Tag Archives: Center for Budget and Policy Priorities

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.

Summary of President’s Budget Proposals

Overall, the budget:

  • Proposes $362 billion in savings, yet calls for $429 billion in unpaid-for spending due to the Medicare physician reimbursement “doc fix” – thus resulting in a net increase in the deficit. (The $429 billion presumes a ten year freeze of Medicare physician payments; however, the budget does NOT propose ways to pay for this new spending.)
  • Proposes few structural reforms to Medicare; those that are included – weak as they are – are not scheduled to take effect until 2017, well after President Obama leaves office.  If the proposals are so sound, why the delay?
  • Requests just over $1 billion for program management at the Centers for Medicare and Medicaid Services, of which the vast majority – $864 million – would be used to implement the health care law.
  • Requests more than half a billion dollars for comparative effectiveness research, which many may be concerned could result in government bureaucrats imposing cost-based limits on treatments.
  • Includes mandatory proposals in the budget that largely track the September deficit proposal to Congress, with a few exceptions.  The budget does NOT include proposals to reduce Medicare frontier state payments, even though this policy was included in the September proposal.  The budget also does not include recovery provisions regarding Medicare Advantage payments to insurers; however, the Administration has indicated they intend to implement this provision administratively.
  • Does not include a proposal relating to Medicaid eligibility levels included in the September submission, as that proposal was enacted into law in November (P.L. 112-56).

A full summary follows below.

 

Discretionary Spending

When compared to Fiscal Year 2012 appropriated amounts, the budget calls for the following changes in discretionary spending by major HHS divisions (tabulated by budget authority):

  • $12 million (0.5%) increase for the Food and Drug Administration – along with a separate proposed $643 million increase in FDA user fees;
  • $138 million (2.2%) decrease for the Health Services and Resources Administration;
  • $116 million (2.7%) increase for the Indian Health Service;
  • $664 million (11.5%) decrease for the Centers for Disease Control;
  • No net change in funding for the National Institutes of Health;
  • $1 billion (26.2%) increase for the discretionary portion of the Centers for Medicare and Medicaid Services program management account; and
  • $29 million (5.0%) increase for the discretionary Health Care Fraud and Abuse Control fund.

With regard to the above numbers for CDC and HRSA, note that these are discretionary numbers only.  The Administration’s budget also would allocate additional $1.25 billion in mandatory spending from the new Prevention and Public Health “slush fund” created in the health care law, likely eliminating any real budgetary savings (despite the appearance of same above).

Other Health Care Points of Note

Tax Credit:  The Treasury Green Book proposes expanding the small business health insurance tax credit included in the health care law.   Specifically, the budget would expand the number of employers eligible for the credit to include all employers with up to 50 full-time workers; firms with under 20 workers would be eligible for the full credit.  (Currently those levels are 25 and 10 full-time employees, respectively.)  The budget also changes the coordination of the two phase-outs based on a firm’s average wage and number of employees, with the changes designed to make more companies eligible for a larger credit.  According to OMB, these changes would cost $14 billion over ten years.  Many may view this proposal as a tacit admission that the credit included in the law was a failure, because its limited reach and complicated nature – firms must fill out seven worksheets to determine their eligibility – have deterred American job creators from receiving this subsidy.

Comparative Effectiveness Research:  The budget proposes a total of $599 million in funding for comparative effectiveness research.  Only $78 million of this money comes from existing funds included in the health care law – meaning the Administration has proposed discretionary spending of more than $500 million on comparative effectiveness research.  Some have previously expressed concerns that this research could be used to restrict access to treatments perceived as too costly by federal bureaucrats.  It is also worth noting that this new $520 million in research funding would NOT be subject to the anti-rationing provisions included in the health care law.  Section 218 of this year’s omnibus appropriations measure included a prohibition on HHS using funds to engage in cost-effectiveness research, a provision which this budget request would presumably seek to overturn.

Obamacare Implementation Funding and Personnel:  As previously noted, the budget includes more than $1 billion in discretionary spending increases for the Centers for Medicare and Medicaid Services, which the HHS Budget in Brief claims would be used to “continue implementing [Obamacare], including Exchanges.”  This funding would finance 256 new bureaucrats within CMS, many of whom would likely be used to implement the law.  Overall, the HHS budget proposes an increase of 1,393 full-time equivalent positions within the bureaucracy.

Specific details of the $1 billion in implementation funding include:

  • $290 million for “consumer support in the private marketplace;”
  • $549 million for “general IT systems and other support,” including funding for the federally-funded Exchange, for which the health law itself did not appropriate funding;
  • $18 million for updates to healthcare.gov;
  • $15 million to oversee the medical loss ratio regulations; and
  • $30 million for consumer assistance grants.

Exchange Funding:  The budget envisions HHS spending $1.1 billion on Exchange grants in 2013, a $180 million increase over the current fiscal year.  The health care law provides the Secretary with an unlimited amount of budget authority to fund state Exchange grants through 2015.  However, other reports have noted that the Secretary does NOT have authority to use these funds to construct a federal Exchange, in the event some states choose not to implement their own state-based Exchanges.

Abstinence Education Funding:  The budget proposes eliminating the abstinence education funding program, and converting those funds into a new pregnancy prevention program.

 

Medicare Proposals (Total savings of $292.2 Billion)

Bad Debts:  Reduces bad debt payments to providers – for unpaid cost-sharing owed by beneficiaries – from 70 percent down to 25 percent over three years, beginning in 2013.  The Fiscal Commission had made similar recommendations in its final report.  Saves $35.9 billion.

Medical Education Payments:  Reduces the Indirect Medical Education adjustment paid to teaching hospitals by 10 percent beginning in 2014, saving $9.7 billion.  Previous studies by the Medicare Payment Advisory Committee (MedPAC) have indicated that IME payments to teaching hospitals may be greater than the actual costs the hospitals incur.

Rural Payments:  Reduces critical access hospital payments from 101% of costs to 100% of costs, saving $1.4 billion, and prohibits hospitals fewer than 10 miles away from the nearest hospital from receiving a critical access hospital designation, saving $590 million.  The budget does NOT include a proposal to end add-on payments for providers in frontier states, which was included in the President’s September deficit proposal.

Post-Acute Care:  Reduces various acute-care payment updates (details not specified) during the years 2013 through 2022, saving $56.7 billion – a significant increase compared to the $32.5 billion in savings under the President’s September deficit proposal.  Equalizes payment rates between skilled nursing facilities and inpatient rehabilitation facilities, saving $2 billion.  Increases the minimum percentage of inpatient rehabilitation facility patients that require intensive rehabilitation from 60 percent to 75 percent, saving $2.3 billion.  Reduces skilled nursing facility payments by up to 3%, beginning in 2015, for preventable readmissions, saving $2 billion.

Pharmaceutical Price Controls:  Expands Medicaid price controls to dual eligible and low-income subsidy beneficiaries participating in Part D, saving $155.6 billion according to OMB.  Some have expressed concerns that further expanding government-imposed price controls to prescription drugs could harm innovation and the release of new therapies that could help cure diseases.

Anti-Fraud Provisions:  Assumes $450 million in savings from various anti-fraud provisions, including limiting the discharge of debt in bankruptcy proceedings associated with fraudulent activities.

EHR Penalties:  Re-directs Medicare reimbursement penalties against physicians who do not engage in electronic prescribing beginning in 2020 back into the Medicare program.  The “stimulus” legislation that enacted the health IT provisions had originally required that penalties to providers be placed into the Medicare Improvement Fund; the budget would instead re-direct those revenues into the general fund, to finance the “doc fix” and related provisions.  OMB now scores this proposal as saving $590 million; when included in last year’s budget back in February, these changes were scored as saving $3.2 billion.

Imaging:  Reduces imaging payments by assuming a higher level of utilization for certain types of equipment, saving $400 million.  Also imposes prior authorization requirements for advanced imaging; no savings are assumed, a change from the September deficit proposal, which said prior authorization would save $900 million.

Additional Means Testing:  Increases means tested premiums under Parts B and D by 15%, beginning in 2017.  Freezes the income thresholds at which means testing applies until 25 percent of beneficiaries are subject to such premiums.  Saves $27.6 billion over ten years, and presumably more thereafter, as additional seniors would hit the means testing threshold, subject them to higher premiums.

Medicare Deductible Increase:  Increases Medicare Part B deductible by $25 in 2017, 2019, and 2021 – but for new beneficiaries only; “current beneficiaries or near retirees [not defined] would not be subject to the revised deductible.”  Saves $2 billion.

Home Health Co-Payment:  Beginning in 2017, introduces a home health co-payment of $100 per episode for new beneficiaries only, in cases where an episode lasts five or more visits and is NOT proceeded by a hospital stay.  MedPAC has previously recommended introducing home health co-payments as a way to ensure appropriate utilization.  Saves $350 million.

Medigap Surcharge:  Imposes a Part B premium surcharge equal to about 15 percent of the average Medigap premium – or about 30 percent of the Part B premium – for seniors with Medigap supplemental insurance that provides first dollar coverage.  Applies beginning in 2017 to new beneficiaries only.  A study commissioned by MedPAC previously concluded that first dollar Medigap coverage induces beneficiaries to consume more medical services, thus increasing costs for the Medicare program and federal taxpayers.  Saves $2.5 billion.

Lower Caps on Medicare Spending:  Section 3403 of the health care law established an Independent Payment Advisory Board tasked with limiting Medicare spending to the growth of the economy plus one percentage point (GDP+1) in 2018 and succeeding years.  The White House proposal would reduce this target to GDP+0.5 percent.  This approach has two potential problems:

  • First, under the Congressional Budget Office’s most recent baseline, IPAB recommendations would not be triggered at all – so it’s unclear whether the new, lower target level would actually generate measurable budgetary savings.  (In August 2010, CBO concluded an IPAB with an overall cap of GDP+1 would yield $13.8 billion in savings through 2020 – not enough to make a measurable impact on a program spending $500 billion per year.)
  • Second, the Medicare actuary has previously written that the spending adjustments contemplated by IPAB and the health care law “are unlikely to be sustainable on a permanent annual basis” and “very challenging” – problems that would be exacerbated by utilizing a slower target rate for Medicare spending growth.

According to the budget, this proposal would NOT achieve additional deficit savings.

Medicaid and Other Health Proposals (Total savings of $70.4 Billion)

Medicaid Provider Taxes:  Reduces limits on Medicaid provider tax thresholds, beginning in 2015; the tax threshold would be reduced over a three year period, to 3.5 percent in 2017 and future years.  State provider taxes are a financing method whereby states impose taxes on medical providers, and use these provider tax revenues to obtain additional federal Medicaid matching funds, thereby increasing the federal share of Medicaid expenses paid while decreasing the state share of expenses.  The Tax Relief and Health Care Act of 2006, enacted by a Republican Congress, capped the level of Medicaid provider taxes, and the Bush Administration proposed additional rules to reform Medicaid funding rules – rules that were blocked by the Democrat-run 110th Congress.  However, there is bipartisan support for addressing ways in which states attempt to “game” the Medicaid system, through provider taxes and other related methods, to obtain unwarranted federal matching funds – the liberal Center for Budget and Policy Priorities previously wrote about a series of “Rube Goldberg-like accounting arrangements” that “do not improve the quality of health care provided” and “frequently operate in a manner that siphons extra federal money to state coffers without affecting the provision of health care.”  This issue was also addressed in the fiscal commission’s report, although the commission exceeded the budget proposals by suggesting that Congress enact legislation “restricting and eventually eliminating” provider taxes, saving $44 billion.  OMB scores this proposal as saving $21.8 billion.

Blended Rate:  Proposes “replac[ing]…complicated federal matching formulas” in Medicaid “with a single matching rate specific to each state that automatically increases if a recession forces enrollment and state costs to rise.”  Details are unclear, but the Administration claims $17.9 billion in savings from this proposal – much less than the $100 billion figure bandied about in previous reports last summer.  It is also worth noting that the proposal could actually INCREASE the deficit, if a prolonged recession triggers the automatic increases in the federal Medicaid match referenced in the proposal.  On a related note, the budget once again ignores the governors’ multiple requests for flexibility from the mandates included in the health care law – unfunded mandates on states totaling at least $118 billion.

Transitional Medical Assistance/QI Program:  Provides for temporary extensions of the Transitional Medical Assistance program, which provides Medicaid benefits for low-income families transitioning from welfare to work, along with the Qualifying Individual program, which provides assistance to low-income seniors in paying Medicare premiums.  The extensions cost $815 million and $1.7 billion, respectively.

Limit Durable Medical Equipment Reimbursement:  Caps Medicaid reimbursements for durable medical equipment (DME) at Medicare rates, beginning in 2013.  The health care law extended and expanded a previous Medicare competitive bidding demonstration project included in the Medicare Modernization Act, resulting in savings to the Medicare program.  This proposal, by capping Medicaid reimbursements for DME at Medicare levels, would attempt to extend those savings to the Medicaid program.  OMB now scores this proposal as saving $3 billion; when included in the President’s budget last year, these changes were scored as saving $6.4 billion.

Rebase Medicaid Disproportionate Share Hospital Payments:  In 2021 and 2022, reallocates Medicaid DSH payments to hospitals treating low-income patients, based on states’ actual 2020 allotments (as amended and reduced by the health care law).  Saves $8.3 billion.

Medicaid Anti-Fraud Savings:  Assumes $3.2 billion in savings from a variety of Medicaid anti-fraud provisions, largely through tracking and enforcement of various provisions related to pharmaceuticals.  Included in this amount are proposals that would remove exceptions to the requirement that Medicaid must reject payments when another party is liable for a medical claim.

Flexibility on Benchmark Plans:  Proposes some new flexibility for states to require Medicaid “benchmark” plan coverage for non-elderly, non-disabled adults – but ONLY those with incomes above 133 percent of the federal poverty level (i.e., NOT the new Medicaid population obtaining coverage under the health care law).  No savings assumed.

“Pay-for-Delay:”  Prohibits brand-name pharmaceutical manufacturers from entering into arrangements that would delay the availability of new generic drugs.  Some Members have previously expressed concerns that these provisions would harm innovation, and actually impede the incentives to generic manufacturers to bring cost-saving generic drugs on the market.  OMB scores this proposal as saving $11 billion.

Follow-on Biologics:  Reduces to seven years the period of exclusivity for follow-on biologics.  Current law provides for a twelve-year period of exclusivity, based upon an amendment to the health care law that was adopted on a bipartisan basis in both the House and Senate (one of the few substantive bipartisan amendments adopted).  Some Members have expressed concern that reducing the period of exclusivity would harm innovation and discourage companies from developing life-saving treatments.  OMB scores this proposal as saving $3.8 billion.

FEHB Contracting:  Proposes streamlining pharmacy benefit contracting within the Federal Employee Health Benefits program, by centralizing pharmaceutical benefit contracting within the Office of Personnel Management (OPM).  Some individuals, noting that OPM is also empowered to create “multi-state plans” as part of the health care overhaul, may be concerned that these provisions could be part of a larger plan to make OPM the head of a de facto government-run health plan.  OMB scores this proposal as saving $1.7 billion.

Prevention “Slush Fund:”  Reduces spending by $4 billion on the Prevention and Public Health Fund created in the health care law.  Some Members have previously expressed concern that this fund would be used to fund projects like jungle gyms and bike paths, questionable priorities for the use of federal taxpayer dollars in a time of trillion-dollar deficits.

State Waivers:  Accelerates from 2017 to 2014 the date under which states can submit request for waivers of SOME of the health care law’s requirements to HHS.  While supposedly designed to increase flexibility, even liberal commentators have agreed that under the law’s state waiver programcritics of Obama’s proposal have a point: It wouldn’t allow to enact the sorts of health care reforms they would prefer” and thatconservatives can’t do any better – at least not under these rules.”  The proposal states that “the Administration is committed to the budget neutrality of these waivers;” however, the plan allocates $4 billion in new spending “to account for the possibility that CBO will estimate costs for this proposal.”

Implementation “Slush Fund:”  Proposes $400 million in new spending for HHS to implement the proposals listed above.

The Myth of “Market Power”

The Center for Budget and Policy Priorities released a preliminary analysis of the Ryan-Wyden Medicare proposal late last week, and (unsurprisingly) outlined reasons to oppose it.  But included in their brief was an interesting line: “Ryan-Wyden would deny Medicare much of its ability to serve as a leader in controlling costs by depriving it of the considerable market power it secures from its large enrollment.”  The “market power” argument is one liberals toss around frequently, claiming Medicare can use its power to get “better bargains.”

But there’s one easy question that exposes the fallacy of this liberal argument.  If anyone tries to talk about preserving or expanding Medicare’s “market power,” ask them this: Would you have any objections if drug companies, or major hospitals, decided to drop out of the Medicare program, or all government-run programs?  Recent experience suggests that Democrats will NOT allow providers to drop out of government-run programs – in Massachusetts, Gov. Deval Patrick proposed “solving” the problem of physician access by forcing doctors to participate in government-organized insurance plans as a condition of licensure.  That’s NOT a market – that’s government coercion.  And “leveraging market power” is just a euphemism by the left for the government dictating prices to medical providers.

Liberals’ incoherence on “market power” is actually quite stunning:

  • Zeke Emanuel wrote a New York Times opinion piece yesterday on premium support (about which more soon) stating that when it comes to Medicare, “We Must Cut Costs, Not Shift Them.”  The only problem with his logic is that one 2008 study found that Medicare and other government-run programs ALREADY shift costs from the public sector to the private sector – to the tune of nearly $1,800 per family per year.
  • Ezra Klein last week alleged that Medicare Advantage compete against government-run Medicare, apparently unaware that the structure of the Medicare Advantage program means plans actually compete against themselves, and have ZERO incentive to compete against government-run Medicare on price.
  • Then there’s Paul Krugman, who says that “Patients Are Not Consumers.”  Well, if patients are not consumers, then how can there be a “market” for Medicare to exercise its “power” over?  The only other potential “buyers” under Krugman’s logic are government bureaucrats – and does anyone think some government officials sitting in Washington offices constitute a “market” in any realistic sense of the word?

The fact of the matter is, many conservatives believe that there is certainly NOT a market in health care – or not enough of one anyway – and that comprehensive entitlement reform should look to change that fact.  And their rhetoric notwithstanding, the policy positions of most liberals prove that their talk about increasing “market power” is really just an excuse for government to increase its dominance over everything in its path.

Did Liberals Admit Obamacare Will Increase the Deficit?

The Center for Budget and Policy Priorities released a report earlier this week that shed some interesting light on Obamacare’s claims of deficit reduction.  The report spends nearly 20 pages attacking Medicare premium support proposals for creating a “two-tier health care system,” because in CBPP’s view the inflation adjustments in such proposals would not keep up with rising health costs.  Conversely, the report claims that under Obamacare, “the premium credits that low- and moderate-income families will receive to help buy coverage through the new health insurance exchanges are designed to keep pace with health insurance costs, at least for the first five years.”  That sentence is followed by this doozy of a footnote:

“Starting in 2019, the growth in premium credits is limited if premiums grow faster than the CPI.  Congress enacted this provision as part of the Health Care and Education Affordability Reconciliation Act of 2010 in order to hold down the cost of health reform in later decades, but many analysts believe that it will eventually have to be modified.”

In other words, the liberal CBPP cites as conventional wisdom the belief that Obamacare’s premium subsidies will have to be increased even further – thus reducing, or likely eliminating entirely, all of the law’s supposed “savings.”  CBPP was forced to make this striking admission because the inflation adjustments for premium subsidies in Obamacare are similar, and possibly equal, to the inflation adjustments for Medicare recipients under the House Republican budget’s premium support model.    That fact leaves CBPP on the horns of a dilemma, as either:

  • Premium subsidies under Obamacare will be inadequate – meaning individuals will be FORCED to buy a policy they cannot afford*; or
  • Obamacare will require massive new subsidies ON TOP OF the trillions already approved, destroying the mirage of deficit-neutrality Democrats purport to claim; or
  • The inflation adjustments in the House Republican proposal for Medicare are just as sustainable as Obamacare’s premium subsidies, and the left’s attempt to claim otherwise represents scare tactics and political posturing.

As the saying goes, that’s not class warfare.  That’s math.

 
* It’s worth reiterating that Republican proposals for Medicare premium support do NOT involve coercing seniors to buy a product, unlike Obamacare’s constitutionally dubious individual mandate.

The President’s Shrinking Entitlement Savings

The President’s deficit proposal released this morning claims to achieve $320 billion in deficit savings.  As we’ve previously noted, given the size of our entitlement programs, that’s a comparatively insignificant amount – barely enough to finance a long-term “doc fix,” let alone make Medicare and Medicaid solvent for the long term.  But what’s interesting is how the size of the health care savings put forward by the President has actually SHRUNK over time.  The White House’s April “deficit framework” (i.e., a speech) claimed to achieve $340 billion in savings – $20 billion MORE than this morning’s proposal.

So what exactly prompted the President to LOWER his sights for entitlement savings over the last five months?  Was it the unprecedented downgrade of America’s debt rating?  The stock market swoon that quickly followed?  The chaos in Europe as that continent struggles to achieve fiscal discipline and avert a sovereign default crisis?  Or was it the event that happens on the Tuesday after the first Monday in November every fourth year?  You be the judge…

All that said, a detailed summary of the President’s (new) proposal follows below.  Keep in mind that Administration/OMB estimates may vary significantly from CBO scores, so remember that your budgetary mileage may vary.  (All scores are over a ten-year period unless otherwise indicated.)
 

Medicare Proposals (Total savings of $248 Billion)

Bad Debts:  Reduces bad debt payments to providers – for unpaid cost-sharing owed by beneficiaries – from 70 percent down to 25 percent over three years, beginning in 2013.  The Fiscal Commission had made similar recommendations in its final report.  Saves $20.2 billion.

Medical Education Payments:  Reduces the Indirect Medical Education adjustment paid to teaching hospitals by 10 percent beginning in 2013, saving $9.1 billion.  Previous studies by the Medicare Payment Advisory Committee (MedPAC) have indicated that IME payments to teaching hospitals may be greater than the actual costs the hospitals incur.

Rural Payments:  Ends add-on payments for providers in frontier states, saving $2.1 billion.  Reduces critical access hospital payments from 101% of costs to 100% of costs, saving $1 billion, and prohibits hospitals fewer than 10 miles away from the nearest hospital from receiving a critical access hospital designation, saving $3 billion.

Post-Acute Care:  Reduces various acute-care payment updates (details not specified) during the years 2014 through 2021, saving $32.5 billion.  Equalizes payment rates between skilled nursing facilities and inpatient rehabilitation facilities, saving $4.5 billion.  Increases the minimum percentage of inpatient rehabilitation facility patients that require intensive rehabilitation from 60 percent to 75 percent, saving $2.6 billion.  Reduces skilled nursing facility payments by up to 3%, beginning in 2015, for preventable readmissions, saving $2 billion.

Pharmaceutical Price Controls:  Expands Medicaid price controls to dual eligible and low-income subsidy beneficiaries participating in Part D, saving $135 billion according to OMB.  However, according to the Congressional Budget Office’s March 2011 Budget Options (Option 25), this proposal would generate smaller savings ($112 billion).  Some have expressed concerns that further expanding government-imposed price controls to prescription drugs could harm innovation and the release of new therapies that could help cure diseases.

MA Repayment Provisions:  Recovers payments to insurers participating in the Medicare Advantage (MA) program.  MA plans are currently paid on a prospective basis, with those payments adjusted according to the severity of beneficiaries’ ill health.  Some sample audits have discovered instances where plans could not retrospectively produce the necessary documentation to warrant the prospective coding adjustment that some beneficiaries received.  The deficit plan would apply this adjustment, currently contemplated for some beneficiaries based on the sample audit, to ALL beneficiaries.  OMB now scores this proposal as saving $2.3 billion; when included in the President’s budget back in February, these changes were scored as saving $6.2 billion.

Anti-Fraud Provisions:  Assumes $600 million in savings from various anti-fraud provisions, including limiting the discharge of debt in bankruptcy proceedings associated with fraudulent activities.

EHR Penalties:  Re-directs Medicare reimbursement penalties against physicians who do not engage in electronic prescribing beginning in 2020 back into the Medicare program.  The “stimulus” legislation that enacted the health IT provisions had originally required that penalties to providers be placed into the Medicare Improvement Fund; the budget would instead re-direct those revenues into the general fund, to finance the “doc fix” and related provisions.  OMB now scores this proposal as saving $500 million; when included in the President’s budget back in February, these changes were scored as saving $3.2 billion.

Imaging:  Reduces imaging payments by assuming a higher level of utilization for certain types of equipment, saving $400 million.  Also imposes prior authorization requirements for advanced imaging, saving $900 million.

Additional Means Testing:  Increases means tested premiums under Parts B and D by 15%, beginning in 2017.  Freezes the income thresholds at which means testing applies until 25 percent of beneficiaries are subject to such premiums.  Saves $20 billion over ten years, and presumably more thereafter, as additional seniors would hit the means testing threshold, subject them to higher premiums.

Medicare Deductible Increase:  Increases Medicare Part B deductible by $25 in 2017, 2019, and 2021 – but for new beneficiaries only; “current beneficiaries or near retirees [not defined] would not be subject to the revised deductible.”  Saves $1 billion.

Home Health Co-Payment:  Introduces a home health co-payment of $100 per episode for new beneficiaries only, in cases where an episode lasts five or more visits and is NOT proceeded by a hospital stay.  MedPAC has previously recommended introducing home health co-payments as a way to ensure appropriate utilization.  Saves $400 million.

Medigap Surcharge:  Imposes a Part B premium surcharge equal to about 15 percent of the average Medigap premium – or about 30 percent of the Part B premium – for seniors with Medigap supplemental insurance that provides first dollar coverage.  Applies beginning in 2017 to new beneficiaries only.  A study commissioned by MedPAC previously concluded that first dollar Medigap coverage induces beneficiaries to consume more medical services, thus increasing costs for the Medicare program and federal taxpayers.  Saves $2.5 billion.

Lower Caps on Medicare Spending:  Section 3403 of the health care law established an Independent Payment Advisory Board tasked with limiting Medicare spending to the growth of the economy plus one percentage point (GDP+1) in 2018 and succeeding years.  The White House proposal would reduce this target to GDP+0.5 percent.  This approach has two potential problems:

  • First, under the Congressional Budget Office’s most recent baseline, IPAB recommendations would not be triggered at all – so it’s unclear whether the new, lower target level would actually generate measurable budgetary savings.  (In August 2010, CBO concluded an IPAB with an overall cap of GDP+1 would yield $13.8 billion in savings through 2020 – not enough to make a measurable impact on a program spending $500 billion per year.)
  • Second, the Medicare actuary has previously written that the spending adjustments contemplated by IPAB and the health care law “are unlikely to be sustainable on a permanent annual basis” and “very challenging” – problems that would be exacerbated by utilizing a slower target rate for Medicare spending growth.

According to the Administration document, this proposal would NOT achieve additional deficit savings.

Medicaid and Other Health Proposals (Total savings of $72 Billion)

Medicaid Provider Taxes:  Reduces limits on Medicaid provider tax thresholds, beginning in 2015; the tax threshold would be reduced over a three year period, to 3.5 percent in 2017 and future years.  State provider taxes are a financing method whereby states impose taxes on medical providers, and use these provider tax revenues to obtain additional federal Medicaid matching funds, thereby increasing the federal share of Medicaid expenses paid while decreasing the state share of expenses.  The Tax Relief and Health Care Act of 2006, enacted by a Republican Congress, capped the level of Medicaid provider taxes, and the Bush Administration proposed additional rules to reform Medicaid funding rules – rules that were blocked by the Democrat-run 110th Congress.  However, there is bipartisan support for addressing ways in which states attempt to “game” the Medicaid system, through provider taxes and other related methods, to obtain unwarranted federal matching funds – the liberal Center for Budget and Policy Priorities previously wrote about a series of “Rube Goldberg-like accounting arrangements” that “do not improve the quality of health care provided” and “frequently operate in a manner that siphons extra federal money to state coffers without affecting the provision of health care.”  This issue was also addressed in the fiscal commission’s report, although the commission exceeded the budget proposals by suggesting that Congress enact legislation “restricting and eventually eliminating” provider taxes, saving $44 billion.  OMB now scores this proposal as saving $26.3 billion; when included in the President’s budget back in February, these changes were scored as saving $18.4 billion.

Blended Rate:  Proposes “replac[ing]…complicated federal matching formulas” in Medicaid “with a single matching rate specific to each state that automatically increases if a recession forces enrollment and state costs to rise.”  Details are unclear, but the Administration claims $14.9 billion in savings from this proposal – much less than the $100 billion figure bandied about in previous reports this summer.  It is also worth noting that the proposal could actually INCREASE the deficit, if a prolonged recession triggers the automatic increases in the federal Medicaid match referenced in the proposal.  On a related note, the deficit plan once again ignored the governors’ multiple requests for flexibility from the mandates included in the health care law – unfunded mandates on states totaling at least $118 billion.

Limit Durable Medical Equipment Reimbursement:  Caps Medicaid reimbursements for durable medical equipment (DME) at Medicare rates, beginning in 2013.  The health care law extended and expanded a previous Medicare competitive bidding demonstration project included in the Medicare Modernization Act, resulting in savings to the Medicare program.  This proposal, by capping Medicaid reimbursements for DME at Medicare levels, would attempt to extend those savings to the Medicaid program.  OMB now scores this proposal as saving $4.2 billion; when included in the President’s budget back in February, these changes were scored as saving $6.4 billion.

Third Party Liability:  Removes exceptions to the requirement that Medicaid must reject payments when another party is liable for a medical claim, saving $1.3 billion.

Rebase Medicaid Disproportionate Share Hospital Payments:  In 2021, reallocates Medicaid DSH payments to hospitals treating low-income patients, based on states’ actual 2020 allotments (as amended and reduced by the health care law).  Saves $4.1 billion.

Medicaid Anti-Fraud Savings:  Assumes $110 million in savings from a variety of Medicaid anti-fraud provisions, largely through tracking and enforcement of various provisions related to pharmaceuticals.

Amend MAGI Definition:  Amends the health care law to include Social Security benefits in the new definition of Modified Adjusted Gross Income used to determine eligibility for Medicaid benefits.  As previously reported, this “glitch” in the law would make millions of early retirees – who receive a large portion of their income from Social Security – eligible for free taxpayer-funded benefits, and would discourage work by providing greater subsidies to those relying on Social Security, as opposed to wage earnings, for their income.  Saves $14.6 billion.

Flexibility on Benchmark Plans:  Proposes some new flexibility for states to require Medicaid “benchmark” plan coverage for non-elderly, non-disabled adults – but ONLY those with incomes above 133 percent of the federal poverty level (i.e., NOT the new Medicaid population obtaining coverage under the health care law).  No savings assumed.

“Pay-for-Delay:”  Prohibits brand-name pharmaceutical manufacturers from entering into arrangements that would delay the availability of new generic drugs.  Some Members have previously expressed concerns that these provisions would harm innovation, and actually impede the incentives to generic manufacturers to bring cost-saving generic drugs on the market.  OMB now scores this proposal as saving $2.7 billion; when included in the President’s budget back in February, these changes were scored as saving $8.8 billion.

Follow-on Biologics:  Reduces to seven years the period of exclusivity for follow-on biologics.  Current law provides for a twelve-year period of exclusivity, based upon an amendment to the health care law that was adopted on a bipartisan basis in both the House and Senate (one of the few substantive bipartisan amendments adopted).  Some Members have expressed concern that reducing the period of exclusivity would harm innovation and discourage companies from developing life-saving treatments.  OMB now scores this proposal as saving $3.5 billion; when included in the President’s budget back in February, these changes were scored as saving $2.3 billion.

FEHB Contracting:  Proposes streamlining pharmacy benefit contracting within the Federal Employee Health Benefits program, by centralizing pharmaceutical benefit contracting within the Office of Personnel Management (OPM).  Some individuals, noting that OPM is also empowered to create “multi-state plans” as part of the health care overhaul, may be concerned that these provisions could be part of a larger plan to make OPM the head of a de facto government-run health plan.  OMB now scores this proposal as saving $1.6 billion; when included in the President’s budget back in February, these changes were scored as saving $1.8 billion.

Prevention “Slush Fund:”  Reduces spending by $3.5 billion on the Prevention and Public Health Fund created in the health care law.  Some Members have previously expressed concern that this fund would be used to fund projects like jungle gyms and bike paths, questionable priorities for the use of federal taxpayer dollars in a time of trillion-dollar deficits.

State Waivers:  Accelerates from 2017 to 2014 the date under which states can submit request for waivers of SOME of the health care law’s requirements to HHS.  While supposedly designed to increase flexibility, even liberal commentators have agreed that under the law’s state waiver programcritics of Obama’s proposal have a point: It wouldn’t allow to enact the sorts of health care reforms they would prefer” and thatconservatives can’t do any better – at least not under these rules.”  The proposal states that “the Administration is committed to the budget neutrality of these waivers;” however, the plan allocates $4 billion in new spending “to account for the possibility that CBO will estimate costs for this proposal.”

Implementation “Slush Fund:”  Proposes $400 million in new spending for HHS to implement the proposals listed above.

White House Deficit Proposal: Only $42 Billion in Net Deficit Savings

Based on preliminary press reports, Peggy Lee might have written the President’s deficit reduction proposal – because many observers, upon reading it, may be asking “Is That All There Is?”

The White House fact sheet claims $340 billion in savings over ten years – “an amount sufficient to fully pay to reform [sic] the Medicare Sustainable Growth Rate (SGR) physician payment formula while still reducing the deficit.”  However, the President’s budget estimated the cost of a ten-year “doc fix” at $370 billion, and the Congressional Budget Office estimates the net cost at $297.6 billion over ten years.  Assuming Congress utilizes the President’s proposed savings to fund a “doc fix,” the NET deficit reduction from the White House’s health proposals will be $42.4 billion – this when the Medicare Hospital Insurance Trust Fund is scheduled to be insolvent in nine short years according to the Congressional Budget Office.  And the proposal does NOTHING to reduce spending on the $2.6 trillion new entitlement created under the health care law.

A slightly longer summary of the proposal’s health care details (such as they are available) follows below – they include the new and old (i.e., those included in the President’s 2012 budget submission) proposals.  Details are not available for many of the proposals – most notably a new plan to reform Medicaid matching rates – as well as other efforts regarding delivery system reform.

However, the top-line numbers on the net deficit reduction from the health provisions are sufficient to disappoint those calling for the President to lead on comprehensive entitlement reform – because a “Where’s the Beef?” proposal will do nothing to solve the looming fiscal crises facing Medicare and Medicaid.

 

The New

Lower Caps on Medicare Spending:  Section 3403 of the health care law established an Independent Payment Advisory Board tasked with limiting Medicare spending to the growth of the economy plus one percentage point (GDP+1) in 2018 and succeeding years.  The White House proposal would reduce this target to GDP+0.5 percent.  This approach has two potential problems:

  • First, under the Congressional Budget Office’s most recent baseline, IPAB recommendations would not be triggered at all – so it’s unclear whether the new, lower target level would actually generate measurable budgetary savings.  (In August 2010, CBO concluded an IPAB with an overall cap of GDP+1 would yield $13.8 billion in savings through 2020 – not enough to make a measurable impact on a program spending $500 billion per year.)
  • Second, the Medicare actuary has previously written that the spending adjustments contemplated by IPAB and the health care law “are unlikely to be sustainable on a permanent annual basis” and “very challenging” – problems that would be exacerbated by utilizing a slower target rate for Medicare spending growth.

Expanded Price Controls:  Expands Medicaid price controls to dual eligible beneficiaries participating in Part D, which according to the Congressional Budget Office’s March 2011 Budget Options (Option 25) would generate $112 billion in savings.  Some have expressed concerns that further expanding government-imposed price controls to prescription drugs could harm innovation and the release of new therapies that could help cure diseases.

Medicaid Restructuring:  Proposes “replac[ing] the current complicated federal matching formulas” in Medicaid “with a single matching rate for all program spending that rewards states for efficiency and automatically increases if a recession forces enrollment and state costs to rise.”  Details and potential budgetary impacts are unclear, but it’s worth noting that automatic increases during times of economic hardship could INCREASE budget deficits rather than reducing them.  The proposal also discusses receiving recommendations from governors “for ways to reform and strengthen Medicaid,” but ignored the governors’ multiple requests for flexibility from the mandates included in the health care law – unfunded mandates on states totaling at least $118 billion.

The Old

“Pay-for-Delay:”  Prohibits brand-name pharmaceutical manufacturers from entering into arrangements that would delay the availability of new generic drugs.  Some Members have previously expressed concerns that these provisions would harm innovation, and actually impede the incentives to generic manufacturers to bring cost-saving generic drugs on the market.

Limit Durable Medical Equipment Reimbursement:  Caps Medicaid reimbursements for durable medical equipment (DME) at Medicare rates.  The health care law extended and expanded a previous Medicare competitive bidding demonstration project included in the Medicare Modernization Act, resulting in savings to the Medicare program.  This proposal, by capping Medicaid reimbursements for DME at Medicare levels, would attempt to extend those savings to the Medicaid program.

Medicaid Provider Taxes:  Reduces limits on Medicaid provider tax thresholds, beginning in 2015; the tax threshold would be reduced over a three year period, to 3.5 percent in 2017 and future years.  State provider taxes are a financing method whereby states impose taxes on medical providers, and use these provider tax revenues to obtain additional federal Medicaid matching funds, thereby increasing the federal share of Medicaid expenses paid while decreasing the state share of expenses.  The Tax Relief and Health Care Act of 2006, enacted by a Republican Congress, capped the level of Medicaid provider taxes, and the Bush Administration proposed additional rules to reform Medicaid funding rules – rules that were blocked by the Democrat-run 110th Congress.  However, there is bipartisan support for addressing ways in which states attempt to “game” the Medicaid system, through provider taxes and other related methods, to obtain unwarranted federal matching funds – the liberal Center for Budget and Policy Priorities previously wrote about a series of “Rube Goldberg-like accounting arrangements” that “do not improve the quality of health care provided” and “frequently operate in a manner that siphons extra federal money to state coffers without affecting the provision of health care.”  This issue was also addressed in the fiscal commission’s report, although the commission exceeded the budget proposals by suggesting that Congress enact legislation “restricting and eventually eliminating” provider taxes, saving $44 billion.  As proposed in the budget, the above provisions would save $18.4 billion.

Potential Fiscal Impact

Small Net Savings:  The White House fact sheet claims $340 billion in savings over ten years – “an amount sufficient to fully pay to reform [sic] the Medicare Sustainable Growth Rate (SGR) physician payment formula while still reducing the deficit.”  However, the President’s budget estimated the cost of a ten-year “doc fix” at $370 billion, and the Congressional Budget Office estimates the net cost at $297.6 billion over ten years.  Assuming Congress utilizes the President’s proposed savings to fund a “doc fix,” that means the NET deficit reduction from the White House’s health proposals will be $42.4 billion – this when the Medicare Hospital Insurance Trust Fund is scheduled to be insolvent in nine short years according to the Congressional Budget Office.

Misinformation on Premium Increases

At the Finance Committee hearing, the witness from the Center for Budget and Policy Priorities alleged that the Congressional Budget Office claimed the health law would lower premiums.  But in reality, the Congressional Budget Office found that the Senate bill would RAISE premiums by an average $2,100 per family.  While the Administration claims that the Exchanges would reduce costs on their own, CBO found that premiums will go up because individuals would be FORCED to buy richer policies.  In other words, the increased mandates in the law – because Democrats and government bureaucrats believe that some Americans’ coverage is “insufficient” – will RAISE premiums.  Even President Obama admitted at the White House summit last February that he was incorrect in his exchanges on this matter with Sen. Alexander: “Yes, I’m paying 10 to 13 percent more” for insurance.

Setting the Facts Straight on Medicaid Costs

The Center for Budget and Policy Priorities is out this morning with a report claiming that last month’s Hatch/Upton report estimating new unfunded mandates of at least $118 billion is inflated.  The CBPP report criticizes the $118 billion finding on several grounds.  It attacks the Republican compilation of state-based estimates for assuming most or all individuals eligible for Medicaid will enroll in the program – raising questions about why a liberal group wants to assume people will NOT obtain health coverage.  And it also criticizes state-based estimates for assuming Medicaid physician reimbursements will increase due to the law – even though many Medicaid beneficiaries have access problems already, and most programs are not equipped to handle 15-25 million newly enrolled at current payment levels, and even though CMS could be on the cusp of REQUIRING state programs to meet minimum reimbursement levels (See below.).

What’s most interesting though is what the CBPP report OMITS about states’ Medicaid costs – namely, two important ways in which most reports have UNDER-estimated state obligations under the health care law:

CBO May Have Underestimated Medicaid Enrollment Due to An Incorrect Definition of Income

Medicare actuary Rick Foster’s testimony to the House Budget Committee hearing raised this issue, in a significant footnote on page 10:

“In addition to the higher level of allowable income, the Affordable Care Act expands eligibility to people under age 65 who have no other qualifying factors that would have made them eligible for Medicaid under prior law, such as being under age 18, disabled, pregnant, or parents of eligible children.  The estimated increase in Medicaid enrollment is based on an assumption that Social Security benefits would continue to be included in the definition of income for determining Medicaid eligibility.  If a strict application of the modified adjusted gross income definition is instead applied, as may be intended by the Act, then an additional 5 million or more Social Security early retirees would be potentially eligible for Medicaid coverage.”

In other words, if the new definition of income introduced in the law excludes Social Security benefits – and the actuary believes it may – upwards of an additional 5 million early retirees (along with some Social Security disability recipients) would be forced on to the Medicaid rolls.  While officials at the Centers for Medicare and Medicaid Services have yet to opine on the official interpretation of “income” as defined by the law, it’s difficult to see how CMS could change in regulations definitions of income that are based in statute (i.e., the health care law and the Internal Revenue Code), meaning the actuary’s footnote is actually a possible, even likely, scenario.

Staff have confirmed that the Congressional Budget Office did NOT consider this possibility when scoring the bill last March – meaning that this one definitional interpretation could have a significant budgetary impact.  (Likewise, the Urban Institute study cited by CBPP did not assume that Social Security early retirees would be forced into Medicaid, meaning its estimates could well be understated also – see the footnote on page 34.)  An additional 5 million individuals added to the Medicaid rolls would increase by nearly one-third the CBO’s estimate of 16 million individuals covered under the Medicaid expansion.  Moreover, because many of these 5 million additional enrollees would be early retirees (and therefore older and sicker than the population as a whole), CBO’s estimated $60 billion cost to states for the Medicaid expansion could skyrocket.

 

Washington Is Planning to Impose NEW Reimbursement Mandates on State Medicaid Programs Later This Year

In a filing with the Supreme Court dated December 2010, the Justice Department petitioned (unsuccessfully) for the Court NOT to hear a case from California in which several patient advocate and provider groups had sued the state regarding what they view as improperly low Medicaid physician reimbursement levels.  The filing merits particular attention because of the reasons the government asked the Court not to take the case: The government will be issuing rules on Medicaid physician reimbursement levels shortly: “HHS is committed to promulgating a notice of proposed rulemaking in April 2011 and a final rule by December 2011.”  Page 20 of the filing provided a sense of what the rulemaking process might entail, and it sounds as though the rulemaking process will take a comprehensive look at Medicaid provider reimbursement issues:

“The rulemaking may include a determination whether Section 1396a(a)(30)(A) protects interests of providers at all following repeal of the Boren Amendment (note 3, supra); what procedural or substantive requirements the statute imposes on States with respect to beneficiaries; and how the various provisions of Section 1396a(a)(30)(A) and other Medicaid requirements interact.  Insofar as the question petitioner raises implicates concerns about the standards applicable under Section 1396a(a)(30)(A), Pet. 16, the outcome of the rulemaking process may affect the appropriate analysis.”

In other words, it’s possible – perhaps even likely – that on top of the mandates on states not to constrain eligibility standards, HHS will now pile on another federal mandate when it comes to reimbursement levels.  To be sure, Medicaid’s poor reimbursement levels create access problems for low-income beneficiaries in many states.  But one of the reasons why states are looking to reduce reimbursement rates in the first place is because the mandate to maintain eligibility levels prevents them from taking other actions to trim their budget deficits.  So it would appear that the Administration’s solution to a failed government mandate (i.e., Medicaid maintenance of effort requirements) is yet another government mandate on states, this one requiring certain reimbursement levels for states’ Medicaid programs.

Speaker Pelosi famously said we had to pass the bill to find out what’s in it.  Unfortunately, states may soon find out what CBPP omitted from its report – there are as-yet undiscovered ways in which the unpopular measure will place an impossible burden on their already unsustainable Medicaid programs.

Waiver Wrap-Up

Two quick hits on the state waiver program proposed by the President yesterday, followed by a summary of stories in major dailies this morning regarding the announcement:

Medicaid Exempt from Waiver Program?  Administration officials claimed yesterday that the waiver program would “allow…states to move some of their Medicaid-eligible populations into the exchange.”  However, the text of the state waiver program does not appear to address Medicaid at all.  Section 1332(a)(2) of the law (page 98) lists the statutory requirements that the Secretary can waive under the innovation program:

(2) REQUIREMENTS.—The requirements described in this paragraph with respect to health insurance coverage within the State for plan years beginning on or after January 1, 2014, are as follows:

(A) Part I of subtitle D. [Essential health benefits package – but ONLY IF the coverage to be provided is “at least as comprehensive” as the essential benefits package propounded by the Secretary in rulemaking]

(B) Part II of subtitle D. [Requirements for Exchanges]

(C) Section 1402. [Cost-sharing subsidies in Exchanges]

(D) Sections 36B [Exchange subsidies], 4980H [Employer mandate], and 5000A [Individual mandate] of the Internal Revenue Code of 1986.

In other words, there is NOTHING in the waiver program that would allow states to opt-out of the new Medicaid mandate created in Section 2001 of the bill, release states from the unfunded mandates created by same, or allow low-income individuals to receive coverage other than that provided by Medicaid.  To be sure, it is possible that other sections of the law could be used to allow states to enroll their low-income Medicaid beneficiaries in Exchange coverage.  But given that the waiver section of the statute explicitly excludes the Medicaid mandate as a requirement from which states can receive an exemption, it appears implausible for the Administration to claim that the waiver program would grant states ANY flexibility in managing their Medicaid populations. (It’s also worth why asking Democrats’ health care law was drafted so that low-income Medicaid beneficiaries can’t participate in the state-based approaches under the innovation waiver program.)

Double-Standards on Block Grants?  Section 1332(a)(3) of the statute provides states participating in the waiver program the opportunity to receive a “pass through” of funding – in other words, states can receive the aggregate amount of insurance subsidies their eligible populations would have received had they been enrolled in Exchanges, and devote that funding to other coverage expansions.  For this reason the New York Times called the waiver concept a “block grant.”  But yet coming out of yesterday’s White House meeting, Administration officials “douse[d] cold water on the idea” of a block grant for Medicaid.

Likewise, the Center for Budget and Policy Priorities (CBPP) last week published a paper criticizing a proposed Medicaid block grant as saying it would provide “inadequate federal funding” of Medicaid, because federal spending on the program would only be allowed to grow at the rate of economic (i.e., GDP) growth plus one percent.  Yet Section 3403 (page 413) of the health care law creates the EXACT SAME growth level for Medicare – GDP plus one percent.

All this raises obvious questions:

  • Why does the Administration support a block grant for Exchange subsidies but not for Medicaid?
  • Why does CBPP believe a GDP plus one percent growth level will provide “inadequate federal funding” for Medicaid but not Medicare?
  • Do these positions have something to do with the fact that Republican governors are the ones arguing for a Medicaid block grant?
  • Or is this inflexibility – to say nothing of potential hypocrisy – on Medicaid based on the belief that governors should not be allowed to innovate without meeting top-down, Washington-imposed standards?

 

Summary of Reactions to the President’s Waiver Proposal

Associated Press:  “[The President’s proposal] would be no change to the fundamental requirements of a federal law that has divided the nation and prompted about half the states to try to overturn it through lawsuits….‘I was disappointed,’ said Texas Gov. Rick Perry, chairman of the Republican Governors Association.  ‘Pretty much all he did was reset the clock on what many of us consider a ticking time bomb’ that could ‘crush our budgets’….The closer Republicans look at the details, the less flexibility they will see, said economist Douglas Holtz-Eakin, leading domestic policy adviser to 2008 GOP presidential candidate John McCain.  ‘If you can’t control eligibility or the benefits package, it’s like saying: “Here’s the bill, you go figure out how to pay for it,”’ he said….For his part, Obama showed no give on the law’s core elements. He said was convinced the law would cut costs, end insurance industry abuses and ‘cover everybody.’”

New York Times:  “Political calculations, as much as policy ones, were at work in the President’s announcement….While some Republican governors praised Mr. Obama for reaching out, they said the move did not address their underlying discomfort with the law or the major structural flaws facing state budgets….Many [Democrats] are convinced that it is not possible to expand health care coverage and achieve deficit reductions without the federal mandate….At the same time, the mandate, and the health care law more generally, is sure to be an issue in the President’s 2012 re-election campaign, which may be a reason he is offering the proposal now.  ‘It’s to his advantage to show that he wants to be more moderate on this…because the mandate is terribly unpopular politically and he doesn’t want to be saddled with that going into the next election.’”

Washington Post: “President Obama sought to defuse criticism of the new health care overhaul Monday by saying he is willing to give states an earlier opportunity to opt out of certain key requirements – but only if they can find their own ways to accomplish the law’s goals….Governors’ more immediate focus was on the potentially crushing burden of rising Medicaid costs….New Jersey Gov. Chris Christie said that on the question of Medicaid flexibility, the President ‘said some very nice things and he says them really nicely.’  But, he added, ‘I didn’t hear any real substance’ that would suggest the governors will get what they want….[Former HHS Secretary] Mike Leavitt…called Obama’s announcement ‘sort of a hollow victory,’ [claiming that] Obama was essentially telling states, ‘“We’ll give you permission to ask for permission sooner rather than later.”  What Republicans are saying is that we don’t want to have to ask for permission at all, because we can’t afford to build the system that you’ve laid out for us.’”

Wall Street Journal:  “Few states are expected to seek the health-law waivers, and the move did little to appease elected Republicans, who are overwhelmingly opposed to the law.  ‘That doesn’t help us any,’ said South Carolina Gov. Nikki Haley, a Republican.  ‘They’d do us a favor if they let us opt out’ of the entire law….Vermont Gov. Peter Shumlin, a Democrat, said the change would make it easier for his state to develop a ‘single-payer’ plan, under which the state would be the central funder of health care.”

Another Missed Opportunity on Entitlement Reform

Today the Government Accountability Office released an update on its high-risk list – highlighting programs within the federal government that have “greater vulnerabilities to fraud, waste, abuse, and mismanagement.”  Among the programs listed was the Medicaid program, first added to the high-risk list in 2003.*  The Medicaid program remains on the high-risk list because of its high rate of improper payments – 9.4 percent – and also because of inappropriate financing arrangements “that inappropriately increase federal Medicaid matching payments.”

One of the Medicaid funding mechanisms that GAO has criticized over many years are Medicaid provider taxes.   Under this scheme, states impose taxes on medical providers, and use the provider tax revenues to obtain additional federal Medicaid matching funds, thereby increasing the federal share of expenses paid while decreasing the state share of expenses.  Even the liberal Center for Budget and Policy Priorities previously wrote that provider taxes and other related methods to maximize federal matching funds constitute “Rube Goldberg-like accounting arrangements” that “do not improve the quality of health care provided” and “frequently operate in a manner that siphons extra federal money to state coffers without affecting the provision of health care.”  Likewise, the fiscal commission’s report recommended that Congress enact legislation “restricting and eventually eliminating” provider taxes, which it criticized as “state gaming” and a “tax gimmick.”

The Administration’s budget, released on Monday, proposed reducing Medicaid provider taxes by beginning in 2015, as a way to generate $18 billion in funding for a two year Medicare “doc fix” while also bolstering the Medicaid program’s fiscal integrity.  However, on Tuesday – the day after the budget proposal was released – HHS Secretary Sebelius wrote a letter to Arizona’s Governor outlining ways in which that state could solve its Medicaid-related budget shortfall, which included this paragraph:

We are also available to work with you on the possibility of adopting a provider fee, as we have done with several states.  I am aware that the Arizona Hospital and Healthcare Association has recently come forward with a proposal to help the state finance at least some of its shortfall through such a fee.

In other words, Secretary Sebelius on Tuesday suggested that Arizona adopt a Medicaid funding mechanism that the HHS budget she released on Monday promised to curtail as abusive.

Over and above the cognitive dissonance these contradictory actions create are the larger issues of entitlement reform – slowing the growth of Medicare and Medicaid spending – that the Administration’s budget failed to address.  While the President claims to support broader changes to Medicare, Medicaid, and Social Security, one must ask the question:  If the Administration couldn’t go more than 24 hours without apparently reversing its support for a minor, $18 billion entitlement “tweak,” how exactly will President Obama achieve the trillions of dollars in long-term savings necessary to keep our nation from fiscal bankruptcy?

* The Medicare program also retained its position on the high-risk list, which it has held since the list was established in 1990, due in part to a lack of sustained improvement in the program’s rate of improper payments, calculated at 10.5 percent in 2010.  Details on the Medicare program can be found on pages 154-60 of the report, and in a New York Times op-ed by the Comptroller General.