Tag Archives: Balanced Budget Act

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just after the election—not to litigate with the Senate Parliamentarian whether and what insurance regulations could be repealed under the special budget reconciliation procedures.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.

What You Need to Know about Budget Reconciliation in the Senate

After last week’s House passage of the American Health Care Act, the Senate has begun sorting through various policy options for health care legislation. But looming over the policy discussions are procedural concerns unique to the Senate. Herewith a primer on the process under which the upper chamber will consider an Obamacare “repeal-and-replace” bill.

How Will the Bill Come to the Senate Floor?

The bill that passed the House was drafted as a budget reconciliation bill. The phrase “budget reconciliation” refers to a process established by the Congressional Budget Act of 1974, in which congressional committees reconcile spending in programs within their jurisdiction to the budget blueprint passed by Congress. In this case, Congress passed a budget in January that required health-care committees to report legislation reducing the deficit by $1 billion—the intended vehicle for an Obamacare “repeal-and-replace” bill.

What’s So Important about Budget Reconciliation?

The Budget Act lays out specific time limits for debate in the Senate—20 hours of debate—and limits amendments to germane (i.e., relevant) topics. Normally, debate in the Senate is much more free-wheeling, with unlimited debate and amendments permitted on any issue. A senator could offer an amendment on Syria policy to a tax bill, for instance.

Under most circumstances, the Senate can only limit debate and amendments by invoking cloture, which requires the approval of three-fifths of all senators sworn (i.e., 60 votes). Because the reconciliation process prohibits filibusters and unlimited debate, it allows the Senate to pass reconciliation bills with a simple majority (i.e., 51-vote) threshold.

Why Does the ‘Byrd Rule’ Exist as part of Budget Reconciliation?

Named for former Senate Majority Leader Robert Byrd (D-WV), the rule intends to protect the integrity of the legislative filibuster. By allowing only matters integral to the budget reconciliation to pass the Senate with a simple majority (as opposed to the 60-vote threshold), the rule seeks to keep the body’s tradition of extended debate.

What Is the ‘Byrd Rule’?

Simply put, the rule prohibits “extraneous” material from intruding in budget reconciliation legislation. However, the term “Byrd rule” is technically a misnomer in two respects. First, the “Byrd rule” is more than just a longstanding practice of the Senate. After several years of operation as a Senate rule, it was codified into law beginning in 1985, and can be found at 2 U.S.C. 644. Second, the rule consists of not just one test to define whether material is “extraneous,” but six.

What Are the Six Different Types of Extraneous Material?

This chart from Senate Budget Committee staff highlights the six statutory definitions of “extraneous” material, provides some examples of each, and explains how the Senate rules on, and disposes of, material falling under each test.

So the Various Types of ‘Byrd Rule’ Violations Are Not Necessarily Equivalent?

Correct. While most reporters focus on the fourth test—when a legislative provision has a budgetary impact merely incidental to the provision’s policy change—that is not the only type of rule violation. Nor in many respects is it the most significant.

While violations of the fourth test are fatal to the provision—the extraneous material is stricken from the underlying legislation—violations of the third (material outside the jurisdiction of committees charged with reporting reconciliation legislation) and sixth (changes to Title II of the Social Security Act) tests are fatal to the entire bill.

Who Determines Whether a Provision Qualifies as ‘Extraneous’ Under the ‘Byrd Rule’?

As the chart notes, those determinations are made by the Senate Budget Committee chairman—currently Mike Enzi (R-WY)—or the chair, who normally acts upon guidance from the Senate parliamentarian.

How Does One Determine Whether a Provision Qualifies as ‘Extraneous’ under the ‘Byrd Rule’?

In some cases, determining compliance with the rule is relatively straight-forward. A provision dealing with veterans’ benefits (within the jurisdiction of the Veterans Affairs Committee) would clearly fail the third test in a tax reconciliation bill, as tax matters lie within the Finance Committee’s jurisdiction.

However, other cases require a more nuanced, textual analysis by the parliamentarian. Such an analysis might examine Congressional Budget Office (CBO) and other outside scores, to assess the provision’s fiscal impact (or lack thereof), the statute the reconciliation bill seeks to amend, other statutes cross-referenced in the legislation (to assess the impact of the programmatic changes the provision would make), and prior precedent on related matters.

When Does the Senate Assess Whether a Provision Qualifies as ‘Extraneous’?

In some respects, assessing compliance is an iterative process. Often, the Senate parliamentarian will provide informal advice to majority staff as they begin to write reconciliation legislation. While these informal conversations help to guide bill writers during the drafting process, the parliamentarian normally notes that these discussions do not constitute a formal advisory opinion; minority party staff and other interested persons are not privy to the ex parte conversations, and could in time bring her new information that could cause her to change her opinion.

Later in the process, as the reconciliation bill makes its way to the Senate floor, majority and minority leadership staff will gather for more formal discussions to assess which provisions qualify as “extraneous” under the “Byrd rule.” This process, informally known as the “Byrd bath,” allows for all sides to put their cases before the parliamentarian, who will normally provide more definitive guidance on how she would advise the chair to rule.

Do Debates about the ‘Byrd Rule’ Take Place on the Senate Floor?

They can, and they have, but relatively rarely. As James Wallner, an expert in Senate parliamentary procedure, notes, over the last three decades, the Senate has formally adjudicated only ten instances of the fourth test—whether a provision’s fiscal impacts are merely incidental to its proposed policy changes.

Because most determinations of “Byrd rule” compliance (or non-compliance) have been made through informal, closed-door “Byrd bath” discussions in the Senate parliamentarian’s office, there are few formal precedents—either rulings from the chair or votes by the Senate itself—regarding specific examples of “extraneous” material. As a result, the Senate—whether the parliamentarian, the presiding officer, or the body itself—has significant latitude to interpret the statutory tests about what qualifies as “extraneous.”

Can the Senate Overrule the Parliamentarian about What Qualifies as ‘Extraneous’ Under the ‘Byrd Rule’?

Yes, in two respects. The presiding officer—whether the vice president as president of the Senate, the president pro tempore (currently Sen. Orrin Hatch, R-UT), or another senator—can disregard the parliamentarian’s guidance and issue his or her own ruling. Alternatively, a senator could appeal the chair’s decision, and a simple majority of the body could overrule that decision. There is a long history of senators doing just that.

As a practical matter, however, such a scenario appears unlikely during the Obamacare debate, for two reasons. First, some senators may view such a move as akin to the “nuclear option,” undermining the legislative filibuster by a simple majority vote. The recent letter signed by 61 senators pledging to uphold the legislative filibuster indicates that at least some senators in both parties want to preserve the usual 60-vote margin for passing legislation, and therefore may not wish to set a precedent of allowing potentially “extraneous” material on to a budget reconciliation bill through a simple majority.

Second, if the Senate did overrule the parliamentarian on a procedural matter related to budget reconciliation, a conservative senator would likely introduce a simple, one-line Obamacare repeal bill and ask the Senate to overrule the parliamentarian to allow it to qualify as a reconciliation matter. Since many members of the Senate, like the House, do not actually wish to repeal Obamacare, they would likely decline to head down the road of overruling the parliamentarian, for fear it may head in this direction.

Can the Senate Waive the ‘Byrd Rule’?

Yes—provided three-fifths of senators sworn (i.e., 60 senators) agree. In the past, many budget reconciliation bills—like the Balanced Budget Act of 1997—passed with far more than 60 Senate votes, which made waiving the rule easier.

However, Republicans did not agree to waive the rule for extraneous material included in Senate Democrats’ Obamacare “fix” bill in March 2010. That material was stricken from the legislation and did not make it into law. For this and other reasons, it seems unlikely that eight or more Senate Democrats would vote to waive the rule for an Obamacare “repeal-and-replace” bill.

Didn’t Democrats Pass Obamacare through Budget Reconciliation?

Yes and no. They fixed portions of Obamacare—for instance, the notorious “Cornhusker Kickback”—through a budget reconciliation measure that passed through both houses of Congress in March 2010. But the larger, 2,400-page measure that passed the Senate on Christmas Eve 2009 was enacted into law first.

Once Scott Brown’s election to the Senate in January 2010 gave Republicans 41 votes, Democrats knew they could not go through the usual process of convening a House-Senate conference committee to consider the differences between each chamber’s legislation. A conference report is subject to a filibuster, and Republicans had the votes to sustain that filibuster.

Instead, House Democrats agreed to pass the Senate version of the legislation—the version that passed with 60 votes on Christmas Eve 2009—then have both chambers use a separate budget reconciliation bill—one that could pass the Senate with a 51-vote majority—to make changes to the bill they had just enacted.

This post was originally published at The Federalist.

Legislative Bulletin: H.R. 3961, Medicare Physician Payment Reform Act

FLOOR SITUATION

H.R. 3961 is being considered under a closed rule.  The rule provides that following its passage, the Clerk will be directed to append the text of H.R. 2920, the Statutory PAYGO bill that passed the House on July 22, 2009, to the legislation before sending it to the Senate.  The legislation was introduced by Rep. John Dingell (D-MI) on October 29, 2009.

EXECUTIVE SUMMARY

H.R. 3961 provides for an increase in Medicare physician reimbursements for 2010 equal to the increase in medical inflation, and recalibrates the Sustainable Growth Rate (SGR) mechanism such that year 2009 physician expenditures shall be used as the new baseline for computing whether total physician payments exceed the SGR targets.  The bill establishes two separate conversion factors-one for evaluation and management services, including primary care and preventive services, and one for all other services provided.  Thus evaluation and management services and all other specialist services would receive different annual payment rates, based on the growth of each service over time; the former would also receive a higher conversion factor under the bill-GDP growth plus two percent for evaluation and management services, as opposed to GDP growth plus one percent for all other services.  Finally, the bill allows accountable care organizations established to opt-out of the national expenditure targets created in the bill and establish their own organization-specific targets.

BACKGROUND

As part of spending reforms included in the Balanced Budget Act of 1997, Congress enacted a sustainable growth rate (SGR) mechanism for Medicare physician payment levels.  The SGR mechanism is designed to balance the previous year’s increase in physician spending with a decrease in the next year, in order to maintain aggregate growth targets.  In light of increased Medicare spending in recent years, the statutory formula has resulted in negative annual updates.  While an imperfect formula, the SGR was designed as a cost-containment mechanism to help deal with Medicare’s exploding costs.

While Democrats claim Speaker Pelosi’s 1,990-page health “reform” bill (H.R. 3962) is “deficit-neutral,” the hundreds of billions of dollars in new spending in H.R. 3961 is not paid for.  While Members may support reform of the SGR mechanism, many may oppose what amounts to an obvious attempt to hide the apparent cost of health “reform” by introducing separate legislation to repeal the SGR mechanism without paying for this more than $200 billion increase in federal spending in its first ten years.  Moreover, H.R. 3961 would permanently alter the SGR mechanism, and an independent analysis of official data conducted by former Medicare public trustee Tom Saving found that a permanent reversal of these current-law reductions, if not paid for by appropriate offsets in spending, would increase Medicare’s unfunded obligations by nearly $2 trillion over a 75-year period.  Due to these significant concerns about rising deficits and higher federal spending, a bipartisan majority in the Senate recently rejected similar legislation (S. 1776) designed to increase physician payments over the next 10 years that did not include any offsetting spending reductions.

Press reports indicate that the Democrat majority desires to pass a stand-alone “doc fix” bill in order to help facilitate passage of its broader health “reform” initiative.  A CQ Today article noted that omitting an SGR “fix” from the Democrat health “reform” legislation “could free up billions of dollars that Democratic leaders could apply to make other changes in a health care plan”-making it easier for the majority to pass its government takeover of health care.  Therefore, some may view a vote for H.R. 3961 that is not paid for through appropriate spending reductions as helping to facilitate a government takeover of health care, with all its flaws: More than $700 billion in job-killing new taxes, regulations that will raise premiums for millions of Americans, and creation of a government-run health plan causing as many as 114 million Americans to lose their current coverage.

In its rollout of the Pelosi bill, the Democrat majority released a one-page document claiming that “a previous Congress established the policy for paying Medicare doctors, so the update for 2010 is not a new policy to be paid for.”  By this logic, future Congresses will not have to pay for any increases in federal deficits and spending associated with the Pelosi health “reform” bill-directly contradicting President Obama’s pledge that his bill would not increase the federal deficit by one dime.  Regardless, many may note that adding hundreds of billions in new spending will be paid for-by America’s children and grandchildren, through mountains of new federal debt.

COST

The Congressional Budget Office earlier this year estimated that a full SGR repeal would cost $285 billion over ten years.  However, the Administration has already begun the process of “reforming” the SGR by hiding approximately $80 billion of a repeal’s cost (the amount of the SGR attributed to physician-administered drugs) into the budgetary baseline as “current law”-even though some have questioned the Administration’s authority to do so.  Therefore, CBO scores H.R. 3961 as increasing the deficit by nearly $210 billion, though as stated earlier, the full impact of a long-term SGR “fix” approaches nearly $300 billion.

Members may particularly note that because seniors pay for one-quarter of total physician spending through their Medicare Part B premiums, CBO also notes that H.R. 3961 would raise seniors’ Medicare premiums by nearly $50 billion over ten years.   These premium increases would be on top of the 20 percent increase in Part D prescription drug premiums as a result of the Pelosi health care bill.

Policy Brief: Replacing One Ignored Trigger with Another

“I will not sign [health care legislation] if it adds one dime to the deficit—now or in the future.  Period.  And to prove that I’m serious, there will be a provision in this plan that requires us to come forward with more spending cuts if the savings we promised don’t materialize.”

 — President Obama, address to Joint Session of Congress, September 9, 2009

President Obama has promised that health “reform” legislation will cost less than $900 billion, and will not add one dime to the deficit.  However, his rhetorical promise of a “trigger” to impose additional spending cuts if costs exceed expectations belies the actions of the Administration and Democrats in Congress with respect to an existing trigger designed to keep Medicare spending at sustainable levels:

  • Created as part of the Balanced Budget Act of 1997, the Medicare Sustainable Growth Rate (SGR) formula was designed in much the same way as the President’s new proposal.  If Medicare spending on physicians’ services exceeded projections, future years’ payments would be reduced to offset that spending growth.
  • While imperfect, the SGR was designed as a cost-containment mechanism to help deal with Medicare’s exploding costs, and to some extent it has worked, forcing offsets in some years and causing physician payment levels to be scrutinized annually as if they were discretionary spending.  However, Congresses of both parties have previously acted to forestall one year’s cuts by imposing additional cuts in future years rather than offsetting the entire cost up-front.  The result has created a projected 21 percent cut in physician reimbursements this January, followed by cuts of 5 percent in future years.
  • The White House has proposed a new “solution” to this fiscal dilemma—one that involves hundreds of billions in new deficit spending.  In its February budget, the Administration proposed incorporating an additional $330 billion into the budgetary baseline—increasing federal spending without offsets—to reflect adjustments to the SGR formula, giving physicians within Medicare an increase of approximately 1 percent annually for the next ten years.  The budget document justifies this change as “reflect[ing] our best estimate of what the Congress has done in recent years” to forestall physician payment cuts.
  • In a similar manner, House Democrats’ government takeover of health care (H.R. 3200) would amend the SGR formula to provide a zero percent increase over the next decade—the total cost of which stands at $285 billion over ten years, according to the Congressional Budget Office.  However, like the Administration’s budget proposal, H.R. 3200’s new SGR spending is also not paid for—but the assumption that a permanent “doc fix” somehow “doesn’t count” for deficit purposes has led some Democrats to make the false assertion that their bill is deficit-neutral.
  • Conversely, legislation unveiled by Senate Finance Committee Chairman Baucus does not include a permanent fix to the SGR formula, choosing instead a one-year, 0.5 percent increase in 2010 at a cost of $10.7 billion.  However, because the legislation specifies that the 2010 increase shall not be taken into account when determining future year spending targets under the SGR, physicians would receive a 25 percent decrease in reimbursement levels beginning in 2011, and further reductions in 2012 and future years, under the Baucus bill—an action which, given past Congressional actions to override scheduled physician payment cuts, many would view as highly unlikely.
  • In other words, confronted with a spending trigger very much like the one the President wants to impose on the entire health care system, the Administration and House Democrats have acted to override the trigger entirely to create hundreds of billions in new federal spending, while the Senate Finance Committee would ignore it in the hope that an as-yet-undetermined solution arrives in the future.

Given the general unwillingness to tackle a twelve-figure shortfall at a time when the federal deficit approaches $1.6 trillion, many may have sharp questions about the larger budgetary implications of the SGR—and any future “triggers” on federal health spending:

  • Will Democrats spend more than one-quarter of the President’s overall $900 billion spending cap on an SGR fix?
  • If they do not fix the SGR now, how do Democrats propose to solve this problem in the future?  Will additional savings be taken out of Medicare over and above the $400-500 billion being contemplated in this round of “reform?”  Will taxes be raised to increase Medicare reimbursements to doctors?  Or will Democrats choose additional deficit spending in future years even though President Obama has pledged that his plan will not add “one dime” to the nation’s budget deficits?
  • How does either overriding or ignoring the budgetary implications of the SGR qualify as “fiscal discipline?”
  • If Democrats cannot arrive at a permanent SGR solution—one that does not add one dime to the deficit—as part of their health reform plans, why should anyone believe in the efficacy of the new “triggers” the President and some in Congress have proposed?

While Members may support reform of the SGR mechanism, many may oppose what amounts to an obvious attempt to incorporate a permanent “doc fix” into the baseline—a gimmick designed solely to hide the apparent cost of health “reform.”  Moreover, many may believe that—given the President’s commitment to create another SGR-like trigger to ensure budgetary discipline—any Democrat legislation that does not include a fully-paid for solution to the SGR problem, and chooses instead to defer those tough choices to another day and another Congress, is neither fiscally responsible nor publicly credible.

Policy Brief: SCHIP Premium Assistance

Background:  The State Children’s Health Insurance Program, established under the Balanced Budget Act (BBA) of 1997, is a state-federal partnership originally designed to provide low-income children with health insurance—specifically, those children under age 19 from families with incomes under 200 percent of the federal poverty level (FPL), or approximately $40,000 for a family of four.  States may implement SCHIP by expanding Medicaid and/or creating a new state SCHIP program.  SCHIP received nearly $40 billion in funding over ten years as part of BBA, and legislation recently passed by Congress in December (P.L. 110-173) extended the program through March 2009, while providing additional SCHIP funds for states.

When originally created, the SCHIP statute included premium assistance provisions designed to encourage the enrollment of children in employer-sponsored coverage, with state and federal dollars being used to pay the employee premium share for the eligible dependent(s).  Implementation of premium assistance programs would reduce crowd-out (i.e. individuals dropping private coverage to join a government health program), maintain children and parents on the same (privately-held) insurance policy, and could result in cost savings to both states and the federal government.

The statute included several tests used to determine whether premium assistance would be appropriate for SCHIP programs to implement.  Chief among these tests are the following:

  • Premium assistance must be cost-effective to the state (and thus the federal government);
  • Plans using premium assistance dollars must meet certain benchmark guidelines, including limits on cost-sharing;
  • Before becoming eligible for premium assistance, state waiting periods must apply;
  • Employers must make minimum contributions to the plan for which premium assistance is being granted.

Analysis:  While the premium assistance provisions were originally designed to facilitate enrollment of eligible children in employer-sponsored coverage where available, in practice the use of premium assistance remains quite limited.  Conflicts between the premium assistance provisions for Medicaid and SCHIP have resulted in only nine states adopting a premium assistance model—leaving more children in public, rather than private, coverage, and potentially resulting in higher costs to the federal government.

An analysis of the provisions at issue reveals several areas where changes to the premium assistance program could encourage the enrollment of additional low-income children in private rather than public coverage.  Areas for potential legislative action include the following:

Cost-Effectiveness:  Under current law, the cost-effectiveness test contains a “family waiver” provision that often impedes enrollment in private coverage, and conflicts with the cost-effectiveness test established under Medicaid.[1]  While the Medicaid test merely requires that the cost of covering an individual under a premium assistance program be less than the cost of public coverage for that individual, the SCHIP test requires that the cost of covering an entire family under premium assistance be less than the cost of public coverage for the child (or children) alone.  This lack of an “apples-to-apples” comparison for the purposes of determining cost-effectiveness can prevent employer coverage from qualifying for premium assistance—and as a result, some conservatives may believe the skewed metrics of determining cost-effectiveness actually increase costs to the federal government and should be changed.

Cost Sharing:  Current law places strict limits on cost-sharing within the SCHIP program, limiting premium assistance eligibility for many employer-sponsored plans.  Specifically, SCHIP plans may not impose any cost-sharing—premiums, deductibles, co-payments, or co-insurance—above a “nominal amount” (as determined by Medicaid guidelines) on children from families with incomes below 150% FPL; children from families with incomes above 150% FPL may only incur total cost-sharing of more than 5% of a family’s income.[2]  Some conservatives may find these cost-sharing limitations particularly onerous with regard to employer-sponsored plans, most of which have co-payments and deductibles that exceed the “nominal” amounts described in the statute.

Benchmark Guidelines:  To be eligible for SCHIP premium assistance, employer-sponsored plans must be actuarially equivalent to one of three SCHIP benchmarks: 1) the Blue Cross Blue Shield Standard Option within the Federal Employee Health Benefits Program (FEHBP); 2) the health insurance plan offered to state employees in a given state; or 3) the Health Maintenance Organization (HMO) with the highest enrollment in the state.[3]  However, the $431 monthly premium charged for the Blue Cross FEHBP option during 2007 exceeded by more than 15% the average cost of group health insurance in the same year, according to the non-partisan Kaiser Family Foundation—and many state employee plans have similarly high benefit packages.[4]  Therefore, some conservatives may support efforts to create more realistic coverage benchmarks for the SCHIP program, particularly for states where low market penetration by HMOs would have the effect of limiting premium assistance participation to those few employers who could afford to match the rich health insurance coverage provided to state and federal bureaucrats.

Employer Contribution:  Although the existing statute remains silent on this provision, SCHIP regulations require states to set minimum percentage contribution levels for employer-sponsored insurance.  Some conservatives may find this provision unnecessary and redundant, as group health insurance coverage must already be considered cost-effective to the state in order for the plan to qualify for premium assistance.

Waiting Periods:  SCHIP regulations require children eligible for premium assistance to have lacked group health insurance coverage for at least six months prior to enrolling in the program, unless the child had previously been enrolled in Medicaid or the state had received approval from the Centers for Medicare and Medicaid Services (CMS) to shorten its waiting period.[5]  While these provisions were designed to guard against crowd-out, some conservatives may question whether the waiting periods to join a subsidized private plan may instead encourage individuals to join a government-run plan, and whether states should seek to amend their SCHIP plans to reflect that possible scenario.

Enrollment and Outreach:  Particularly because premium assistance relies on private, rather than public, insurance coverage, many conservatives may support efforts to make participation easy for employers, and encourage eligible families to enroll.  Such steps would maintain private health insurance coverage while saving taxpayer dollars, and minimize the perverse cost-shifting that results from unrealistically low reimbursement levels in some SCHIP programs.

Legislative History:  Title III of SCHIP legislation (H.R. 3963), whose Presidential veto was sustained by the House by a 260-152 vote in January, included several provisions designed to streamline premium assistance programs.  Specifically, the bill modifies the cost-effectiveness language to provide equivalent comparisons between the cost of employer-sponsored and government-run SCHIP coverage, while giving premium assistance programs some flexibility by allowing states to “wrap-around” employer coverage with respect to cost-sharing and employer benefit packages not meeting one of the SCHIP benchmark levels (although it does not address the issue of whether these mandated benefit levels are too high).  However, some conservatives may find the prohibition on using premium assistance subsidies for any high-deductible or Health Savings Account (HSA) option contained in Section 301(a)(1) of the bill an attempt by Congressional Democrats to inhibit the growth of consumer-directed health options that have slowed the growth of health care costs since their introduction.

More fundamentally, Title III did not address the question of whether states should be required to make premium assistance programs available as a condition of receiving federal SCHIP funds—and it explicitly stated that eligible children must retain the option of enrolling in a public program and may not be compelled to participate in a premium assistance plan if available.  Moreover, some conservatives may also support additional provisions designed further to extend SCHIP premium assistance to individual (as opposed to group) health insurance purchased by eligible families, so long as this private insurance is cost-effective from the state and federal perspective.

Conclusion:  Most conservatives support enrollment and funding of the SCHIP program for the populations for whom the SCHIP program was created.  That is why in December the House passed, by a 411-3 vote, legislation reauthorizing and extending the SCHIP program through March 2009.  That legislation included an additional $800 million in funding for states to ensure that all currently eligible children will continue to have access to state-based SCHIP coverage.

However, many conservatives retain concerns about actions by states or the federal government that would reduce private health insurance coverage while increasing reliance on a government-funded program.  To that end, conservatives may be inclined to support a more robust premium assistance mechanism for low-income children that keeps children (and their parents) enrolled in private coverage rather than joining a public program.  While the provisions of H.R. 3963 did make some modest changes to encourage this goal, some conservatives may support additional modifications to the premium assistance provisions to ensure that children with access to employer-sponsored insurance are not permitted to decline group coverage in order to join the SCHIP rolls.

For further information on this issue see:

 


[1] The Medicaid cost-effectiveness test can be found at 42 U.S.C. 1396e(e)(2), while the SCHIP cost-effectiveness test can be found at 42 U.S.C. 1397ee(c)(3).

[2] The SCHIP cost-sharing provisions are at 42 U.S.C. 1397cc(e)(3); the Medicaid guidelines can be found at 42 U.S.C. 1396o.

[3] SCHIP coverage benchmarks can be found at 42 U.S.C. 1397cc(b).

[4] Kaiser Family Foundation, “Employer Health Benefits: 2007 Annual Survey,” available online at http://kff.org/insurance/7672/upload/76723.pdf (accessed March 15, 2008), p. 2.

[5] The language can be found at 42 C.F.R. 457.810.

Policy Brief: SCHIP Enrollment

Background:  The State Children’s Health Insurance Program, established under the Balanced Budget Act (BBA) of 1997, is a state-federal partnership originally designed to provide low-income children with health insurance—specifically, those children under age 19 from families with incomes under 200 percent of the federal poverty level (FPL), or approximately $40,000 for a family of four.  States may implement SCHIP by expanding Medicaid and/or creating a new state SCHIP program.  In addition, states may expand eligibility requirements by submitting state plan amendments and/or Section 1115 waiver requests to the Centers for Medicare and Medicaid Services (CMS).[1]  SCHIP received nearly $40 billion in funding over ten years as part of BBA, and legislation recently passed by Congress in December (P.L. 110-173) extended the program through March 2009, while providing additional SCHIP funds for states.

One concern of many conservatives regarding the SCHIP program relates to crowd-out—a phenomenon whereby individuals who had previously held private health insurance drop that coverage in order to enroll in a public program.  The Congressional Budget Office (CBO) analysis of H.R. 3963, a five-year SCHIP reauthorization which the President vetoed (and the House failed to override), found that of the 5.8 million children who would obtain Medicaid or SCHIP coverage under the legislation, more than one-third, or 2 million, would do so by dropping private health insurance coverage.

In order to prevent policies that encourage crowd-out, and ensure that SCHIP funds are more effectively allocated to the low-income beneficiaries for whom the program was created, CMS on August 17, 2007 issued guidance to state health officials about the way it would evaluate waiver proposals by states to expand their SCHIP programs.  Among other provisions, the letter stated that CMS would require states seeking to expand coverage to children with family incomes above 250% of FPL must first enroll 95% of eligible children below 200% of FPL, consistent with the original design and intent of the SCHIP program.  Congressional Democrats have introduced both a bill (H.R. 5998) and a joint resolution of disapproval under the Congressional Review Act (S. J. Res. 44) designed to repeal the Administration’s guidance.

Enrollment of Wealthier Children:  An analysis performed by the Congressional Research Service (CRS), using data provided by the Centers for Medicare and Medicaid Services (CMS), provides some indication of the extent to which states are focusing their efforts on enrolling poor children first before expanding their SCHIP programs up the income ladder.  Comparison of Fiscal Year 2006 and 2007 data reveal that in FY06, an estimated 586,117 children from families with incomes above 200% of the federal poverty level—approximately $41,000 for a family of four—were covered under SCHIP by a total of 15 states.

By contrast, in FY07, a total of 17 states and the District of Columbia covered an estimated 612,439 children in their SCHIP programs—an increase of nearly 30,000 children from wealthier families.  Much of this increase stems in part from decisions by three states—Maryland, Missouri, and Pennsylvania—along with the District of Columbia to extend SCHIP coverage to children with family incomes up to 300% of FPL during calendar year 2007, just prior to the release of the Administration’s SCHIP guidance.  In short, the data show no discernable trend by states to target their energies on enrolling lower-income children first before expanding SCHIP up the income scale—a key concern of many conservatives during the debate on children’s health legislation last year.

Enrollment of Adults in Children’s Program:  The CRS report also analyzes the coverage of adults—pregnant women, parents, and childless adults—in the SCHIP program.  The CRS data do indicate that the total number of adults decreased from FY06 to FY07, and the number of childless adults on the SCHIP rolls halved.  However, the number of states covering adults increased, and several states saw expansion of the number of adults, and childless adults, covered under the program:

  • Eight states—Arkansas, Colorado, Idaho, Illinois, Nevada, New Jersey, New Mexico, Oregon, and Virginia—saw overall adult populations in SCHIP increase;
  • Three states—Idaho, New Mexico, and Oregon—saw increased enrollment in the number of childless adults;
  • Seven states— Arizona, Arkansas, Idaho, Illinois, Nevada, New Jersey, New Mexico, and Oregon—saw increased enrollment in the number of parents covered;
  • Three states—Colorado, Nevada, and Rhode Island—increased SCHIP enrollment for pregnant women.

While many conservatives may support the overall reduction in adults enrolled in a children’s health insurance program, some may still be concerned by the persistence of adult coverage—particularly given decisions by both Arkansas and Nevada to expand coverage to adults during FY07.  In addition, the fact that nearly 75% of the reduction in adult SCHIP enrollment from FY06 to FY07 came from one state’s (Arizona) decision to remove childless adults from the program rolls may lead some conservatives to question whether this welcome development was a one-year anomaly or part of a larger trend.

Conclusion:  Most conservatives support enrollment and funding of the SCHIP program for the populations for whom the SCHIP program was created.  That is why in December the House passed, by a 411-3 vote, legislation reauthorizing and extending the SCHIP program through March 2009.  That legislation included an additional $800 million in funding for states to ensure that all currently eligible children will continue to have access to state-based SCHIP coverage.

However, many conservatives retain concerns about actions by states or the federal government that would reduce private health insurance coverage while increasing reliance on a government-funded program.  To that end, data proving that many states have expanded coverage to wealthier populations without first ensuring that low-income children are enrolled in SCHIP, and that states have in recent months expanded coverage under a children’s health insurance program to adult populations, suggest that some states continue to expand government-funded health insurance, at significant cost to state and federal taxpayers, in a manner that may encourage individuals to drop private coverage.

Particularly given these developments, conservatives may believe that the Administration’s guidance to states remains consistent with the goal of ensuring that SCHIP remains targeted toward the low-income populations for which it was designed.  Therefore, many conservatives will support the reasonable attempts by CMS to bolster the integrity of the SCHIP program while retaining state plans’ flexibility, and question efforts by Congressional Democrats to encourage further expansion of government-funded health insurance financed by federal taxpayers.

For further information on this issue see:



[1] In general, state plan amendments can expand eligibility to higher income brackets, or otherwise modify state plans, while Section 1115 waivers by definition require the Secretary of Health and Human Services to waive statutory requirements under demonstration authority.  For more information, see CRS Report RL 30473, available online at http://www.congress.gov/erp/rl/pdf/RL30473.pdf (accessed September 8, 2008).

Policy Brief: Medicare Physician Payment Policy

History and Background:  In 1989, the Omnibus Budget Reconciliation Act (P.L. 101-239) established a new physician fee schedule for Medicare, replacing the reasonable charge payment formula that had existed since the program’s inception.  The fee schedule was designed to alleviate perceived disparities in physician reimbursement levels by more closely tying payment to the amount of resources used for a given service or procedure.  The Balanced Budget Act of 1997 (P.L 105-33) modified the fee schedule formula, creating the Sustainable Growth Rate (SGR) mechanism as a means to incorporate cumulative physician spending into reimbursement levels.  In addition to slowing the growth of Medicare spending by setting an overall target for physician expenditure levels, the SGR was also intended to eliminate the fluctuations associated with setting annual (as opposed to cumulative) spending targets.

Payment Formula:  Under current Medicare law, doctors providing health care services to Part B enrollees are compensated through a “fee-for-service” system, in which physician payments are distributed on a per-service basis, as determined by the fee schedule and an annual conversion factor (a formula dollar amount).  The fee schedule assigns “relative values” to each type of provided service, reflecting physicians’ work time and skill, average medical practice expenses, and geographical adjustments.  In order to determine the physician payment for a specific service, the conversion factor ($38.0870 through June 2008) is multiplied by the relative value for that service.  For example, if a routine office visit is assigned a relative value of 2.1, then Medicare would provide the physician with a payment of $79.98 ($38.0870 x 2.1) for that service.

Medicare law requires that the conversion factor be updated each year.  The formula used to determine the annual update takes into consideration the following factors:

  • Medicare economic index (MEI)–cost of providing medical care;
  • Sustainable Growth Rate (SGR)–target for aggregate growth in Medicare physician payments; and
  • Performance Adjustment–an adjustment ranging from -13% to +3%, to bring the MEI change in line with what is allowed under SGR, in order to restrain overall spending.

Every November, the Centers for Medicare and Medicaid Services (CMS) announces the statutory annual update to the conversion factor for the subsequent year. The new conversion factor is calculated by increasing or decreasing the previous year’s factor by the annual update.

From 2002 to 2007, the statutory formula calculation resulted in a negative update, which would have reduced physician payments, but not overall physician spending. The negative updates occurred because Medicare spending on physician payments increased the previous year beyond what is allowed by SGR.  The SGR mechanism is designed to balance the previous year’s increase in physician spending with a decrease in the next year, in order to maintain aggregate growth targets.  Thus, in light of increased Medicare spending in recent years, the statutory formula has resulted in negative annual updates.  It is important to note that while imperfect, the SGR was designed as a cost-containment mechanism to help deal with Medicare’s exploding costs, and to some extent it has worked, forcing offsets in some years and causing physician payment levels to be scrutinized annually as if they were discretionary spending.

Since 2003, Congress has chosen to override current law, providing doctors with increases each year, and level funding in 2006.  In 2007, Congress provided a 1.5% update bonus payment for physicians who report on quality of care measures, and legislation enacted in December 2007 (P.L. 110-173) provided a 0.5% update for January through June of 2008.  The specific data for each year are outlined in the following table.

Year

Statutory

Annual

Update (%)

Congressional “Fix” to the Update (%)*

2002 -5.4 -5.4**
2003 -4.4 +1.6
2004 -4.5 +1.5
2005 -3.3 +1.5
2006 -4.4 0
2007 -5.0 +1.5***
2008 -10.1 0.5 (Jan.-June)

* The annual update that actually went into effect for that year.

** CMS made other adjustments, as provided by law, which resulted in a net update of – 4.8%; however, Congress did not act to override the -5.4% statutory update.

*** The full 1.5% increase was provided to physicians reporting quality of care measures; physicians not reporting quality of care received no net increase.

Because the Tax Relief and Health Care Act (P.L. 109-432), signed into law in December 2006, provided that 2007’s Congressional “fix” was to be disregarded for the purpose of calculating the SGR in 2008 and future years, the 10.1% negative annual update for 2008 will be restored once the December 2007 legislation expires on July 1, 2008, absent further Congressional action.

Participation and Assignment:  When treating Medicare beneficiaries, physicians may choose to accept assignment on a claim, agreeing to accept Medicare’s payment of 80% of the approved fee schedule amount—with the beneficiary paying the remaining 20% as coinsurance—as payment in full for the claim of service.  Physicians who agree to accept assignment on all Medicare claims in a given year are classified as participating physicians.  Physicians classified as non-participating—those who may accept assignment for some, but not all, claims in a given year—only receive 95% of the fee schedule amount for participating physicians on those claims for which they accept assignment.  The Medicare Payment Advisory Commission (MedPAC) reports that 93.3% of physicians and other providers who bill Medicare agreed to participate in Medicare during 2007, with 99.4% of allowed charges being accepted on assignment from physicians (both participating and non-participating).[1]

In cases where a physician considers the Medicare payment level under the fee schedule and SGR formula an insufficient reimbursement for the time and resources necessary to perform the relevant service, the physician’s opportunities to charge beneficiaries the full value of the service performed are extremely limited.  Non-participating physicians may “balance bill” beneficiaries for charges above the Medicare fee schedule amount on claims where the physician does not accept assignment from Medicare.  However, physicians may not bill beneficiaries in excess of 115% of the non-participating fee schedule amount—which, because Medicare fees are lower for non-participating physicians, has the effect of limiting “balance billing” to 9.25% above the fee schedule amount for participating physicians.  Moreover, providers who wish to “balance bill” their beneficiaries in some cases will therefore be classified as non-participating, resulting in a 5% reduction in fee schedule amounts for all claims—including those for which the provider is willing to accept assignment—in a given year.

Conclusion:  The Medicare funding warning issued by the plan’s trustees last year, and again this past March, provides an opportunity to re-assess the program’s structure and finance.  These two consecutive warnings—coupled with the trustees’ estimate that the Medicare trust fund will be exhausted in just over a decade’s time—should prompt Congress to consider ways to reduce the growth of overall Medicare costs, particularly those which utilize competition and consumer empowerment to create a more efficient and cost-effective Medicare program.

Viewed through this prism, the current Medicare physician reimbursement fee schedule may be perceived by some conservatives as symptomatic of the program’s larger problems.  While the SGR mechanism has provided several opportunities in recent years to review physician payment levels, the changes made by Congress as a result of such reviews have generally only made minor, temporary adjustments to the current system of government-dictated fee schedules.  These legislative vehicles have not revamped or repealed the fee schedule formula to take market forces into account, instead delving into the minutiae of provider reimbursement levels to arrive at a short-term fix that meets budgetary muster.  However, as Senate Finance Committee Chairman Baucus recently conceded at a health care summit: “How in the world am I supposed to know what the proper reimbursement should be for a particular procedure?”[2]  Therefore, even though supporting actions that yield budgetary offsets slowing the growth of Medicare spending, some conservatives may still view legislative outcomes that do not comprehensively address the lack of market forces in a government-dictated fee schedule as lacking.

Some conservatives may support legislative provisions designed to repeal prohibitions on “balance billing” by providers, either for all Medicare beneficiaries or only for those beneficiaries already subject to means-testing for their Part B premiums.  Such a measure, which has been introduced by several RSC Members in various forms in recent Congresses, would inject some free-market principles into Medicare, by allowing providers to charge reasonable levels for their services rather than adhering to government-imposed price controls.  Additionally, this policy change could have the potential to slow the growth of health costs at the margins, by providing slightly greater beneficiary exposure to the true cost of care, which in some cases may be subsidized by the monopsony power Medicare exercises over providers.

On a more fundamental level, some conservatives may also support a premium support model that would convert Medicare into a system similar to the Federal Employees Benefit Health Plan (FEHBP), in which beneficiaries would receive a defined contribution from Medicare to purchase a health plan of their choosing.  Previously incorporated into alternative RSC budget proposals, a premium support plan would provide comprehensive reform, while confining the growth of Medicare spending to the annual statutory raise in the defined contribution limit, thus ensuring long-term fiscal stability.  Just as important, by potentially shifting the focus of Medicare from a government-run program to a series of private payers, it would reduce or eliminate the need for the seemingly annual ritual of adjustments to Medicare fee schedule amounts, and may ensure that providers receive more reasonable and consistent reimbursement levels.  By confining the growth of Medicare spending and limiting the opportunities for Congress to tinker with physician and other reimbursement policies, some conservatives may view a premium support model as a return to the principle of more limited government.

For further information on this issue see:



[1] Medicare Payment Advisory Commission, “Report to the Congress: Medicare Payment Policy,” (Washington, DC, March 2008), available online at http://www.medpac.gov/documents/Mar08_EntireReport.pdf (accessed June 16, 2008), pp. 110-11.

[2] Quoted in Anna Edney, “Bernanke: Health Care Reform Will Require Higher Spending,” CongressDailyPM June 16, 2008, available online at http://www.nationaljournal.com/congressdaily/cdp_20080616_8602.php (accessed June 16, 2008).

Policy Brief: SCHIP Crowd-Out

Background:  The State Children’s Health Insurance Program, established under the Balanced Budget Act (BBA) of 1997, is a state-federal partnership originally designed to provide low-income children with health insurance—specifically, those children under age 19 from families with incomes under 200 percent of the federal poverty level (FPL), or approximately $40,000 for a family of four.  States may implement SCHIP by expanding Medicaid and/or creating a new state SCHIP program.  SCHIP received nearly $40 billion in funding over ten years as part of BBA, and legislation recently passed by Congress in December (P.L. 110-173) extended the program through March 2009, while providing additional SCHIP funds for states.

One concern of many conservatives regarding the SCHIP program relates to crowd-out—a phenomenon whereby individuals who had previously held private health insurance drop that coverage in order to enroll in a public program.  The Congressional Budget Office (CBO) analysis of H.R. 3963, a five-year SCHIP reauthorization which the President vetoed (and the House failed to override), found that of the 5.8 million children who would obtain Medicaid or SCHIP coverage under the legislation, more than one-third, or 2 million, would do so by dropping private health insurance coverage.

Administration Guidance:  In order to prevent policies that encourage crowd-out, and ensure that SCHIP funds are more effectively allocated to the low-income beneficiaries for whom the program was created, the Centers for Medicare and Medicaid Services (CMS), on August 17, 2007, issued guidance to state health officials about the way CMS would evaluate proposals by states to expand their SCHIP programs to include families with incomes above 250% of the federal poverty level (FPL).  Specifically, CMS included several steps which states should take before contemplating expansions above 250% of FPL:

  • Cost sharing requirements for state plans similar to those for private plans;
  • A one-year period of uninsurance for beneficiaries prior to receiving SCHIP coverage, to ensure that individuals and families are not dropping private coverage in order to receive benefits on government rolls;
  • Monitoring of child beneficiaries’ eligibility for coverage provided by non-custodial parents;
  • Assurance that states have enrolled at least 95% of children in families below 200% of FPL who are eligible for coverage under SCHIP or Medicaid;
  • Data that private insurance coverage for targeted populations has not declined more than two percentage points in the past five years; and
  • Regular monthly reporting of enrollment data monitoring crowd-out in state plans.

The guidance intended to maximize the use of state and federal SCHIP funding by ensuring that scarce resources are targeted at the populations for whom the program was originally created, and that government funds for health insurance are not merely replacing private dollars.  CMS later used the policies embodied in the August letter to reject New York’s application to extend SCHIP to children in families making up to 400% FPL—or nearly $85,000 per year.  New York and other states are suing the federal government to overturn CMS’ decision and allow further expansion of government-funded health insurance.

On May 7, 2008, CMS issued another letter to state health officials providing further clarification on the August 17, 2007 guidance.  The letter indicated that CMS would work with states to evaluate whether the states have effectively enrolled 95% of eligible children below 200% FPL before expanding their programs up the income scale.  It also noted that CMS does not expect states to apply the anti-crowd-out provisions—including the one-year waiting period for SCHIP coverage and cost-sharing requirements comparable to private insurance plans—for unborn children or children with family incomes below 250% FPL—approximately $53,000 for a family of four.  Most importantly, the letter noted that changes made to state procedures need not be applied to current enrollees—meaning that no child need be dropped off the SCHIP rolls as a result of CMS’ August 17, 2007 letter.

Recent Legislative Developments:  On May 15, 2008, the House Energy and Commerce Committee held a legislative hearing on H.R. 5998, introduced by Reps. Frank Pallone (D-NJ) and Carol Shea-Porter (D-NH).  The legislation would prohibit the Administration from implementing its August 17, 2007 guidance letter to states regarding SCHIP crowd-out.  Press reports indicate that during the hearing, advocates of the legislation argued first that it would negatively impact enrollment in the SCHIP program, and second that the Government Accountability Office (GAO) and other experts have concluded that CMS violated the Congressional Review Act by promulgating its policy as a “guidance letter,” rather than issuing a formal rule using notice-and-comment procedures.  In response, Health Subcommittee Ranking Member Nathan Deal (R-GA) noted that the guidance process allowed for more flexibility in responding to any concerns raised by states than would a formal rule.

On the same day, an amendment by Sen. Frank Lautenberg (D-NJ) to nullify the August 17 letter was attached to the wartime supplemental spending bill at a Senate Appropriations Committee markup.  This SCHIP provision was added to legislative provisions overriding seven Medicaid anti-fraud regulations issued by CMS, which were also attached to the House version (H.R. 2642) of the supplemental spending bill.

Conclusion:  Most conservatives support enrollment and funding of the SCHIP program for the populations for whom the SCHIP program was created.  That is why in December the House passed, by a 411—3 vote, legislation reauthorizing and extending the SCHIP program through March 2009.  That legislation included an additional $800 million in funding for states to ensure that all currently eligible children will continue to have access to state-based SCHIP coverage.

However, many conservatives retain concerns about the significant expansions of SCHIP contemplated by House Democrats and their impact on reducing private health insurance coverage while increasing reliance on a government-funded program.  In this vein, the Administration’s guidance to states remains consistent with the goal of ensuring that SCHIP remains targeted toward the low-income populations for which it was designed.  Therefore, many conservatives will support the reasonable attempts by CMS to bolster the integrity of the SCHIP program while retaining state plans’ flexibility, and question efforts by Congressional Democrats—and states like New York—to encourage further expansion of government-funded health insurance financed by federal taxpayers.

For further information on this issue see:

Policy Brief: SCHIP Proposals in President’s FY09 Budget

Summary:  In submitting his Fiscal Year 2009 Budget request to Congress, President Bush proposed a number of changes to the State Children’s Health Insurance Program (SCHIP).  As part of this package, the Administration requested a $19.7 billion increase in federal funding for SCHIP over the next five years.

Background:  The State Children’s Health Insurance Program, established under the Balanced Budget Act (BBA) of 1997, is a state-federal partnership originally designed to provide low-income children with health insurance—specifically, those children under age 19 from families with incomes under 200 percent of the federal poverty level (FPL), or approximately $40,000 for a family of four.  States may implement SCHIP by expanding Medicaid and/or creating a new state SCHIP program.  SCHIP received nearly $40 billion in funding over ten years as part of BBA, and legislation recently passed by Congress in December (P.L. 110-173) extended the program through March 2009 while providing additional SCHIP funds for states.

Budget Funding Proposal:  The budget proposes an additional $2.2 billion in SCHIP spending for Fiscal Year 2009, and $19.7 billion over the five year period.  The budget includes outreach grants of $50 million in 2009, and $100 million annually for the four succeeding years, for state and local governments as well as community-based organizations to engage in activities designed to increase enrollment of eligible children.

These funding levels significantly exceed the approximately $5 billion in increased funding proposed by the President in his Fiscal Year 2008 budget last year.  The proposal also exceeds the $1.8 billion in proposed Medicaid savings in Fiscal Year 2009 and $17.4 billion over the next five years achieved by realigning and simplifying the federal matching percentage for various administrative and family planning services, among other proposed changes.

Proposed SCHIP Enrollment Levels:  The Department of Health and Human Services’ (HHS) Fiscal Year 2009 Budget in Brief document notes that CMS exceeded its 2005 goal of enrolling five million children in the SCHIP program by more than a million children.  During FY2006, 4.0 million children on average were enrolled in SCHIP during any given month, and 6.6 million children were enrolled at any time during the year.

In arriving at a top-line budget number for its SCHIP proposal, the budget document also sets assumptions for future year enrollment levels.  The proposal notes the fact that the $19 billion increase in funding proposed by the Administration would fund an average of 5.6 million children in SCHIP per month, and nearly nine million children at some point over the course of a year—both of which constitute increases of nearly a third over 2006 levels.  Much of the additional enrollment and spending would stem from the outreach efforts as a result of the $450 million in grants proposed as part of the Cover the Kids initiative.

The significant increases in enrollment proposed that would result from the Administration’s higher budget request seem to be inconsistent with another document commissioned by HHS to study the number of uninsured children.  In that report, two researchers from the Urban Institute found that in 2003-2004, only 689,000 uninsured children in families with incomes under 200% FPL were eligible for, but not enrolled in, SCHIP coverage.  During the debate over SCHIP’s reauthorization last year, Administration officials utilized these data to reject calls from Congressional Democrats for $35-50 billion in increased SCHIP funding as unnecessary to fund health insurance for all targeted populations.

Focus on Originally Targeted Populations.  The budget notes a guidance letter issued by the Centers for Medicare and Medicaid Services (CMS) on August 17, 2007 designed to prevent children from dropping private insurance coverage in order to join the government-funded SCHIP—a phenomenon commonly referred to as “crowd-out.”  The letter provided several criteria for states seeking to cover children in families with incomes above 250% FPL, including a one-year waiting period of uninsurance for individuals seeking coverage and assurance that the state has enrolled 95% of children below 200% of FPL who are eligible for coverage through Medicaid or SCHIP.  The letter, which is consistent with the Administration’s stated policy of targeting federal assistance to the low-income children for whom SCHIP was originally created, advised that CMS could pursue corrective action against states that have not worked to implement the guidance within 12 months (i.e. by August 2008).  The budget proposes legislation to extend this standard to any state wishing to expand coverage beyond 200% of FPL—the level below which states were supposed to target their SCHIP coverage, according to the original BBA provisions.

In addition, the budget would tighten SCHIP eligibility by clarifying the definition of income.  This proposal would eliminate the general “income disregard” system that has caused concern for many conservatives by enabling some states to extend government-financed SCHIP coverage to children in families making above 250-300% FPL ($50,000-$60,000 for a family of four).  However, states may still create “income disregards” around specific items (e.g. food, housing, etc.).

Coverage for Adults.  While the Administration’s budget proposes to transition adults out of SCHIP, it also proposes to transition adults into Medicaid coverage.  Although the federal matching percentage is slightly lower for Medicaid than for SCHIP, some conservatives may remain concerned that the budget’s proposed transition out of a program intended for low-income children belies the fact that these adults will remain dependent on public health insurance coverage.  Moreover, this proposal echoes language in the Senate SCHIP “compromise,” which the Administration twice vetoed (H.R. 976, H.R. 3963) last year.

Conclusion:  Most conservatives support enrollment and funding of the SCHIP program for the populations for whom the SCHIP program was created.  That is why in December the House passed, by a 411—3 vote, legislation reauthorizing and extending the SCHIP program through March 2009.  That legislation included an additional $800 million in funding for states to ensure that all currently eligible children will continue to have access to state-based SCHIP coverage.

While the Administration’s Fiscal Year 2009 budget includes several reasonable proposals to ensure that SCHIP funds are targeted toward low-income children, the significant increases in proposed funding levels may give some conservatives pause.  A study funded by the Department of Health and Human Services itself confirms the impossibility of enrolling more than 1.5 million new children to enroll in SCHIP, given current eligibility guidelines.  Therefore, it is an open question whether the nearly fourfold proposed increase in SCHIP funding—coupled with $450 million in outreach grants to states, localities, and community organizations—will only serve to encourage states to expand government-funded health insurance under the aegis of covering uninsured children.

For further information on this issue see: