement then we’ll still vote on the motion to proceed” to a repeal-only measure” (emphasis mine).

Translation: Senate leadership will only move to a vote on the 2015 repeal bill—which some conservative groups have argued for—if it knows it will fail. In fact, some observers have gone so far as to suggest Majority Leader Mitch McConnell’s Monday announcement that the Senate would vote on a repeal-only bill amounted to an attempt to bait-and-switch conservatives—convincing them to support starting debate on the bill by dangling repeal-only in front of them, only to pivot back to “repeal-and-replace” once the debate began.

Regardless of McConnell’s intentions earlier in the week, Cornyn’s comments make clear the extent to which Senate leaders take a repeal-only bill seriously: They don’t.

McCain May Make It Moot

It may sound impolitic or callous to translate a war hero’s struggle against cancer into crass political terms, but if the recent cancer diagnosis of Sen. John McCain (R-AZ) means the senator will be unable to travel to Washington, Republican leaders’ desperate attempts to cobble together a legislative compromise may ultimately prove moot. At least two conservative senators oppose the current bill from the Right; adding more money to appease moderates won’t reduce those numbers, and may increase them. And at least two moderate senators oppose the current bill from the Left, hence the effort to increase funding.

If McCain is unable to vote on the legislation, Republican leaders will be able to withstand only one defection before putting the bill’s passage in jeopardy—yet at least two senators on either side of the Republican Conference oppose the current bill. That math just doesn’t add up, which means that barring some unforeseen development, the hue and cry of the past several days may ultimately amount to very little.

This post was originally published in The Federalist.

Self-Righteous Sanctimony from an Obamacare Hypocrite

Why would someone who never truly believed in repealing Obamacare attack others for wanting to keep it? Maybe because Mitch McConnell asked him to.

Avik Roy’s piece blasting Sen. Mike Lee (R-UT) for “preserving every word of Obamacare” contains flawed logic on several fronts. Let’s examine that first, before considering the source.

Roy essentially argues that the 2015 reconciliation bill that Sen. Lee and others supported did not repeal or reform any of the regulations raising premiums, but this year’s Senate Republican bill did. The first point is accurate but misleading, and the second point inaccurate, at least from a conservative perspective.

When it comes to the 2015 reconciliation bill, Republican leaders made a strategic choice—as current White House adviser Paul Winfree noted just after the election—not to litigate with the Senate Parliamentarian whether and what insurance regulations could be repealed under the special budget reconciliation procedures. Conservatives such as myself have argued that, while that 2015 bill represented a good first step—demonstrating that reconciliation could be used to dismantle Obamacare—lawmakers needed to go further and repeal the regulations outright.

It’s unclear from his piece whether Roy knew of this strategical gambit back in 2015, or knows, but doesn’t want to admit it—and to be candid, both could be true. The article contains the following statement of “fact:”

Senate rules require that the reconciliation process can only be used for fiscal policy—taxing and spending—not regulatory policy. To boot, reconciliation can’t be used to change Medicare or Social Security. [Emphasis mine.]

The first part of this argument does not follow: He’s claiming that reconciliation cannot be used for regulatory policy, while also arguing that the bill currently before the Senate—which is a budget reconciliation bill—would make massive changes to Obamacare’s regulatory apparatus, such that it warranted Lee’s support.

The second part of this argument is flat-out false. While the Senate’s “Byrd rule” prohibits changes to Title II of the Social Security Act (as per 2 U.S.C. 644(b)(1)(F) and 2 U.S.C. 641(g)), Congress can—and does—make major changes to Medicare under budget reconciliation. For instance, the Balanced Budget Act of 1997—a bill considered under budget reconciliation—included over 200 pages of legislative changes to Medicare, including major changes to Medicare managed care (then called Medicare+Choice) and the creation of the infamous Sustainable Growth Rate Mechanism for physician payments. Roy has previously argued that lawmakers could not make changes to Medicare under budget reconciliation—he was wrong then, and he’s wrong now.

So why should anyone believe the procedural and tactical arguments of someone who 1) never worked in the Senate and 2) has repeatedly made false claims about the nature of the budget reconciliation process? Answer: You shouldn’t.

Back to the arguments about the Senate bill’s regulatory structure. Roy claims that the bill currently being considered would make significant modifications to those regulations. But from a conservative perspective, the bill doesn’t attack some of the costliest drivers of higher premiums—specifically Obamacare’s guaranteed issue regulations. Moreover, it doesn’t actually repeal any of the regulations themselves, choosing instead to modify or waive only some of them.

If a bill can modify regulations under the budget reconciliation procedures, it can repeal them too—moderate Senators just lack the political will to do so. If you’re like me—a supporter of federalism who doesn’t believe Washington should impose a regulatory apparatus on all 50 states’ health insurance markets—then you might find the Senate bill did not sufficiently dismantle the Obamacare framework to make it worth your support. It appears Sen. Lee also came to that conclusion.

Now it’s worth examining why the article specifically attacks Mike Lee. The piece fails to note until the 16th paragraph of a 19-paragraph story that other Senators came out and opposed the bill as well. Continued concern from moderates—who didn’t want to repeal Obamacare—made it obvious that the bill was going to die—but no one wanted to deliver the coup de grace. Sen. Lee finally came out and did so, along with Sen. Jerry Moran (R-KS). It’s disingenuous for Roy to claim, as he does for most of the piece, that Senator Lee was solely, or primarily, responsible for killing the bill.

Why might he make such a claim? Jonathan Chait may have sniffed out an answer several weeks ago, when Roy made a winking non-admission admission that he had worked with Senator McConnell’s office on drafting the Senate bill. Given that fact, and the way in which Senate staff promised to “make it rain” on moderates by giving out “candy” in the form of backroom deals, it’s reasonable to ask whether Roy coordinated his attack on Senator Lee with Senator McConnell’s office—and was promised anything for doing so.

Nearly three years ago, Avik Roy published a piece claiming that “conservatives don’t have to repeal Obamacare” and that “there are political benefits to implementing the plan without repeal.” Last night, Roy didn’t even attempt to explain on Twitter how he could reconcile those prior statements with his purported support for Obamacare repeal. Yet now he wants to attack Mike Lee for not sufficiently supporting repeal? It’s a disingenuous argument.

When it comes to Roy’s flip-flopping on repeal, his factual inaccuracies, or his not-so-secret ties to Senate leadership on the legislation, when evaluating his attack on Mike Lee, conservatives would be wise to consider the source.

A Reading Guide to the Senate Bill’s Backroom Deals

Buried within the pages of the revised Senate health-care bill are numerous formula tweaks meant to advantage certain states. Call them backroom deals, call them earmarks, call them whatever you like: several provisions were inserted into the bill over the past two weeks with the intent of appealing to certain constituents.

It appears that at least three of these provisions apply to Alaska—home of wavering Sen. Lisa Murkowski (R-AK)—and another applies to Louisiana, home of undecided Sen. Bill Cassidy (R-LA). Below please find a summary (not necessarily exhaustive) of these targeted provisions.

The Buy Off Lisa Murkowski Again Fund

Section 106 of the bill includes new language—page 13, lines 4 through 13, and page 18, line 12 through page 19, line 4—dedicating one percent of the new Stability Fund dollars to “each state where the cost of insurance premiums are at least 75 percent higher than the national average.” As a Bloomberg story noted, this provision currently applies only to Alaska, and could result in $1.32 billion in Stability Fund dollars automatically being directed to Alaska.

The Alaskan Pipeline

The revised Section 126 of the bill includes modified language—page 44, lines 9 through 17—changing certain Medicaid payments to hospitals based on a state’s overall uninsured population, not its Medicaid enrollment. As Bloomberg noted, this provision would also benefit Alaska, because Alaska recently expanded its Medicaid program, and therefore would qualify for fewer dollars under the formula in the original base bill.

The Moral Hazard Expansion

The underlying bill determined Medicaid per capita caps based on eight consecutive fiscal quarters—i.e., two years—of Medicaid spending. However, the revised bill includes language beginning on line 6 of page 59 that would allow “late expanding Medicaid states”—defined as those who expanded between and July 1, 2015 and September 30, 2016—to base their spending on only four consecutive quarters. Relevant states who qualify under this definition include Alaska (expanded effective September 1, 2015), Montana (expanded effective January 1, 2016), and Louisiana (expanded effective July 1, 2016).

The most recent actuarial report on Medicaid noted that, while the actuary originally predicted that adults in the expansion population would cost less than existing populations, in reality each newly eligible enrollee cost 13.6 percent more than existing populations in 2016. Some states have used the 100 percent federal match for their expansion populations—i.e., “free money from Washington”—to raise provider reimbursement levels. Therefore, allowing these three states to use only the quarters under which they had expanded Medicaid as their “base period” will likely allow them to draw down higher payments from Washington in perpetuity.

The South Dakota Purchase

The revised bill includes a new Section 138, which makes services provided by a state to Indian Health Service enrollees subject to a 100 percent federal Medicaid match. Under current law, only services “received through an Indian Health Service facility whether operated by the Indian Health Service or by an Indian tribe or tribal organization” are subject to a 100 percent match. South Dakota Gov. Dennis Daugaard has pushed this provision for over a year, saying he would expand Medicaid under Obamacare—but only if the federal government would agree to provide a 100 percent reimbursement for all Medicaid services provided to Indian Health Service enrollees.

The Buffalo Bribe

This provision, originally included in the House-passed bill, remains in the Senate version, beginning at line 12 of page 69. Originally dubbed the “Buffalo Bribe,” and inserted at the behest of congressmen from upstate New York, the provision would essentially penalize that state if it continues to require counties to contribute to the Medicaid program’s costs.

More to Come?

While the current bill contains at least half a dozen targeted provisions, many more could be on the way. By removing repeal of the net investment tax and Medicare “high-income” tax, the bill retains over $230 billion in revenue. Yet the revised bill spends far less than that—$70 billion more for the Stability Fund, $43 billion more in opioid funding, and a new $8 billion demonstration project for home and community-based services in Medicaid.

Even after the added revenue loss from additional health savings account incentives, Senate leadership could have roughly $100 billion more to spend in their revised bill draft—which of course they will. Recall too that the original Senate bill allowed for nearly $200 billion in “candy” to distribute to persuade wayward lawmakers. In both number and dollar amount, the number of “deals” to date may dwarf what’s to come.

This post was originally published in 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.

The Report Every State Legislator Should Read

Regardless of the outcome of November’s elections, health care will likely return to the forefront of policy debates in 2017 — both in Washington and in state capitals across the country. Should Hillary Clinton capture the White House, liberal groups, proclaiming that Obamacare is here to stay, will likely push to expand Medicaid in the states that have rejected the program’s massive expansion under Obamacare. Hospital groups will no doubt work hand-in-glove with the Left on these efforts, claiming that only Medicaid expansion will allow hospitals to remain viable, particularly in rural areas.

That’s why a report released by the Congressional Budget Office (CBO) earlier this month should be read by every state legislator in every state likely to debate expansion next year. In analyzing profit margins over the coming decade, the nonpartisan CBO concluded that Medicaid expansion will not make a material difference in hospitals’ overall viability.

The CBO paper modeled the impact of various provisions of Obamacare in 2025, and compared those outcomes with hospitals’ profitability in 2011, before the law’s major provisions took effect. Each scenario allowed CBO analysts to isolate the effects of separate provisions — for instance, the law’s reduction in Medicare payments to reflect improved productivity, expanded health-insurance coverage through Medicaid and the exchanges, and other payment changes.

By analyzing the effects of expanded insurance coverage, and examining whether expanding Medicaid in more states would impact hospitals’ financial condition, CBO shows that such an expansion will not materially improve their solvency:

Differing assumptions about the number of states that expand Medicaid coverage have a small effect on our projections of aggregate hospitals’ margins. That is in part because the hospitals that would receive the greatest benefit from the expansion of Medicaid coverage in additional states are more likely to have negative margins, and because in most cases the additional revenue from the Medicaid expansion is not sufficient to change those hospitals’ margins from negative to positive. Moreover, the total additional revenue that hospitals as a group would receive from the newly covered Medicaid beneficiaries…is not large enough relative to their revenues from other sources to substantially alter the projected aggregate margins.

A “small effect” and “not large enough…to substantially alter” projections — far from the panacea hospitals claim Medicaid expansion will be for their bottom lines.

The report provides several reasons why Medicaid expansion will not cure hospitals’ financial woes. Whereas CBO assumed that exchange plans would reimburse hospitals above their average costs, “Medicaid’s payment rates are below hospitals’ average costs.” Medicaid revenues will likely grow more slowly over time, as Medicaid payment rates cannot exceed Medicare levels — and Obamacare dramatically slowed those Medicare reimbursement levels. Moreover, CBO estimated “that the use of hospitals’ services among the newly insured will increase by about 40 percent as a result of having insurance.” If Medicaid pays hospitals less than their average costs, then inducing additional patient demand by expanding coverage could actually exacerbate hospitals’ shortfalls, not improve them.

To put it bluntly, hospitals made a horrible deal by endorsing Obamacare in 2009. The industry agreed to annual reductions in their Medicare payments forever in exchange for a one-time increase in the number of insured patients. The CBO report quantifies how badly the hospital industry missed its target. Even if hospitals revolutionize their productivity — a standard nonpartisan experts doubt they will achieve — the added revenue from Obamacare’s coverage expansions will barely offset the effects of the Medicare-reimbursement reductions. Under the worst-case scenario, as many as half of all hospitals could become unprofitable within a decade — and the entire industry could face negative profit margins.

Medicaid expansion cannot save hospitals from the financial woes they inflicted upon themselves by endorsing Obamacare — but it can make both federal and state governments less solvent in the process. Prior research has shown how the Medicaid rolls in states that did expand drastically exceeded projections — and a new Mercatus Center report released earlier this month noted that costs per beneficiary have grown as well.

With the costs of Medicaid growing in states that did expand, and CBO showing meager financial benefits to hospitals as a result of expansion, state legislators have every reason to resist the temptation to dramatically expand the welfare state under Obamacare.

This post was originally published at National Review.

The Daily Show: Sebelius Swings–And Misses

Last night, Secretary of Health and Human Services (HHS) Kathleen Sebelius appeared on The Daily Show to talk about Obamacare (you can watch Part 1 and Part 2 of the extended interview). She attempted to defend the Administration’s botched opening of the law’s exchanges, but like the rollout itself, most of what she said in the law’s defense ended up falling flat:

“We have a terrific market.” Thus far, the facts speak otherwise. Even Sebelius was forced to concede the exchanges’ flaws, when she admitted to host Jon Stewart that she didn’t know how many people have “fully enrolled” in exchange plans. Sebelius claimed that “this is like a Kayak site, where you might check out what plane you want to get on.” However, I’m guessing that Kayak knows exactly how many customers have purchased plane tickets from its site.

“For the first time, people are going to have a chance to compare plans…You can also figure out if your doctor is in the plan that you want, if the network of hospitals is in the plan you want, what kind of drug you take is that in the plan you want. We’ve never been able to do that before…You would never know what is there.” The idea that the federal government “invented” shopping for health insurance holds about as much water as the idea that Al Gore invented the Internet. Companies have been selling health insurance online, and allowing people to compare plans, for more than a decade. And their websites didn’t crash last week, either.

“For about 85 percent of us, we don’t have to sign up for anything, because we have insurance that works…I think the President did not want to dismantle the health care that 85 percent of the country had and start all over again.” That may not have been intent of Obamacare—but it has been one of the law’s effects. Companies are already dropping health insurance for part-time workers and for spouses, causing individuals to lose their employer-provided coverage and raising the cost of federal insurance subsidies.

“We know about 6 out of 10 people will get a policy for under $100 a month—never happened before.” We also know that most of those individuals will be dumped into the Medicaid program—a form of coverage that its own members don’t even call “real insurance,” because low reimbursement rates prevent Medicaid patients from seeing actual doctors.

“Nothing that helps an individual get health insurance has been delayed at all.” That’s simply not accurate. The insurance subsidies may not have been delayed, but many elements of the insurance shopping experience—from a choice of insurance companies for those working for small businesses, to the basic health plan, to caps on out-of-pocket spending—have been delayed. All these Obamacare features were thrown overboard in an attempt to make the core elements of the exchanges work—which they haven’t.

The sharpest part of the interview came when Stewart pressed Sebelius on the delay in the law’s employer mandate, and the disparity in treatment between big business and the rest of America: “Geez, it looks like because I don’t have a lobbying group…I would feel like you are favoring big business because they lobbied you to delay it because they didn’t want to do it this year but you are not allowing individuals that same courtesy.” That is of course consistent with the attitude the Administration has taken towards the law from the start—reward “squeaky wheels” who hire lobbyists and make political noise by exempting them from some of Obamacare’s most harmful effects.

Stewart’s opening comment summed up the exchanges’ flaws: “I’m going to try and download every movie ever made and you’re going to try and sign up for Obamacare and we’ll see which happens first.” Sebelius may have played the part of a loyal trouper, but the facts speak for themselves.

This post was originally published at The Federalist.

Morning Bell: Will Unions Want to Repeal Obamacare?

In a typical Friday afternoon “news dump,” the Treasury Department announced it could not grant unions’ request for another special Obamacare break.

This time, unions had lobbied the Administration to let union-run, multi-employer plans receive taxpayer-funded insurance subsidies on the new exchanges. These subsidies would be in addition to the tax break that multi-employer plans, like health plans offered by all employers, already receive.

Union leaders wrote to Senate Majority Leader Harry Reid (D-NV) and House Minority Leader Nancy Pelosi (D-CA) in July asking for the Obamacare “fix,” stating that their progressive “vision has come back to haunt us”:

When you and the President sought our support for the Affordable Care Act (ACA), you pledged that if we liked the health plans we have now, we could keep them. Sadly, that promise is under threat. Right now, unless you and the Obama Administration enact an equitable fix, the ACA will shatter not only our hard-earned health benefits, but destroy the foundation of the 40 hour work week that is the backbone of the American middle class.

However, despite comments by Reid that unions would get another special break, the Administration actually found one part of the law it wants to uphold—after all the waivers, delays, and illegal modifications made to other parts of Obamacare.

The question for unions is, what will they do now? Terry O’Sullivan, President of the Laborers International Union of North America, said on Wednesday that his union wants Obamacare “fixed, fixed, fixed….But if the [law] isn’t fixed…then I believe it needs to be repealed.”

O’Sullivan got his answer two days later—the Administration claims the law can’t be fixed. So will his union now call for Obamacare’s repeal?

As the old saying goes, “Better late than never.” Here’s hoping the Laborers Union, and other unions—having finally discovered that Obamacare could cost them both their jobs and their health insurance—ask Congress to stop the law now.

This post was originally published at the Daily Signal.