Tag Archives: deductibles

UPDATED Summary of Senate Health Care Legislation

UPDATE: On July 20, the Congressional Budget Office (CBO) released its estimate of the revised legislation, EXCEPT for the “consumer freedom” provisions included in Title III of the revised draft. Important nuggets from the CBO score:

  • The bill overall would save $420 billion—an increase of $99 billion from the prior draft—largely due to the elimination of the repeal of two Obamacare “high-income” taxes (retains $231 billion in revenue). That higher revenue is offset in part by $39 billion more spending on substance abuse grants, $51 billion in additional Stability Fund spending (with the additional $19 billion authorized being spent after 2026), an $8 billion home and community-based services demonstration in Medicaid, and $5 billion in changes to Medicaid block grants and per capita caps for states with designated health emergencies.
  • The bill would reduce spending on traditional Medicaid by much less than spending on Medicaid expansion to the able-bodied, as outlined in a new chart (Table 3) not previously included in any prior CBO estimates. Over ten years (2017-2026), the bill would reduce spending on traditional Medicaid compared to current law by $164 billion, or about 4%. The bill would reduce spending on Medicaid expansion by $575 billion, or about 59%. In 2026, the final year of the budget window, the bill would reduce spending on traditional populations by $43 billion, or 9%, while reducing spending on expansion populations by $117 billion, or 87%.
  • Coverage estimates are largely unchanged—a reduction of 15 million insured in 2018, 19 million in 2020, and 22 million in 2026. These numbers include 1) several million people who would not enroll in Medicaid due to the repeal of the individual mandate and 2) several million people not covered under Medicaid now, but whom CBO estimates would be covered in the future, because CBO believes more states will choose to expand Medicaid in future years under current law.
  • Premium estimates are slightly changed later in the decade—a 20 percent increase compared to current law in 2018, a 10 percent increase in 2019, and a 30 percent decrease in 2020 (all unchanged), but a 25 percent decrease (up from 20 percent in the prior draft) compared to current law by 2026, due to additional federal taxpayer dollars being provided to the Stability Fund.
  • Under the bill, CBO estimates that a person with income at 175 percent of the poverty level ($21,105 for an individual in 2017) would pay less for insurance ($1,450, compared to $1,700 under Obamacare), but more in cost-sharing, “contribut[ing] significantly to a decrease in the number of lower-income people” with individual market coverage.
  • While the bill would lower the maximum income at which people qualify for subsidies from 400 to 350 percent of poverty, CBO believes that “for many single policyholders with income at either 375 percent or 450 percent of the [federal poverty level], net premiums would be somewhat lower under the legislation…in part because of the tax savings resulting from the use of health savings accounts.” However, CBO did not provide a separate estimate on the tax savings associated with the new provision to allow individuals to use HSA funds to pay for high-deductible health plan premiums.
  • CBO believes that the bill would create cross-pressuring forces between deductibles and actuarial value. While the bill links subsidies to a plan with an actuarial value (estimated percentage of average health expenses paid) of 58 percent (down from 70 percent under Obamacare), CBO notes that for the essential health benefits included in Obamacare, “all plans must pay for most of the cost of high-cost services….Hence, to design a plan with an actuarial value of 58 percent and pay for required high-cost services, insurers must set high deductibles.”
  • CBO believes that under the bill, deductibles for single coverage would total $13,000 in 2026—higher than the projected limit on out-of-pocket costs under Obamacare ($10,900) in that year. Therefore, “CBO and [the Joint Committee on Taxation] estimate that a plan with a deductible equal to the limit on out-of-pocket spending in 2026 would have an actuarial value of 62 percent. A percent enrolled in such a plan would pay for all health care costs (except for preventive care) until the deductible was met, and none thereafter until the end of the year.”
  • CBO believes the high deductibles—which would exceed annual income for some people below the poverty level, and half and a quarter of income for individuals at 175 and 375 percent of poverty—will discourage enrollment by individuals of low and modest income. It is worth noting however that the analysis of deductibles and cost-sharing did NOT take into account “any cost-sharing reductions that might be implemented through the State Stability and Innovation Program.”

Original post follows below, with budgetary estimates changed to reflect the newer CBO score…

 

On July 13, Senate leadership issued a revised draft of their Obamacare “repeal-and-replace” bill, the Better Care Reconciliation Act. Changes to the bill include:

  • Modifies the current language (created in last year’s 21st Century Cures Act) allowing small businesses of under 50 employees to reimburse employees’ individual health insurance through Health Reimbursement Arrangements;
  • Allows Obamacare subsides to be used for catastrophic insurance plans previously authorized under that law;
  • Amends the short-term Stability Fund, by requiring the Centers for Medicare and Medicaid Services to reserve one percent of fund monies “for providing and distributing funds to health insurance issuers in states where the cost of insurance premiums are at least 75 percent higher than the national average”—a provision which some conservatives may view as an earmark for Alaska (the only state that currently qualifies);
  • Increases appropriations for the long-term Stability Fund to $19.2 billion for each of calendar years 2022 through 2026, up from $6 billion in 2022 and 2023, $5 billion in 2024 and 2025, and $4 billion in 2026—an increase of $70 billion total;
  • Strikes repeal of the Medicare tax increase on “high-income” earners, as well as repeal of the net investment tax;
  • Allows for Health Savings Account funds to be used for the purchase of high-deductible health plans, but only to the extent that such insurance was not purchased on a tax-preferred basis (i.e., through the exclusion for employer-provided health insurance, or through Obamacare insurance subsidies);
  • Allows HSA dollars to be used to reimburse expenses for “dependents” under age 27, effectively extending the “under-26” provisions of Obamacare to Health Savings Accounts;
  • Prohibits HSA-qualified high deductible health plans from covering abortions, other than in cases of rape, incest, or to save the life of the mother—an effective prohibition on the use of HSA funds to purchase plans that cover abortion, but one that the Senate Parliamentarian may advise does not comport with procedural restrictions on budget reconciliation bills;
  • Changes the methodology for calculating Medicaid Disproportionate Share Hospital (DSH) payment reductions, such that 1) non-expansion states’ DSH reductions would be minimized for states that have below-average reductions in the uninsured (rather than below-average enrollment in Medicaid, as under the base text); and 2) provides a carve-out treating states covering individuals through a Medicaid Section 1115 waiver as non-expansion states for purposes of having their DSH payment reductions undone;
  • Retains current law provisions allowing 90 days of retroactive Medicaid eligibility for seniors and blind and disabled populations, while restricting eligibility to the month an individual applied for the program for all other Medicaid populations;
  • Includes language allowing late-expanding Medicaid states to choose a shorter period (but not fewer than four) quarters as their “base period” for determining per capita caps—a provision that some conservatives may view as improperly incentivizing states that decided to expand Medicaid to the able-bodied;
  • Exempts declared public health emergencies from the Medicaid per capita caps—based on an increase in beneficiaries’ average expenses due to such emergency—but such exemption may not exceed $5 billion;
  • Modifies the per capita cap treatment for states that expanded Medicaid during Fiscal Year 2016, but before July 1, 2016—a provision that may help states like Louisiana that expanded during the intervening period;
  • Creates a four year, $8 billion demonstration project from 2020 through 2023 to expand home- and community-based service payment adjustments in Medicaid—with payment adjustments eligible for a 100 percent federal match, and the 15 states with the lowest population density given priority for funds;
  • Modifies the Medicaid block grant formula, prohibits Medicaid funds from being used for other health programs (a change from the base bill), and eliminates a quality standards requirement;
  • Allows for modification of the Medicaid block grant during declared public health emergencies—based on an increase in beneficiaries’ average expenses due to such emergency;
  • Makes a state’s expenses on behalf of Indians eligible for a 100 percent match, irrespective of the source of those services (current law provides for a 100 percent match only for services provided at an Indian Health Service center);
  • Makes technical and other changes to small business health plan language included in the base text;
  • Modifies language repealing the Prevention and Public Health Fund, to allow $1.25 billion in funding for Fiscal Year 2018;
  • Increases opioid funding to a total of $45 billion—$44.748 billion from Fiscal Years 2018 through 2026 for treatment of substance use or mental health disorders, and $252 million from Fiscal Years 2018 through 2022 for opioid addiction research—all of which are subject to few spending restrictions, which some conservatives may be concerned would give virtually unfettered power to the Department of Health and Human Services to direct this spending;
  • Modifies language regarding continuous coverage provisions, and includes health care sharing ministries as “creditable coverage” for the purposes of imposing waiting periods;
  • Grants the Secretary of Health and Human Services the authority to exempt other individuals from the continuous coverage requirement—a provision some conservatives may be concerned gives HHS excessive authority;
  • Makes technical changes to the state innovation waiver program amendments included in the base bill;
  • Allows all individuals to buy Obamacare catastrophic plans, beginning on January 1, 2019;
  • Applies enforcement provisions to language in Obamacare allowing states to opt-out of mandatory abortion coverage;
  • Allows insurers to offer non-compliant plans, so long as they continue to offer at least one gold and one silver plan subject to Obamacare’s restrictions;
  • Allows non-compliant plans to eliminate requirements related to actuarial value; essential health benefits; cost-sharing; guaranteed issue; community rating; waiting periods; preventive health services (including contraception); and medical loss ratios;
  • Does NOT allow non-compliant plans to waive or eliminate requirements related to a single risk pool, which some conservatives may consider both potentially unworkable—as it will be difficult to combine non-community-rated plans and community-rated coverage into one risk pool—and unlikely to achieve significant premium reductions;
  • Does NOT allow non-compliant plans to waive or eliminate requirements related to annual and lifetime limits, or coverage for “dependents” under age 26—which some conservatives may view as an incomplete attempt to provide consumer freedom and choice;
  • States that non-compliant coverage shall not be considered “creditable coverage” for purposes of the continuous coverage/waiting period provision;
  • Allows HHS to increase the minimum actuarial value of plans above 58 percent if necessary to allow compliant plans to be continued to offered in an area where non-compliant plans are available;
  • Uses $70 billion in Stability Fund dollars to subsidize high-risk individuals in states that choose the “consumer freedom” option—a provision that some conservatives may be concerned will effectively legitimize a perpetual bailout fund for insurers in connection with the “consumer freedom” option; and
  • Appropriates $2 billion in funds for state regulation and oversight of non-compliant plans.

A full summary of the bill, as amended, follows below, along with possible conservative concerns where applicable. Where provisions in the bill were also included in the reconciliation bill passed by Congress early in 2016 (H.R. 3762, text available here), differences between the two versions, if any, are noted.

Of particular note: It is unclear whether this legislative language has been fully vetted with the Senate Parliamentarian. When the Senate considers budget reconciliation legislation—as it plans to do with the Obamacare “repeal-and-replace” bill—the Parliamentarian advises whether provisions are budgetary in nature and can be included in the bill (which can pass with a 51-vote simple majority), and which provisions are not budgetary in nature and must be considered separately (i.e., require 60 votes to pass).

As the bill was released prior to issuance of a full CBO score, it is entirely possible the Parliamentarian has not fully vetted this draft—which means provisions could change substantially, or even get stricken from the bill, due to procedural concerns as the process moves forward.

Title I

Revisions to Obamacare Subsidies:             Modifies eligibility thresholds for the current regime of Obamacare subsidies. Under current law, households with incomes of between 100-400 percent of the federal poverty level (FPL, $24,600 for a family of four in 2017) qualify for subsidies. This provision would change eligibility to include all households with income under 350% FPL—effectively eliminating the Medicaid “coverage gap,” whereby low-income individuals (those with incomes under 100% FPL) in states that did not expand Medicaid do not qualify for subsidized insurance.

Clarifies the definition of eligibility by substituting “qualified alien” for the current-law term “an alien lawfully present in the United States” with respect to the five-year waiting period for said aliens to receive taxpayer-funded benefits, per the welfare reform law enacted in 1996.

Changes the bidding structure for insurance subsidies. Under current law, subsidy amounts are based on the second-lowest silver plan bid in a given area—with silver plans based upon an actuarial value (the average percentage of annual health expenses covered) of 70 percent. This provision would base subsidies upon the “median cost benchmark plan,” which would be based upon an average actuarial value of 58 percent.

Modifies the existing Obamacare subsidy regime, by including age as an additional factor for determining subsidy amounts. Younger individuals would have to spend a smaller percentage of income on health insurance than under current law, while older individuals would spend a higher percentage of income. For instance, an individual under age 29, making just under 350% FPL, would pay 6.4% of income on health insurance, whereas an individual between ages 60-64 at the same income level would pay 16.2% of income on health insurance. (Current law limits individuals to paying 9.69% of income on insurance, at all age brackets, for those with income just below 400% FPL.)

Lowers the “failsafe” at which secondary indexing provisions under Obamacare would apply. Under current law, if total spending on premium subsidies exceeds 0.504% of gross domestic product annually in years after 2018, the premium subsidies would grow more slowly. (Additional information available here, and a Congressional Budget Office analysis available here.) This provision would reduce the overall cap at which the “failsafe” would apply to 0.4% of GDP.

Eliminates subsidy eligibility for households eligible for employer-subsidized health insurance. Also modifies definitions regarding eligibility for subsidies for employees participating in small businesses’ health reimbursement arrangements (HRAs).

Increases penalties on erroneous claims of the credit from 20 percent to 25 percent. Applies most of the above changes beginning in calendar year 2020. Allows Obamacare subsides to be used for catastrophic insurance plans previously authorized under that law.

Beginning in 2018, changes the definition of a qualified health plan, to prohibit plans from covering abortion other than in cases of rape, incest, or to save the life of the mother. Some conservatives may be concerned that this provision may eventually be eliminated under the provisions of the Senate’s “Byrd rule,” therefore continuing taxpayer funding of plans that cover abortion. (For more information, see these two articles.)

Eliminates provisions that limit repayment of subsidies for years after 2017. Subsidy eligibility is based upon estimated income, with recipients required to reconcile their subsidies received with actual income during the year-end tax filing process. Current law limits the amount of excess subsidies households with incomes under 400% FPL must pay. This provision would eliminate that limitation on repayments, which may result in fewer individuals taking up subsidies in the first place. Saves $25 billion over ten years—$18.7 billion in lower outlay spending, and $6.3 billion in additional revenues.

Some conservatives may be concerned first that, rather than repealing Obamacare, these provisions actually expand Obamacare—for instance, extending subsidies to some individuals currently not eligible. Some conservatives may also be concerned that, as with Obamacare, these provisions will create disincentives to work that would reduce the labor supply by the equivalent of millions of jobs. Finally, as noted above, some conservatives may believe that, as with Obamacare itself, enacting these policy changes through the budget reconciliation process will prevent the inclusion of strong pro-life protections, thus ensuring continued taxpayer funding of plans that cover abortion. When compared to Obamacare, these provisions reduce the deficit by a net of $295 billion over ten years—$238 billion in reduced outlay spending (the refundable portion of the subsidies, for individuals with no income tax liability), and $57 billion in increased revenue (the non-refundable portion of the subsidies, reducing individuals’ tax liability).

Small Business Tax Credit:             Repeals Obamacare’s small business tax credit, effective in 2020. Disallows the small business tax credit beginning in 2018 for any plan that offers coverage of abortion, except in the case of rape, incest, or to protect the life of the mother—which, as noted above, some conservatives may believe will be stricken during the Senate’s “Byrd rule” review. This language is substantially similar to Section 203 of the 2015/2016 reconciliation bill, with the exception of the new pro-life language. Saves $6 billion over ten years.

Individual and Employer Mandates:             Sets the individual and employer mandate penalties to zero, for all years after December 31, 2015. This language is similar to Sections 204 and 205 of the 2015/2016 reconciliation bill. The individual mandate provision cuts taxes by $38 billion, and the employer mandate provision cuts taxes by $171 billion, both over ten years.

Stability Funds:        Creates two stability funds intended to stabilize insurance markets—the first giving funds directly to insurers, and the second giving funds to states. The first would appropriate $15 billion each for 2018 and 2019, and $10 billion each for 2020 and 2021, ($50 billion total) to the Centers for Medicare and Medicaid Services (CMS) to “fund arrangements with health insurance issuers to address coverage and access disruption and respond to urgent health care needs within States.” Instructs the CMS Administrator to “determine an appropriate procedure for providing and distributing funds.” Does not require a state match for receipt of stability funds.

Requires the Centers for Medicare and Medicaid Services to reserve one percent of fund monies “for providing and distributing funds to health insurance issuers in states where the cost of insurance premiums are at least 75 percent higher than the national average”—a provision which some conservatives may view as an earmark for Alaska (the only state that currently qualifies).

Creates a longer term stability fund with a total of $132 billion in federal funding—$8 billion in 2019, $14 billion in 2020 and 2021, and $19.2 billion in 2022 through 2026. Requires a state match beginning in 2022—7 percent that year, followed by 14 percent in 2023, 21 percent in 2024, 28 percent in 2025, and 35 percent in 2026. Allows the Administrator to determine each state’s allotment from the fund; states could keep their allotments for two years, but unspent funds after that point could be re-allocated to other states.

Long-term fund dollars could be used to provide financial assistance to high-risk individuals, including by reducing premium costs, “help stabilize premiums and promote state health insurance market participation and choice,” provide payments to health care providers, or reduce cost-sharing. However, all of the $50 billion in short-term stability funds—and $15 billion of the long-term funds ($5 billion each in 2019, 2020, and 2021)—must be used to stabilize premiums and insurance markets. The short-term stability fund requires applications from insurers; the long-term stability fund would require a one-time application from states.

Both stability funds are placed within Title XXI of the Social Security Act, which governs the State Children’s Health Insurance Program (SCHIP). While SCHIP has a statutory prohibition on the use of federal funds to pay for abortion in state SCHIP programs, it is unclear at best whether this restriction would provide sufficient pro-life protections to ensure that Obamacare plans do not provide coverage of abortion. It is unclear whether and how federal reinsurance funds provided after-the-fact (i.e., covering some high-cost claims that already occurred) can prospectively prevent coverage of abortions.

Some conservatives may be concerned first that the stability funds would amount to over $100 billion in corporate welfare payments to insurance companies; second that the funds give nearly-unilateral authority to the CMS Administrator to determine how to allocate payments among states; third that, in giving so much authority to CMS, the funds further undermine the principle of state regulation of health insurance; fourth that the funds represent a short-term budgetary gimmick—essentially, throwing taxpayer dollars at insurers to keep premiums low between now and the 2020 presidential election—that cannot or should not be sustained in the longer term; and finally that placing the funds within the SCHIP program will prove insufficient to prevent federal funding of plans that cover abortion. Spends a total of $158 billion over ten years, with additional funds to be spent after 2026.

Implementation Fund:        Provides $500 million to implement programs under the bill. Costs $500 million over ten years.

Repeal of Some Obamacare Taxes:             Repeals some Obamacare taxes:

  • Tax on high-cost health plans (also known as the “Cadillac tax”)—but only through 2025, lowering revenues by $66 billion;
  • Restrictions on use of Health Savings Accounts and Flexible Spending Arrangements to pay for over-the-counter medications, effective January 1, 2017, lowering revenues by $5.6 billion;
  • Increased penalties on non-health care uses of Health Savings Account dollars, effective January 1, 2017, lowering revenues by $100 million;
  • Limits on Flexible Spending Arrangement contributions, effective January 1, 2018, lowering revenues by $18.6 billion;
  • Tax on pharmaceuticals, effective January 1, 2018, lowering revenues by $25.7 billion;
  • Medical device tax, effective January 1, 2018, lowering revenues by $19.6 billion;
  • Health insurer tax (currently being suspended), lowering revenues by $144.7 billion;
  • Elimination of deduction for employers who receive a subsidy from Medicare for offering retiree prescription drug coverage, effective January 1, 2017, lowering revenues by $1.8 billion;
  • Limitation on medical expenses as an itemized deduction, effective January 1, 2017, lowering revenues by $36.1 billion; and
  • Tax on tanning services, effective September 30, 2017, lowering revenues by $600 million.

Health Savings Accounts:  Increases contribution limits to HSAs, raising them from the current $3,400 for individuals and $6,750 for families in 2017 to the out-of-pocket maximum amounts (currently $6,550 for an individual and $13,100 for a family), effective January 2018. Allows both spouses to make catch-up contributions to the same Health Savings Account. Permits individuals who take up to 60 days to establish an HSA upon enrolling in HSA-eligible coverage to be reimbursed from their account for medical expenses. Lowers revenues by a total of $19.2 billion over ten years.

Allows for Health Savings Account funds to be used for the purchase of high-deductible health plans, but only to the extent that such insurance was not purchased on a tax-preferred basis (i.e., through the exclusion for employer-provided health insurance, or through Obamacare insurance subsidies).

Allows HSA dollars to be used to reimburse expenses for “dependents” under age 27, effectively extending the “under-26” provisions of Obamacare to Health Savings Accounts. Prohibits HSA-qualified high deductible health plans from covering abortions, other than in cases of rape, incest, or to save the life of the mother—an effective prohibition on the use of HSA funds to purchase plans that cover abortion, but one that the Senate Parliamentarian may advise does not comport with procedural restrictions on budget reconciliation bills. No separate cost estimate provided for the revenue reduction associated with allowing HSA dollars to be used to pay for insurance premiums.

Federal Payments to States:             Imposes a one-year ban on federal funds flowing to certain entities. This provision would have the effect of preventing Medicaid funding of certain medical providers, including Planned Parenthood, so long as Planned Parenthood provides for abortions (except in cases of rape, incest, or to save the life of the mother). CBO believes this provision would save a total of $225 million in Medicaid spending, while increasing spending by $79 million over a decade, because 15 percent of Planned Parenthood clients would lose access to services, increasing the number of births in the Medicaid program by several thousand. This language is virtually identical to Section 206 of the 2015/2016 reconciliation bill. Saves $146 million over ten years.

Medicaid Expansion:           The discussion draft varies significantly from the repeal of Medicaid expansion included in Section 207 of the 2015/2016 reconciliation bill. The 2015/2016 reconciliation bill repealed both elements of the Medicaid expansion—the change in eligibility allowing able-bodied adults to join the program, and the enhanced (90-100%) federal match that states received for covering them.

By contrast, the discussion draft retains eligibility for the able-bodied adult population—making this population optional for states to cover, rather than mandatory. (The Supreme Court’s 2012 ruling in NFIB v. Sebelius made Medicaid expansion optional for states.) Some conservatives may be concerned that this change represents a marked weakening of the 2015/2016 reconciliation bill language, one that will entrench a massive expansion of Medicaid beyond its original focus on the most vulnerable in society.

With respect to the Medicaid match rate, the discussion draft reduces the enhanced federal match to states—scheduled under current law as 90 percent in 2020—to 85 percent in 2021, 80 percent in 2022, and 75 percent in 2023. The regular federal match rates would apply for expansion states—defined as those that expanded Medicaid prior to March 1, 2017—beginning in 2024, and to all other states effective immediately. (In the case of states that already expanded Medicaid to able-bodied adults prior to Obamacare’s enactment, the bill provides for an 80 percent federal match for 2017 through 2023.)

The bill also repeals the requirement that Medicaid “benchmark” plans comply with Obamacare’s essential health benefits, also effective December 31, 2019. In general, the Medicaid provisions outlined above, when combined with the per capita cap provisions below, would save a net of $756 billion over ten years.

Finally, the bill repeals provisions regarding presumptive eligibility and the Community First Choice Option, eliminating a six percent increase in the Medicaid match rate for some home and community-based services. Saves $19 billion over ten years.

Some conservatives may be concerned that the language in this bill would give expansion states a strong incentive to sign up many more individuals for Medicaid over the next seven years. Some conservatives may also be concerned that, by extending the Medicaid transition for such a long period, it will never in fact go into effect.

Disproportionate Share Hospital (DSH) Allotments:                Exempts non-expansion states from scheduled reductions in DSH payments in fiscal years 2021 through 2024, and provides an increase in DSH payments for non-expansion states in fiscal year 2020, based on a state’s Medicaid enrollment. Spends $26.5 billion over ten years.

Retroactive Eligibility:       Effective October 2017, restricts retroactive eligibility in Medicaid to the month in which the individual applied for the program for; current law requires three months of retroactive eligibility. These changes would NOT apply to aged, blind, or disabled populations, who would still qualify for three months of retroactive eligibility. Saves $1.4 billion over ten years.

Non-Expansion State Funding:             Includes $10 billion ($2 billion per year) in funding for Medicaid non-expansion states, for calendar years 2018 through 2022. States can receive a 100 percent federal match (95 percent in 2022), up to their share of the allotment. A non-expansion state’s share of the $2 billion in annual allotments would be determined by its share of individuals below 138% of the federal poverty level (FPL) when compared to non-expansion states. This funding would be excluded from the Medicaid per capita spending caps discussed in greater detail below. Spends $10 billion over ten years.

Eligibility Re-Determinations:             Permits—but unlike the House bill, does not require—states, beginning October 1, 2017, to re-determine eligibility for individuals qualifying for Medicaid on the basis of income every six months, or at shorter intervals. Provides a five percentage point increase in the federal match rate for states that elect this option. No separate budgetary impact noted; included in larger estimate of coverage provisions.

Work Requirements:           Permits (but does not require) states to, beginning October 1, 2017, impose work requirements on “non-disabled, non-elderly, non-pregnant” beneficiaries. States can determine the length of time for such work requirements. Provides a five percentage point increase in the federal match for state expenses attributable to activities implementing the work requirements.

States may not impose requirements on pregnant women (through 60 days after birth); children under age 19; the sole parent of a child under age 6, or sole parent or caretaker of a child with disabilities; or a married individual or head of household under age 20 who “maintains satisfactory attendance at secondary school or equivalent,” or participates in vocational education. No separate budgetary impact noted; included in larger estimate of coverage provisions.

Provider Taxes
:        Reduces permissible Medicaid provider taxes from 6 percent under current law to 5.8 percent in fiscal year 2021, 5.6 percent in fiscal year 2022, 5.4 percent in fiscal year 2023, 5.2 percent in fiscal year 2024, and 5 percent in fiscal year 2025 and future fiscal years. Some conservatives may view provider taxes as essentially “money laundering”—a game in which states engage in shell transactions solely designed to increase the federal share of Medicaid funding and reduce states’ share. More information can be found here. CBO believes states would probably reduce their spending in response to the loss of provider tax revenue, resulting in lower spending by the federal government. Saves $5.2 billion over ten years.

Medicaid Per Capita Caps:              Creates a system of per capita spending caps for federal spending on Medicaid, beginning in fiscal year 2020. States that exceed their caps would have their federal match reduced in the following fiscal year.

The cap would include all spending on medical care provided through the Medicaid program, with the exception of DSH payments and Medicare cost-sharing paid for dual eligibles (individuals eligible for both Medicaid and Medicare). The cap would rise by medical CPI plus one percentage point annually.

While the cap would take effect in fiscal year 2020, states could choose their “base period” based on any eight consecutive quarters of expenditures between October 1, 2013 and June 30, 2017. The CMS Administrator would have authority to make adjustments to relevant data if she believes a state attempted to “game” the look-back period. Late-expanding Medicaid states can choose a shorter period (but not fewer than four) quarters as their “base period” for determining per capita caps—a provision that some conservatives may view as improperly incentivizing states that decided to expand Medicaid to the able-bodied.

Creates five classes of beneficiaries for whom the caps would apply: 1) elderly individuals over age 65; 2) blind and disabled beneficiaries; 3) children under age 19; 4) expansion enrollees (i.e., able-bodied adults enrolled under Obamacare); and 5) all other non-disabled, non-elderly, non-expansion adults (e.g., pregnant women, parents, etc.). Excludes State Children’s Health Insurance Plan enrollees, Indian Health Service participants, breast and cervical cancer services eligible individuals, and certain other partial benefit enrollees from the per capita caps. Exempts declared public health emergencies from the Medicaid per capita caps—based on an increase in beneficiaries’ average expenses due to such emergency—but such exemption may not exceed $5 billion. Modifies the per capita cap treatment for states that expanded Medicaid during Fiscal Year 2016, but before July 1, 2016—a provision that may help states like Louisiana that expanded during the intervening period.

For years before fiscal year 2025, indexes the caps to medical inflation for children, expansion enrollees, and all other non-expansion enrollees, with the caps rising by medical inflation plus one percentage point for aged, blind, and disabled beneficiaries. Beginning in fiscal year 2025, indexes the caps to overall inflation.

Includes provisions in the House bill regarding “required expenditures by certain political subdivisions.” Some conservatives may question the need to insert a parochial New York-related provision into the bill.

Provides a provision—not included in the House bill—for effectively re-basing the per capita caps. Allows the Secretary of Health and Human Services to increase the caps by between 0.5% and 2% for low-spending states (defined as having per capita expenditures 25% below the national median), and lower the caps by between 0.5% and 2% for high-spending states (with per capita expenditures 25% above the national median). The Secretary may only implement this provision in a budget-neutral manner, i.e., one that does not increase the deficit. However, this re-basing provision shall NOT apply to any state with a population density of under 15 individuals per square mile.

Requires the Department of Health and Human Services (HHS) to reduce states’ annual growth rate by one percent for any year in which that state “fails to satisfactorily submit data” regarding its Medicaid program. Permits HHS to adjust cap amounts to reflect data errors, based on an appeal by the state, increasing cap levels by no more than two percent. Requires new state reporting on inpatient psychiatric hospital services and children with complex medical conditions. Requires the HHS Inspector General to audit each state’s spending at least every three years.

For the period including calendar quarters beginning on October 1, 2017 through October 1, 2019, increases the federal Medicaid match for certain state expenditures to improve data recording, including a 100 percent match in some instances.

Some conservatives may note that the use of the past several years as the “base period” for the per capita caps, benefits states who expanded Medicaid to able-bodied adults under Obamacare. The most recent actuarial report on Medicaid noted that, while the actuary originally predicted that adults in the expansion population would cost less than existing populations, in reality each newly eligible enrollee cost 13.6% more than existing populations in 2016. Some states have used the 100% federal match for their expansion populations—i.e., “free money from Washington”—to raise provider reimbursement levels.

Some conservatives may therefore be concerned that the draft bill would retain the increased spending on adults in expansion states—extending the inequities caused by states that have used Obamacare’s “free money” to raise Medicaid spending while sending Washington the tab. Coupled with the expansion provisions outlined above, saves a net of $772 billion over ten years.

Home and Community-Based Services:             Creates a four year, $8 billion demonstration project from 2020 through 2023 to expand home- and community-based service payment adjustments in Medicaid, with such payment adjustments eligible for a 100 percent federal match. The 15 states with the lowest population density would be given priority for funds.

Medicaid Block Grants:      Creates a Medicaid block grant, called the “Medicaid Flexibility Program,” beginning in Fiscal Year 2020. Requires interested states to submit an application providing a proposed packet of services, a commitment to submit relevant data (including health quality measures and clinical data), and a statement of program goals. Requires public notice-and-comment periods at both the state and federal levels.

The amount of the block grant would total the regular federal match rate, multiplied by the target per capita spending amounts (as calculated above), multiplied by the number of expected enrollees (adjusted forward based on the estimated increase in population for the state, per Census Bureau estimates). In future years, the block grant would be increased by general inflation.

Prohibits states from increasing their base year block grant population beyond 2016 levels, adjusted for population growth, plus an additional three percentage points. This provision is likely designed to prevent states from “packing” their Medicaid programs full of beneficiaries immediately prior to a block grant’s implementation, solely to achieve higher federal payments.

Permits states to roll over block grant payments from year to year, provided that they comply with maintenance of effort requirements. Reduces federal payments for the following year in the case of states that fail to meet their maintenance of effort spending requirements, and permits the HHS Secretary to make reductions in the case of a state’s non-compliance. Requires the Secretary to publish block grant amounts for every state every year, regardless of whether or not the state elects the block grant option.

Permits block grants for a program period of five fiscal years, subject to renewal; plans with “no significant changes” would not have to re-submit an application for their block grants. Permits a state to terminate the block grant, but only if the state “has in place an appropriate transition plan approved by the Secretary.”

Imposes a series of conditions on Medicaid block grants, requiring coverage for all mandatory populations identified in the Medicaid statute, and use of the Modified Adjusted Gross Income (MAGI) standard for determining eligibility. Includes 14 separate categories of services that states must cover for mandatory populations under the block grant. Requires benefits to have an actuarial value (coverage of average health expenses) of at least 95 percent of the benchmark coverage options in place prior to Obamacare. Permits states to determine the amount, duration, and scope of benefits within the parameters listed above.

Applies mental health parity provisions to the Medicaid block grant, and extends the Medicaid rebate program to any outpatient drugs covered under same. Permits states to impose premiums, deductibles, or other cost-sharing, provided such efforts do not exceed 5 percent of a family’s income in any given year.

Requires participating states to have simplified enrollment processes, coordinate with insurance Exchanges, and “establish a fair process” for individuals to appeal adverse eligibility determinations. Allows for modification of the Medicaid block grant during declared public health emergencies—based on an increase in beneficiaries’ average expenses due to such emergency.

Exempts states from per capita caps, waivers, state plan amendments, and other provisions of Title XIX of the Social Security Act while participating in Medicaid block grants. Coupled with the expansion provisions outlined above, saves a net of $772 billion over ten years.

Performance Bonus Payments:             Provides an $8 billion pool for bonus payments to state Medicaid and SCHIP programs for Fiscal Years 2023 through 2026. Allows the Secretary to increase federal matching rates for states that 1) have lower than expected expenses under the per capita caps and 2) report applicable quality measures, and have a plan to use the additional funds on quality improvement. While noting the goal of reducing health costs through quality improvement, and incentives for same, some conservatives may be concerned that this provision—as with others in the bill—gives near-blanket authority to the HHS Secretary to control the program’s parameters, power that conservatives believe properly resides outside Washington—and power that a future Democratic Administration could use to contravene conservative objectives. CBO believes that only some states will meet the performance criteria, leading some of the money not to be spent between now and 2026. Costs $3 billion over ten years.

Medicaid Waivers:  Permits states to extend Medicaid managed care waivers (those approved prior to January 1, 2017, and renewed at least once) in perpetuity through a state plan amendment, with an expedited/guaranteed approval process by CMS. Requires HHS to adopt processes “encouraging States to adopt or extend waivers” regarding home and community-based services, if those waivers would improve patient access. No budgetary impact.

Coordination with States:               After January 1, 2018, prohibits CMS from finalizing any Medicaid rule unless CMS and HHS 1) provide an ongoing regular process for soliciting comments from state Medicaid agencies and Medicaid directors; 2) solicit oral and written comments in advance of any proposed rule on Medicaid; and 3) respond to said comments in the preamble of the proposed rule. No budgetary impact.

Inpatient Psychiatric Services:             Provides for optional state Medicaid coverage of inpatient psychiatric services for individuals over 21 and under 65 years of age. (Current law permits coverage of such services for individuals under age 21.) Such coverage would not exceed 30 days in any month or 90 days in any calendar year. In order to receive such assistance, the state must maintain its number of licensed psychiatric beds as of the date of enactment, and maintain current levels of funding for inpatient services and outpatient psychiatric services. Provides a lower (i.e., 50 percent) match for such services, furnished on or after October 1, 2018. No separate budgetary impact noted; included in larger estimate of coverage provisions.

Medicaid and Indian Health Service:             Makes a state’s expenses on behalf of Indians eligible for a 100 percent match, irrespective of the source of those services. Current law provides for a 100 percent match only for services provided at an Indian Health Service center. Costs $3.5 billion over ten years.

Small Business Health Plans:             Amends the Employee Retirement Income Security Act of 1974 (ERISA) to allow for creation of small business health plans. Some may question whether or not this provision will meet the “Byrd rule” test for inclusion on a budget reconciliation measure. No separate budgetary impact noted; included in larger estimate of coverage provisions.

Title II

Prevention and Public Health Fund:             Eliminates funding for the Obamacare prevention “slush fund,” and rescinds all unobligated balances, beginning in Fiscal Year 2019. Saves $7.9 billion over ten years.

Opioid Funding:       Appropriates $45 billion—$44.748 billion from Fiscal Years 2018 through 2026 for treatment of substance use or mental health disorders, and $252 million from Fiscal Years 2018 through 2022 for opioid addiction research. The $45 billion in funds are subject to few spending restrictions, which some conservatives may be concerned would give virtually unfettered power to the Department of Health and Human Services to direct this spending. Spends $40.7 billion over ten years.

Community Health Centers:             Increases funding for community health centers by $422 million for Fiscal Year 2018—money intended to offset reductions in spending on Planned Parenthood affiliates (see “Federal Payments to States” above). Language regarding community health centers was included in Section 102 of the 2015/2016 reconciliation bill. Spends $422 million over ten years.

Age Rating:   Changes the maximum variation in insurance markets from 3-to-1 (i.e., insurers can charge older applicants no more than three times younger applicants) to 5-to-1 effective January 1, 2019, with the option for states to provide for other age rating requirements. Some conservatives may be concerned that, despite the ability for states to opt out, this provision, by setting a default federal standard, maintains the intrusion over insurance markets exacerbated by Obamacare. No separate budgetary impact noted; included in larger estimate of coverage provisions.

Medical Loss Ratios:            Permits states to determine their own medical loss ratios, beginning for plan years on or after January 1, 2019. No separate budgetary impact noted; included in larger estimate of coverage provisions.

Insurance Waiting Periods:             Imposes waiting periods on individuals lacking continuous coverage (i.e., with a coverage gap of more than 63 days). Requires carriers to, beginning with plan years starting after January 1, 2019, impose a six-month waiting period on individuals who cannot show 12 months of continuous coverage. However, the bill states that such waiting period “shall not apply to an individual who is enrolled in health insurance coverage in the individual market on the day before the effective date of the coverage in which the individual is newly enrolling.” The waiting period would extend for six months from the date of application for coverage, or the first date of the new plan year.

Permits the Department of Health and Human Services to require insurers to provide certificates of continuous coverage, and includes health care sharing ministries as “creditable coverage” for purposes of the requirement. Prohibits waiting periods for newborns and adopted children, provided they obtain coverage within 30 days of birth or adoption, and other individuals the Secretary may designate—an overly broad grant of authority that some conservatives may believe will give excessive power to federal bureaucrats.

Some conservatives may be concerned that this provision, rather than repealing Obamacare’s regulatory mandates, would further entrench a Washington-centered structure, one that has led premiums to more than double since Obamacare took effect. Some conservatives may also note that this provision will not take effect until the 2019 plan year—meaning that the effective repeal of the individual mandate upon the bill’s enactment, coupled with the continuation of Obamacare’s regulatory structure, could further destabilize insurance markets over the next 18 months. CBO believes this provision will only modestly increase the number of people with health insurance. No separate budgetary impact noted; included in larger estimate of coverage provisions.

State Innovation Waivers:              Amends Section 1332 of Obamacare regarding state innovation waivers. Eliminates the requirement that states codify their waivers in state law, by allowing a Governor or State Insurance Commissioner to provide authority for said waivers. Appropriates $2 billion for Fiscal Years 2017 through 2019 to allow states to submit waiver applications, and allows states to use the long-term stability fund to carry out the plan. Allows for an expedited approval process “if the Secretary determines that such expedited process is necessary to respond to an urgent or emergency situation with respect to health insurance coverage within a State.”

Requires the HHS Secretary to approve all waivers, unless they will increase the federal budget deficit—a significant change from the Obamacare parameters, which many conservatives viewed as unduly restrictive. (For more background on Section 1332 waivers, see this article.)

Provides for a standard eight-year waiver (unless a state requests a shorter period), with automatic renewals upon application by the state, and may not be cancelled by the Secretary before the expiration of the eight-year period.

Provides that Section 1332 waivers approved prior to enactment shall be governed under the “old” (i.e., Obamacare) parameters, that waiver applications submitted after enactment shall be governed under the “new” parameters, and that states with pending (but not yet approved) applications at the time of enactment can choose to have their waivers governed under the “old” or the “new” parameters. Spends $2 billion over ten years. With respect to the fiscal impact of the waivers themselves, CBO noted no separate budgetary impact noted, including them in the larger estimate of coverage provisions.

Catastrophic Coverage:      Allows all individuals to buy Obamacare catastrophic plans, beginning on January 1, 2019.

Cost-Sharing Subsidies:      Repeals Obamacare’s cost-sharing subsidies, effective December 31, 2019. Appropriates funds for cost-sharing subsidy claims for plan years through 2019—a provision not included in the House bill. The House of Representatives filed suit against the Obama Administration (House v. Burwell) alleging the Administration acted unconstitutionally in spending funds on the cost-sharing subsidies without an explicit appropriation from Congress. The case is currently on hold pending settlement discussions between the Trump Administration and the House. Some conservatives may view the appropriation first as likely to get stricken under the “Byrd rule,” and second as a budget gimmick—acknowledging that Obamacare did NOT appropriate funds for the payments by including an appropriation for 2017 through 2019, but then relying on over $100 billion in phantom “savings” from repealing the non-existent “appropriation” for years after 2020. Saves $105 billion over ten years.

Title III

“Consumer Freedom” Option:             Allows insurers to offer non-compliant plans, so long as they continue to offer at least one gold and one silver plan subject to Obamacare’s restrictions. Allows non-compliant plans to eliminate requirements related to:

  • Actuarial value;
  • Essential health benefits;
  • Cost-sharing;
  • Guaranteed issue;
  • Community rating;
  • Waiting periods;
  • Preventive health services (including contraception); and
  • Medical loss ratios.

Does NOT allow non-compliant plans to waive or eliminate requirements related to a single risk pool, which some conservatives may consider both potentially unworkable—as it will be difficult to combine non-community-rated plans and community-rated coverage into one risk pool—and unlikely to achieve significant premium reductions. Also does NOT allow non-compliant plans to waive or eliminate requirements related to annual and lifetime limits, or coverage for “dependents” under age 26—which some conservatives may view as an incomplete attempt to provide consumer freedom and choice.

States that non-compliant coverage shall not be considered “creditable coverage” for purposes of the continuous coverage/waiting period provision. Allows HHS to increase the minimum actuarial value of plans above 58 percent if necessary to allow compliant plans to be continued to offered in an area where non-compliant plans are available.

Uses $70 billion in Stability Fund dollars to subsidize high-risk individuals in states that choose the “consumer freedom” option—a provision that some conservatives may be concerned will effectively legitimize a perpetual bailout fund for insurers in connection with the “consumer freedom” option. Also appropriates $2 billion in funds for state regulation and oversight of non-compliant plans.

On Health Care Bill, Federalism to the Rescue

Temporary setbacks can often yield important knowledge that leads to more meaningful accomplishments—a lesson senators should remember while pondering the recent fate of their health-care legislation. This past week, frictions caused by federalism helped create the legislative stalemate, but the forces of federalism can also pave the way for a solution.

Moderates opposed to the bill raised two contradictory objections. Senators whose states expanded Medicaid lobbied hard to keep that expansion in their home states. Those same senators objected to repealing all of Obamacare’s insurance mandates and regulations, insisting that all other states keep adhering to a Washington-imposed standard.

But those Washington-imposed regulatory standards have prompted individual insurance premiums to more than double since Obamacare first took effect four years ago. While the current draft of the Senate bill allows states to waive out of some of those regulations, it outright repeals none—repeat, none—of them.

The High Prices Are The Fault of Too Many Rules

As the Congressional Budget Office score of the legislation indicates, the lack of regulatory relief under the bill would create real problems in insurance markets. Specifically, CBO found that low-income individuals likely would not purchase coverage, because such individuals would face a choice between low-premium plans with unaffordable deductibles or low-deductible plans with unaffordable premiums.

The budget analysts noted that this affordability dilemma has its roots in Obamacare’s mandated benefits package. Because of the Obamacare requirements not repealed under the bill, insurers would be “constrained” in their ability to offer plans that, for instance, provide prescription drug coverage or coverage for a few doctor visits before meeting the (high) deductible.

CBO concluded that the waiver option available under the Senate bill would, if a state chose it, ease the regulatory constraints on insurers “at least somewhat.” But those waivers only apply to some—not all—of the Obamacare regulations, and could be subject to changes in the political climate. With governors able to apply for—and presumably withdraw from—the waiver program unilaterally, states’ policy decisions could swing rapidly, and in ways that exacerbate uncertainty and instability.

If You Want Obamacare, You Can Enact It at the State Level

The Senate should go back to first principles, and repeal all of the Obamacare insurance regulations, restoring the balance of federalism under the Tenth Amendment, and the principle of state regulation of insurance that has existed since Congress passed the McCarran-Ferguson Act in 1947. If Obamacare is as popular as its supporters claim, states could easily reprise all its regulatory structures—as New York, New Jersey, and others did before the law’s passage. Likewise, senators wanting their colleagues to respect their states’ wishes on Medicaid expansion should respect those colleagues’ wishes on eliminating the entire Obamacare regulatory apparatus from their states.

On Medicaid, conservatives have already granted moderates significant concessions, allowing states to keep their expansions in perpetuity. The controversy now stems around whether the federal government should continue to keep paying states a higher federal match to cover childless adults than individuals with disabilities—a proposition that tests standards of fairness and equity.

However, critics of the bill’s changes to Medicaid raise an important point. As CBO noted, states “would not have additional flexibility” under the per capita caps created by the bill to manage their Medicaid programs. Without that flexibility, states might face greater pressure to find savings with a cleaver rather than a scalpel—cutting benefits, lowering reimbursement rates, or restricting eligibility, rather than improving care.

Several years ago, a Medicaid waiver granted to Rhode Island showed what flexibility can do for a state, reducing per-beneficiary spending for several years in a row by better managing care, not cutting it. When revising the bill, senators should give all Medicaid programs the flexibility Rhode Island received from the Bush administration when it applied for its waiver in 2009. They should also work to ensure that the bill will not fiscally disadvantage states that choose the additional flexibility of a block grant compared to the per capita caps.

If senators’ desire to protect their home states helped prompt this week’s legislative morass, then a willingness to allow other senators to protect their home states can help unwind it. Maintaining Obamacare’s regulatory structure at the federal level, while cutting the spending and taxes used to alleviate the higher costs from that structure, might represent the worst of all possible outcomes—an unfunded mandate passed down to millions of Americans. By contrast, eliminating the Washington-based regulatory apparatus and giving states a free choice whether to re-impose it would represent federalism at its best.

This post was originally published at The Federalist.

John Cornyn Illustrates Republicans’ Obamacare Problem in One Tweet

As the Senate’s second-ranking Republican, John Cornyn holds significant sway in policy-making circles. In his third term, and serving on both the judiciary and finance committees—the latter of which has jurisdiction over Medicare and Medicaid—Cornyn should have a good working knowledge of health policy.

All of that makes this tweet, sent Friday from his account, so surprising:

How can advocates tout Obamacare a success when, among many other flaws, it leaves 30 million people uninsured?

The tweet essentially complains that Obamacare wreaked massive havoc on the health care system, while leaving 30 million uninsured. It’s similar to the Catskills joke cited by Woody Allen in “Annie Hall”: “The food at this place is really terrible—and such small portions!”

Observers on Twitter noted the irony. Some asked Cornyn to support more government spending on subsidies; some asked him to have his home state of Texas expand Medicaid; some asked for a single-payer system that would “end” the problem of uninsurance entirely.

For that matter, increasing the mandate tax to thousands of dollars, or putting people in jail if they do not purchase coverage, would also reduce the number of uninsured. Does that mean Cornyn would support those efforts?

It’s the Costs, Stupid!

There are many reasons conservatives should not remain fixated on the number of people with health insurance when designing an Obamacare alternative.

Insurance Does Not Equal Access: The narrow networks and high deductibles plaguing Obamacare exchange plans—imposed because federally mandated benefits force insurers to find other ways to cut costs—impede access to care, making finding an in-network physician both more difficult and more costly.

Similarly for Medicaid—the prime source of Obamacare’s coverage expansions—beneficiaries themselves don’t even consider a Medicaid card “real insurance,” because they cannot find a physician who will treat them: “You feel so helpless thinking, something’s wrong with this child and I can’t even get her into a doctor….When we had real insurance, we would call and come in at the drop of a hat.”

Insurance Does Not Equal Better Health: The Oregon Health Insurance Experiment compared a group of individuals selected from a random lottery to enroll in Medicaid with similarly situated individuals who did not win the lottery and did not enroll in coverage. It found that Medicaid coverage brought no measurable improvement in physical health outcomes. Likewise, prior studies have suggested that, for health outcomes Medicaid coverage may be worse than having no health insurance at all.

Beneficiaries Do Not Value Health Insurance: Another study from the Oregon Health Insurance Experiment released last year found that most Medicaid beneficiaries valued their health insurance at between 20 and 40 cents on the dollar. In other words, if given a hypothetical choice between a Medicaid insurance policy valued at $3,000, and cash in the amount of $1,500, most beneficiaries would choose the cash.

Obama Promised to Lower Costs—And Failed to Deliver: During his 2008 campaign, Barack Obama didn’t promise to reduce the number of uninsured by a certain amount. He did, however, promise to cut the average family’s health insurance costs and premiums by an average of $2,500 per year. On that count, his health law failed miserably. Since the law passed, employer-sponsored coverage has risen by more than $4,300 per family. Exchange policies spiked dramatically in 2014, when the law’s mandated benefits took effect, and are set to rise again this coming year.

Voters Care Most About Costs: Prior polling data indicates that, by a more than two-to-one margin, voters prioritize the cost of health care (45 percent) over the lack of universal coverage (19 percent). Likewise, voters prefer a health plan that would lower costs without guaranteeing universal coverage to a plan that would create universal coverage while increasing costs by a 13-point margin.

Buying into a Liberal Shibboleth

The responses from liberals to Cornyn’s tweet indicate the extent to which health coverage has become a shibboleth on the Left. There are few things liberals will not do—from spending more money on subsidies, to creating a single-payer system, to expanding coverage to illegal immigrants—to ensure everyone has a health insurance card. (Some liberals might object to putting people in jail for not buying health coverage. Might.)

The liberal fixation—some would call it an obsession—over the number of people with health insurance comes despite evidence suggesting insurance coverage does not necessarily equate with access or improved health outcomes. Over the past 40 years, 90 percent of the growth in safety net spending has come in the form of higher spending on health programs. That spending could have been more effective in alleviating poverty by improving the education system, changing transportation patterns, or enhancing nutritional options in poor communities, all of which also could foster better health outcomes. But because liberals remain singularly focused on the number of Americans with insurance cards, that’s where they want to focus all the federal government’s time and energy.

So, apparently, does John Cornyn. Rather than pledging to lower health costs—Americans’ top health care goal—or questioning the effectiveness of Democrats’ focus on health insurance above all else, his tweet looks like pure kvetching about a problem he has no interest in solving. If one wants to understand Republicans’ problems on health care—both their poor messaging, and their single-minded policy focus on replicating liberal solutions in a slightly-less-costly manner—they need look no further than this one tweet.

This post was originally published at The Federalist.

Why Obamacare Supporters Won’t Enroll in Obamacare

Today, the beginning of Obamacare’s fourth open enrollment period, will see Obama administration officials and liberal advocates engaging in the usual publicity blitz. They’ll tell Americans how much money they can save, how affordable plans are—don’t believe the hype about premium increases, they claim—and the benefits of having health coverage.

All of this can be rebutted by one simple rejoinder: If these exchange plans are so good, why haven’t you purchased one?

It’s a question I’ve asked several Obamacare advocates, because, while they talk about Obamacare, I actually have to live it. Because Washington DC abolished its private insurance market, I as a small business owner have to buy a plan on the federal exchange. For 2017, new plan requirements by the DC exchange—insurers now have to offer eight “standardized” plans—coupled with the difficult business environment meant that my insurer, CareFirst Blue Cross, cancelled its health savings account plan.

As a result, I and 6,980 other HSA plan participants received cancellation notices in September. As you can see from the notice, the “substitute” plan I was offered has a premium of $296.40—that’s a 20.2 percent increase, for those of you keeping score at home—and a 25 percent increase in my deductible, from $1,600 to $2,000.

The day before I received official confirmation of my plan’s cancellation, I attended a briefing on insurance exchanges. I pointed out that, to most people in Washington DC, Obamacare was an abstract idea. Policy-makers at think-tanks, lobbying firms, or in government have high-paying jobs that come with employer-based health coverage, so they really don’t have to worry about whether the exchanges succeed or fail.

I asked the panelists point-blank: You’re speaking about the state of Obamacare’s exchanges, but do you yourself receive coverage through them?

As I had suspected, most admitted they do not. Sabrina Corlette, a Georgetown University researcher, replied that she was a “spoiled academic” who received coverage through her employer. Ironically enough, Corlette’s presentation for the briefing included a slide noting that the exchanges needed to “boost enrollment.” But when asked whether she would enroll in an exchange plan—thereby boosting enrollment—she said she would not. This brings to mind St. Augustine’s famous phrase, “Grant me chastity and continence—but not yet.”

Elites Won’t Join Obamacare’s Ghettoes

One reason why Corlette, and other “spoiled academics” like her, won’t give up their existing coverage is simple: Compared to employer-based insurance, exchange plans—and this is a technical term—suck.

Thanks to Obamacare’s ability to make insurance competition disappear, nearly one in five Americans (19 percent) will have the “choice” of only one insurer on their exchange in 2017. Obamacare’s benefit mandates have forced insurers to narrow networksthree-quarters of all 2017 exchange offerings include no out-of-network coverage—and raise deductibles so high as to render insurance “all but useless” for many.

As I have previously written, Obamacare’s insurance marketplaces could be more accurately described as ghettoes, not exchanges. The median income among all healthcare.gov enrollees is 165 percent of the poverty level, or about $40,000 for a family of four, so enrollees are predominantly low-income, besides sicker than those on the average employer plan. The combination of narrow networks and tightly managed care has zero appeal to the average person with an employer plan—which explains why the liberal elites promoting Obamacare won’t actually enroll themselves.

‘I Do Try to Think about Them’

At the September briefing, Corlette claimed Obamacare was an attempt to “lift the standards for individual market products” to make them more like employer plans—just not enough for her to enroll. (As someone actually on the exchanges, I can attest to a lot of “lift” for my premiums and deductibles; standards and network access, perhaps not as much.)

She then justified her non-participation in the exchanges by claiming that “when I look at these issues, I do try to think about them. You know, if I were an expecting mother who needs prenatal care…what kind of health insurance would I want?”

All of this sounds as empathetic as thinking about and waving at people in a rowboat from the creature comforts of one’s private yacht. Her condescending tone presupposes that, while exchange plans might not totally replicate employer coverage, they’ll pass muster for “them”—not actually good enough for the elites themselves, mind you, but good enough for the unwashed masses who will purchase the plans.

If one wants to explain the reasons for the rise of Donald Trump, one could start with a group of elites who think they can determine what others want, even while deliberately segregating themselves from the effects of the policies they created.

As the saying goes, actions speak louder than words. If advocates of Obamacare actually believed the law was providing insurance comparable to employer plans, they would switch to exchange coverage. That they are not speaks to the law’s fundamental problem: Liberal elites can sell the benefits of Obamacare all they want, but when it comes time to put one’s money where one’s mouth is, the American people aren’t buying—and neither are the liberals.

This post was originally published at The Federalist.

The Dirty Little Secret of Hillary Clinton’s Health Plan

On Monday, President Bill Clinton committed a Kinsley gaffe, criticizing Obamacare as “the craziest thing in the world,” whereby small business owners “wind up with their premiums doubled and their coverage cut in half.” In response to her husband’s accurate depiction of Obamacare’s problems, Hillary said on Tuesday: “We got to fix what’s broken and keep what works, . . . We’re going to tackle it and we’re going to fix it.” Secretary Clinton is exactly correct — if by “fix” she means enacting a proposal that could line the pockets of businesses to the tune of nearly a trillion dollars while simultaneously jacking up premiums and deductibles for millions of Americans.

Hillary Clinton’s plan for a new federal tax credit to subsidize out-of-pocket costs for all Americans will encourage businesses to make their health benefits skimpier — raising premiums, co-payments, and deductibles — because they know that the new tax credit will pick up the difference for the hardest-hit families. While Secretary Clinton’s other major health-care proposals (to increase federal subsidies on insurance exchanges and to create a government-run “public option” on them) would apply only to those without employer-based coverage, the out-of-pocket tax credit would apply to both insurance that is employer-based and insurance that is individually purchased.

In analyzing her proposals, the liberal Commonwealth Fund noted that Secretary Clinton’s out-of-pocket tax credit would affect a pool of 177.5 million potentially eligible Americans, which is more than four times as many as those who would be eligible to avail themselves of the government-run “public option.” The broader reach for the tax credit, plus its generous amount (up to $2,500 per individual or $5,000 per family for out-of-pocket spending that exceeds 5 percent of income) creates a sizable cost for the federal government: net spending of $90.3 billion in 2018 alone, according to the Commonwealth analysis. In 2009, President Obama made this pledge to Congress: “The plan I’m proposing will cost around $900 billion over ten years.” But one element alone of Secretary Clinton’s plan will cost at least that much — and probably more than $1 trillion.

The Commonwealth analysis of Clinton’s plan attempts to estimate how much the out-of-pocket tax credit will reduce health-care expenses for middle-class and working-class families. What the Commonwealth researchers did not mention in the report, and instead buried in a technical appendix, is this doozy of an asterisk: “Potentially, this [tax credit] approach gives firms an incentive to increase workers’ premium contributions, so that more workers are eligible to claim the credit.”

The Commonwealth researchers did not even attempt to model the impact of the tax credit on the actual behavior of businesses, claiming that employers might not know their workers’ income or out-of-pocket expenses, and saying they could not make decisions based on incomplete information. Nonsense. Even if businesses decide not to increase employees’ premium contributions, they could jack up deductibles instead. A firm could raise its deductible by $2,500, offer all workers a $1,000 bonus — to help employees whose out-of-pocket costs don’t meet the 5 percent of income threshold to obtain the tax credit, or assist workers’ cash flow until they receive it — and still come out ahead.

Whether by accident or design, the Commonwealth researchers assumed that employers will not respond to incentives — an assumption that belies three years of experience with Obamacare’s exchanges. Thousands of Americans have gamed the law’s special enrollment periods to sign up for coverage outside the annual enrollment window, incurred above-average costs – and then dropped their coverage at above-average rates, un-enrolling after returning to health. And because Section 1412 of the law allows enrollees a three-month grace period before insurers can drop their coverage for non-payment, one insurer found that 21 percent of its customers didn’t bother to pay their premiums last December, because the law effectively said they didn’t have to.

Given the ways in which Americans have gamed Obamacare’s morass of new regulations to create a system of barely functioning insurance exchanges, it beggars belief to think that businesses would not similarly work to maximize profit. According to the Kaiser Family Foundation’s survey of employer-sponsored health plans, only 23 percent of workers face a deductible above $2,000. With the average deductible rising 12 percent last year, firms would now have an even greater incentive to privatize their gains – because the new tax credit would allow them to socialize their workers’ losses by moving them to the federal fisc.

Why would Secretary Clinton propose a costly plan that encourages large businesses to pocket profits while jacking up costs on struggling families? Simple: The plan will make employer coverage less desirable, and it might even make the Obamacare exchanges look attractive by comparison. If liberals’ end goal is to erode employer-provided health coverage and migrate all Americans to government-run exchanges, offering a tax credit that will effectively erode that coverage faster isn’t a bad way to start.

This post was originally published at National Review

Harvard and “Free” Health Care

New York Times article earlier this week on changes to Harvard University’s health plan has drawn attention from all sides of the political spectrum. While New York magazine’s Jonathan Chait asserts that the developments at Harvard show the growth of conservative principles, one could also argue they demonstrate the inability of a liberal approach to health plan design to control costs.

The changes at Harvard, which have prompted pushback from many faculty, include the introduction of a $250 deductible and other cost-sharing—i.e., coinsurance and co-payments—for doctor visits, hospitalizations, and certain other procedures. The Times article, quoting the university’s enrollment guide, blames Obamacare as one of the culprits for the changes:

The university said it “must respond to the national trend of rising health care costs, including some driven by health care reform,” in the form of the Affordable Care Act. The guide said that Harvard faced “added costs” because of provisions in the health care law that extend coverage for children up to age 26, offer free preventive services like mammograms and colonoscopies and, starting in 2018, add a tax on high-cost insurance, known as the Cadillac tax.

Some on the right have seized on the irony of the Harvard faculty—many of whom, the Times notes, supported the health care law, and worked to aid its passage—complaining about its ramifications on their own coverage. But the larger irony is that the supposed benefits of the law do not come without costs—that the “free preventive services” discussed in the article and often touted by Obama administration officials really aren’t free. Those costs just get shifted elsewhere, as in the new cost-sharing just announced.

Many on the left firmly believe in health insurance as prepaid health care—that policies should cover all procedures free, or nearly free, of charge. But decades of rising costs have forced many businesses to alter their health plans, adding cost-sharing provisions and in many cases empowering patients to serve as better health care consumers. In many cases these reforms, such as Health Savings Accounts (HSAs), have worked to reduce health costs; a 2012 Health Affairs study found that expanded HSA usage could lower health spending by as much as 9.1%. It’s these principles to which Harvard has turned—at least in part because the mandates in Obamacare left them few remaining options.

Still, Harvard’s new $250 deductible is quite modest compared with that of many other employers. A recent Kaiser Family Foundation report found the average deductible last year exceeded $1,200 for single coverage.

Mr. Chait argues that the Harvard story shows that Obamacare promotes conservative principles when it comes to patient cost-sharing. But he avoids mentioning the obvious: Harvard included such “reforms” only when it had no other choice—because the liberal premise of “free” health care proved too costly to sustain.

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

Higher Premiums–Both Now and Later

One of then-Senator Obama’s promises for Obamacare was a $2,500 premium reduction. But as we know, health insurance premiums continue to rise.

Last week’s release of the annual Kaiser Family Foundation survey of employer-sponsored health coverage again illustrated Obamacare’s failure to reduce health costs. According to the survey, health insurance premiums for a family policy increased by more than $600 this year.

Worse yet, the details of the survey illustrate how premiums will rise for many workers and firms next year due to the new benefit mandates imposed by Obamacare. Here are just some of the people who will face higher health costs in 2014 due to the law:

  • Nearly one in three (31 percent) covered workers in small firms has a single deductible of $2,000 or more (Exhibit 7.8, p. 109). But Section 1302(c)(2) of the law caps deductibles for small group health plans at $2,000 for a single policy. These workers will face premium increases thanks to Obamacare.
  • Nearly one in eight covered workers (12%) is in a plan with no annual out-of-pocket maximum (Exhibit 7.31, p. 132). But Section 1302(c)(1) of the law prohibits annual limitation on cost-sharing above a government-defined threshold. These workers will face premium increases thanks to Obamacare.

Of course, those higher health costs presume that Americans will get to keep their health plans at all. And as we previously noted, that definitely won’t be the case—many Americans will lose their plans, either because their insurance company decided to leave the marketplace or because their coverage does not meet “government-approved” requirements.

On Friday, the President claimed that “[health] costs have actually gone down” thanks in part to Obamacare. On that count, he’s wrong, for multiple reasons. First, as noted above, the Kaiser survey found that premium costs are still growing at more than twice the rate of wages—far from the $2,500 premium reduction candidate Obama promised. Second, many Americans will face higher health costs next year due to Obamacare—a fact many businesses have realized. It’s yet another reason why Congress should act to defund Obamacare now.

This post was originally published at the Daily Signal.

21st Century Health Care Options for the States

A PDF version of this paper is available here.

Across the country, state legislatures are considering whether or not to expand their existing Medicaid programs.  Last year’s Supreme Court ruling struck down the mandatory nature of Obamacare’s expansion of Medicaid to all families with incomes up to approximately $30,000 a year.  Chief Justice Roberts’ June 2012 opinion stated that the health law as originally written engaged in “economic dragooning that leaves the states with no real option but to acquiesce in the Medicaid expansion.”[1]  The Court’s opinion gave states a choice whether or not to expand their Medicaid programs to approximately 20 million new individuals,[2] a decision which states are weighing during their current legislative sessions.

The reasons why states should NOT participate in Obamacare’s Medicaid expansion are well-documented[3]: Medicaid patients have worse health outcomes than patients with other forms of insurance, and in many cases worse health outcomes than the uninsured;[4] Medicaid beneficiaries often face difficulty finding doctors who will treat them;[5] and by increasing federal spending funded by massive tax increases, a Medicaid expansion will destroy jobs rather than create them.[6]

Less well known, however, are the innovative programs states have utilized over the past several years to modernize and enhance their health sectors, expanding coverage and improving quality of care while lowering costs.  Rather than utilizing Obamacare’s top-down, government-centric approach of putting more people into a broken Medicaid program, these policy solutions seek to transform Medicaid using market incentives to create a health system that works for patients.

Recently the Centers for Medicare and Medicaid Services (CMS) issued a bulletin providing clear evidence that the Obama administration views Medicaid expansion as an all-or-nothing proposition.[7]  The Administration apparently hopes that pressure from hospitals and special interests will force state legislators to approve Obamacare’s massive Medicaid expansion.  However, as Chief Justice Roberts indicated in his opinion last June, states now have a real choice.  Based on the examples presented below, states should choose innovative, market-driven solutions, rather than Obamacare’s bureaucratic approach.

Rhode Island

States seeking to improve their health care system should closely examine Rhode Island’s successful global compact waiver for its Medicaid program.  The waiver, negotiated by then-Gov. Don Carcieri and approved by CMS in January 2009, attempts to reduce expenses by giving the state the flexibility to improve the quality of care.  The Rhode Island waiver focuses on promoting home-and-community-based services as a more affordable (and more desirable) alternative to nursing homes, on improving access to primary care through managed care enrollment, and on other similar methods to provide quality care at better cost.  In December 2011, the non-partisan Lewin Group released an analysis of the Rhode Island global compact waiver.[8]  The Lewin report provides demonstrable examples of the waiver’s policy success, saving money while simultaneously improving care:

  • Shifting nursing home services into the community saved $35.7 million during the three-year study period
  • More accurate rate setting in nursing homes saved an additional $15 million in Fiscal Year 2010 alone
  • Better care management for adults with disabilities and special needs children saved between $4.5 and $11.9 million, and
  • Enrollment in managed care significantly increased the access of adults with disabilities to physician services.

Lewin’s conclusion:

The GW [Global Waiver] initiatives and budget actions taken by Rhode Island had a positive impact on controlling Medicaid expenditures.  The actions taken to re-balance the [Long Term Care] system appear to have generated significant savings according to our estimates.   The mandatory enrollment of disabled members in care management program reduced expenditures for this population while at the same time generally resulting in improved access to physician services.  Continuing the GW initiatives already undertaken by the state and implementing the additional initiatives included in the [Global Waiver] will result in significant savings for the Rhode Island Medicaid program in future years.[9]

All this progress comes despite the Obama administration’s efforts, not because of them.  Pages 14-15 of the Lewin report note that maintenance of effort mandates imposed in Obamacare and the “stimulus” prevented Rhode Island from imposing modest premiums on some beneficiaries, even though the approved waiver was supposed to give the state that flexibility.[10]

Despite the ways in which the Obama administration’s bureaucratic requirements interfered with Rhode Island’s ability to implement its global waiver fully, the state achieved measurable progress in reducing costs while improving care – providing a clear example that other states can emulate.

Indiana

The Hoosier State’s Healthy Indiana Plan (HIP), created in 2008, applied the principles of personal responsibility, consumer-driven health plans, and Health Savings Accounts in its expansion of coverage to low-income populations.  Initiated as part of a Medicaid demonstration waiver, the program requires individuals to make contributions to a Personal Wellness and Responsibility (POWER) account.  No beneficiary pays more than 5% of their income, and the state supplements individual contributions so that all participants will have $1,100 in their accounts to pay for routine expenses.

Healthy Indiana promotes personal responsibility in several ways.  First, the required beneficiary contributions to the POWER account ensure that all participants have an incentive to take greater responsibility for their own health and health spending.  Second, the program promotes preventive care by providing an additional $500 to fund important preventive screenings.  Moreover, only those beneficiaries who participate in a series of annual screenings may roll over unused POWER account funds from year to year.  Third, Healthy Indiana assesses co-payments for non-urgent visits to the emergency room, attempting to reverse a trend of high ER usage by Medicaid beneficiaries prevalent nationwide.[11]

Overall, Healthy Indiana has achieved many of its policy goals.  Despite the modest incomes of beneficiaries enrolled in the program – all of whom must have incomes below 200% of the federal poverty level, or about $31,000 for a couple in 2013 – nearly four in five contributed to their POWER account.[12]  Nine in ten participants have at least one physician visit in their first year of enrollment, demonstrating that the HIP deductible does not hinder patients from obtaining needed care.[13]  And an analysis by the consulting firm Milliman found that parents in Healthy Indiana “seek preventive care more frequently than comparable commercial populations.”[14]

Healthy Indiana has not only proved successful – it’s been popular as well.  Only about one-quarter of participants ever enrolled in the program during its first two years left the program, “a retention rate much higher than the rate for adults in Indiana’s regular Medicaid managed care program.”[15]  Approximately 70% of beneficiaries considered the required POWER account contributions just the right amount, and 94% of members report being satisfied or highly satisfied with their coverage.[16]

A 2011 policy brief by Mathematica Policy Research commented on the program’s successes:

HIP has successfully expanded coverage for the uninsured, while giving enrolled members an important financial stake in the cost of their health care and incentives for value-based decision making.  Early implementation suggests that members value HIP benefits and that at least some low-income, uninsured adults are willing and able to contribute toward the cost of their care.[17]

Just as important, the program’s increase in preventive care, and decrease in emergency room usage, have achieved measurable savings. Milliman reports that HIP exceeded its targets for budget neutrality, spending nearly $1 billion less than its original spending cap in its first five years.[18]

In the past five years, the market-based incentives of the Healthy Indiana Plan have yielded two-fold success in improving the population while containing overall spending.  It remains to be seen whether CMS will approve an extension of HIP or will instead claim that Obamacare’s bureaucratic mandates preclude the program’s continuation.  The week the law passed, then-Gov. Mitch Daniels publicly worried that Obamacare would force him to plan for HIP’s termination.[19]  State legislators seeking to avoid Obamacare’s requirements and restrictions who are looking instead to market incentives as a way to control costs would be wise to examine the Healthy Indiana Plan approach.

Florida

Earlier this year, CMS granted approval to the state of Florida’s two waivers to alter its Medicaid program.  These waivers, which follow on the heels of a five-county pilot reform program begun in 2006, will roll out over the coming 18 months; both waivers should be fully implemented by October 2014.[20]

One of the two waivers would transform the Medicaid program for low-income beneficiaries. The waiver will allow all Medicaid recipients to enroll in managed care plans; each will have at least two, and as many as 10, Medicaid plans from which to choose.[21]  The waiver allows managed care plans – which are based in one of 11 regions – to create customized benefit packages that meet the unique needs of their local populations.  In applying for its waiver, Florida rightly noted that “each plan will face the competitive pressure of offering the most innovative package,” which will allow beneficiaries “to use their premium [dollars] to select benefit plans that best meet their needs.”[22]

Other features of the waiver likewise seek to reduce costs while improving the quality of beneficiary care.  Managed care plans will be required to “establish a program to encourage and reward healthy behaviors,” similar to the Healthy Indiana Plan incentives discussed above.[23]  Florida also is seeking waiver flexibility from CMS to encourage beneficiaries to enroll in health coverage through their employer when available and require modest cost-sharing for certain populations.[24]

Coupled with another waiver for the state’s long-term care program – one which seeks to place individuals in home and community-based services instead of nursing home facilities – the two waivers collectively will transform the Medicaid program in Florida.  The waivers’ focus on participant choice, competition among plans to enroll beneficiaries, and incentives to promote wellness and preventive care all hold the potential to provide a more personalized experience for Medicaid beneficiaries – and, just as important, a more effective and efficient one as well.

Even as Florida moves ahead on implementing its waivers, state legislators are offering state-based alternatives to Obamacare’s costly Medicaid expansion.  House Speaker Will Weatherford introduced legislation – the Florida Health Choices Plus bill – with Rep. Richard Corcoran, chairman of the House Health and Human Services Committee, to provide incentives for low-income individuals to obtain health insurance.[25]  Under the proposal, individuals with incomes below the federal poverty line would receive $2,000, deposited into a CARE (Contribution Amount for Reasonable Expenses) account.[26]  Beneficiaries would be required to deposit $25 per month, or $300 per year, into the account, and employers could contribute additional amounts as well.  The money could be used to purchase affordable health coverage in the Florida Health Choices insurance clearinghouse, or used directly for health expenses.

Because more than two in three uninsured Americans lack coverage for periods of less than a year, Florida Health Choices Plus would provide bridge funding to the majority of citizens who suffer only short spells without health insurance.[27]  It does so without providing incentives for individuals to drop private health insurance and enroll in a government program – a problem that has plagued past state coverage initiatives.[28]  The proposal includes a personal responsibility component, coupled with incentives for beneficiaries to serve as wise consumers of health care.  And it accomplishes these objectives without relying on Obamacare’s massive new gusher of federal spending.

Texas

Although it has not yet come to fruition, state thought leaders have begun to consider how additional flexibility from Washington could result in better care for patients and a more predictable and stable Medicaid budget for states.  The Texas Public Policy Foundation recently released a paper outlining its vision for a Medicaid block grant, and how Texas could use the flexibility under a block grant to revamp its existing Medicaid program.[29]  The paper describes how the amount of a block grant might be set, along with the terms and conditions establishing a new compact between the federal government and states – giving states more flexibility, but also requiring accountability for outcomes in the process.

Texas envisions a block grant as providing a way to revamp its Medicaid program for both low-income and elderly beneficiaries.  For lower-income applicants, the state could choose to subsidize private health insurance, with incentives linked to Health Savings Account (HSA) plans.  Beneficiaries would fund the difference between the amount of the state-provided subsidy and the cost of the insurance plan, “provid[ing] strong incentives to the enrolled population to purchase low premium, high value plans.  Beneficiaries selecting coverage that costs less than their premium support entitlement would be allowed to deposit the difference in an HSA.”[30]

With respect to long-term care for the elderly, the Texas paper envisions a series of reforms under a Medicaid block grant.  Incremental reforms – including partial benefits for those who seek to remain in community settings, a competitive bidding process for nursing home care, and greater restrictions on asset transfers, to ensure benefits are targeted toward truly needy individuals – would eventually lead to a fundamental transformation of the long-term care benefit into a defined contribution model.  Under this reform, “the state will provide a pre-determined level of financial support directly to those eligible by establishing and funding an account on each beneficiary’s behalf” to be used for eligible care expenses – maximizing beneficiary choice and flexibility and encouraging the use of community-based service over institutional nursing homes.

Unfortunately, a block grant requires approval from Congress – and neither the Democrat Senate nor President Obama currently appear inclined to grant states the degree of flexibility the Texas paper envisions.  But Rhode Island’s Global Waiver, approved in the final days of the George W. Bush administration, shows that the administration does have the authority to grant global waivers to other states seeking the same control over their Medicaid programs.

Nevertheless, the ideas offered in the paper present a vision where both flexibility and market incentives can provide better quality coverage to residents while providing budgetary stability to federal and state governments alike.

Learning from other states

Other examples of states taking action on their Medicaid programs:

North Carolina:  States first need to be armed with solid information about how the Medicaid program is working.  They need to know who is being helped or harmed and how much is being lost to waste and inefficiency in this ossified, rule-driven program.  In North Carolina, state auditor Beth Wood recently found that the state’s Medicaid program endured $1.4 billion in cost overruns each year, including $375 million in state dollars. As a result, North Carolina has decided not to expand its Medicaid program. Before considering any action, others states should commission objective, independent audits of their Medicaid programs to understand the program and the problems that need fixing.

New York also was able to gain more control over how Medicaid subsidy money is spent in exchange for a global cap on a substantial fraction of its Medicaid expenditures.

West Virginia offers alternative benefit packages that create incentives for beneficiaries to take responsibility for their own health and health care. Kentucky and Idaho are among other states with similar programs.  Patients receive additional benefits if they select a medical home, adhere to health improvement programs, keep and arrive on time for appointments, use the hospital emergency room for emergencies only, and comply with prescribed medications.

Utah fought for and received a waiver that allowed the states to scale back Medicaid’s excessively large benefit package to stretch the money to cover more citizens.

These are a few examples of the creative programs that states could develop if they weren’t forced to jump through Washington’s Mother-May-I Medicaid hoops to get approval to make even minor changes to their Medicaid programs.  

Lessons and Themes

While each state’s Medicaid program is unique, the examples discussed above each contain common themes that should guide policy-makers seeking to transform their state health systems – and avoid the pitfalls of Obamacare’s massive, bureaucratic expansion:

  • Customized Beneficiary Services:  Providing beneficiaries with a choice of coverage options can provide plans an incentive to tailor their benefit packages to best meet individuals’ needs.  Similar incentives promoting competition in the Medicare Part D prescription drug benefit helped keep that program’s cost more than 40% below original estimates.[31]
  • Coordinated and Preventive Care:  Several of the reform programs focus on providing individualized, coordinated services to beneficiaries – an improvement to the top-down, uncoordinated care model of old.  In many cases, preventive care interventions for Medicaid recipients suffering from chronic conditions can ultimately save money.
  • Personal Responsibility:  Cost-sharing can be an appropriate incentive, to encourage beneficiaries to take ownership of their health, and discourage costly practices, such as emergency room trips for routine care.  The fact that more than two-thirds of Healthy Indiana Plan participants consider their cost-sharing levels appropriate proves that even families of modest means are both willing and able to provide some financial contribution to their cost of care.
  • Home and Community-Based Services:  Several of the reform programs attempt to continue and accelerate the trend of providing long-term care in patients’ homes, rather than in more cumbersome and costly nursing home settings.
  • No New Federal Funds:  Most importantly, each of the reform projects discussed above neither seek nor require the massive new spending levels contemplated by an Obamacare expansion.  In many cases, the programs above were implemented successfully despite Washington’s interference, not because of it.

Conclusion

Functioning in their traditional role as laboratories of democracy, states have provided better solutions for policy-makers seeking to reform their Medicaid programs.  These solutions have expanded coverage, and improved the quality of care, even while reducing costs to taxpayers.  As the Obama administration denies states true flexibility when it comes to Obamacare’s costly Medicaid expansion, states have demonstrated that they can convert a modicum of leeway from Washington into maximum improvements for their citizens – and savings for taxpayers.

The analysis above shows that Chief Justice Roberts was right: states do have a choice when it comes to their Medicaid programs.  They can – and should – choose the options that will reform and revitalize their programs, rather than the massive and costly expansion of the Medicaid monolith included in Obamacare.

States must take the lead in insisting that Washington provide more flexibility over Medicaid spending so they can expand access to care without burdening taxpayers with significant new costs or burdening their citizens with a program that can be worse than being uninsured.

States can show that Medicaid can have a more efficient and effective service delivery system that enhances quality of care and outcomes.  Expanding Medicaid without a guarantee of flexibility would be a major missed opportunity for the states. If states join together, they have more leverage to demand true flexibility than if they try to gain leverage one by one.

Chris Jacobs is a visiting fellow at the Galen Institute, a non-profit research organization devoted to market-based solutions to health reform. Jacobs blogs at www.chrisjacobshc.com.

 


NOTES

[1] NFIB v. Sebelius, June 28, 2012, http://www.supremecourt.gov/opinions/11pdf/11-393c3a2.pdf, p. 52.

[2] Prior to the Supreme Court ruling, the Congressional Budget Office estimated that Obamacare would expand coverage to 17 million individuals through Medicaid by 2022, while the Office of the Actuary at CMS estimated the Medicaid expansion would cover 25.9 million individuals by 2020.  See CBO, “Estimates for Insurance Coverage Provisions of the Affordable Care Act Updated for the Recent Supreme Court Decision,” July 24, 2012, http://cbo.gov/sites/default/files/cbofiles/attachments/43472-07-24-2012-CoverageEstimates.pdf, Table 1, p. 19, and Office of the Actuary, Centers for Medicare and Medicaid Services, “2011 Actuarial Report on the Financial Outlook for Medicaid,” March 16, 2012, http://www.cms.gov/Research-Statistics-Data-and-Systems/Research/ActuarialStudies/Downloads/MedicaidReport2011.pdf, p. 30.

[3] Grace-Marie Turner and Avik Roy, “Twelve Reasons States Should Not Expand Medicaid,” Galen Institute, March 15, 2013, http://www.galen.org/topics/tennessee-should-block-medicaid-expansion/.

[4] Scott Gottlieb, “Medicaid Is Worse than No Coverage at All,” The Wall Street Journal March 10, 2011, http://online.wsj.com/article/SB10001424052748704758904576188280858303612.html.

[5] See, for instance, Joanna Bisgaier and Karin Rhodes, “Auditing Access to Specialty Care for Children with Public Insurance,” New England Journal of Medicine June 16, 2011, http://www.nejm.org/doi/full/10.1056/NEJMsa1013285.

[6] Chris Conover, “Will Medicaid Expansion Create Jobs?,” Forbes, February 25, 2013, http://www.forbes.com/sites/chrisconover/2013/02/25/will-medicaid-expansion-create-jobs/.

[7] CMS Bulletin, “Medicaid and the Affordable Care Act: Premium Assistance,” March 29, 2013, http://medicaid.gov/Federal-Policy-Guidance/Downloads/FAQ-03-29-13-Premium-Assistance.pdf.

[8] Lewin Group, “An Independent Evaluation of Rhode Island’s Global Waiver,” December 6, 2011, http://www.ohhs.ri.gov/documents/documents11/Lewin_report_12_6_11.pdf.

[9] Ibid., p. 40.

[10] Specifically, the report notes that the maintenance of effort requirements included in the “stimulus” (P.L. 111-5) and Obamacare (P.L. 111-148) “had a profound impact on the flexibility Rhode Island anticipated…The Special Terms and Conditions for the global waiver authorized Rhode Island to charge premiums of up to 5 percent…however, CMS prohibited Rhode Island from using this authority,” citing the maintenance of effort requirements.  Ibid., pp. 11-12.

[11] See, for instance, a 2010 Centers for Disease Control research brief finding Medicaid beneficiaries were nearly twice three times as likely as those with private insurance to visit the ER multiple times in one year.  Tamrya Caroll Garcia, Amy Bernstein, and Mary Ann Bush, “Emergency Department Visitors and Visits: Who Used the Emergency Room in 2007?” National Center for Health Statistics Data Brief No. 38, May 2010, http://www.cdc.gov/nchs/data/databriefs/db38.pdf.

[12] Timothy Lake, Vivian Byrd, and Seema Verma, “Healthy Indiana Plan: Lessons for Reform,” Mathematica Policy Research Issue Brief, January 2011, http://mathematica-mpr.com/publications/pdfs/health/healthyindianaplan_ib1.pdf.

[13] Indiana Family and Social Services Administration, Healthy Indiana Plan 1115 Waiver Extension Application, February 13, 2013, http://www.in.gov/fssa/hip/files/HIP_WaiverforPosting.pdf, p. 18.

[14] Cited in Ibid.

[15] “Healthy Indiana Plan: Lessons for Reform.”

[16] Healthy Indiana Plan 1115 Waiver Extension Application, pp. 19, 6.

[17] “Healthy Indiana Plan: Lessons for Reform.”

[18] Milliman letter to Indiana Family and Social Services Administration regarding budget neutrality of Medicaid Section 1115 waiver, January 30, 2013, http://www.in.gov/fssa/hip/files/041115_Budget_Neutrality_Waiver_Renewal.pdf.

[19] Mitch Daniels, “We Good Europeans,” The Wall Street Journal March 26, 2010, http://online.wsj.com/article/SB10001424052748704094104575144362968408640.html.

[20] Frequently Asked Questions on Statewide Medicaid Managed Care Program, Florida Agency for Health Care Administration, http://ahca.myflorida.com/medicaid/statewide_mc/pdf/FAQ_MC-SMMC_general.pdf.

[21] Ibid.

[22] Florida Agency for Health care Administration, Section 1115 waiver submission to the Centers for Medicare and Medicaid Services, http://www.medicaid.gov/Medicaid-CHIP-Program-Information/By-Topics/Waivers/1115/downloads/fl/fl-medicaid-reform-pa.pdf.

[23] Ibid., p. 16.

[24] A summary of the specific federal authorities Florida seeks to waive can be found on the state Agency for Health Care Administration website, http://ahca.myflorida.com/medicaid/statewide_mc/pdf/Summary_of_Federal_Authorities_01232013.pdf.

[25] “Florida Health Choices PLUS+: Creating a Stronger Marketplace for Better Health, More Choices, and Expanded Coverage,” Floriday House Majority Office, April 2013, http://myfloridahouse.gov/Handlers/LeagisDocumentRetriever.ashx?Leaf=housecontent/HouseMajorityOffice/Lists/Other%20Items/Attachments/6/Florida_Heath_Choices_Plus.pdf&Area=House.

[27] Congressional Budget Office, “How Many People Lack Health Insurance and for How Long?” May 2003, http://www.cbo.gov/sites/default/files/cbofiles/ftpdocs/42xx/doc4210/05-12-uninsured.pdf, Table 4, p. 11.  For a further discussion of the cohorts comprising the uninsured, see Chris Jacobs, “Deconstructing the Uninsured,” Republican Study Committee Policy Brief, August 26, 2008, http://rsc.scalise.house.gov/uploadedfiles/pb_082608_uninsured%20analysis.pdf.

[28] See for instance Jonathan Gruber and Kosali Simon, “Crowd-Out Ten Years Later: Have Recent Public Insurance Expansions Crowded Out Private Insurance?” Journal of Health Economics, February 2008, http://economics.mit.edu/files/6422.  The study found that about three in five individuals enrolled in government health programs dropped their private coverage to do so.

[29] James Capretta, Michael Delly, Arlene Wohlgemuth, and John Davidson, “Save Texas Medicaid: A Proposal for Fundamental Reform,” Texas Public Policy Foundation, March 2013, http://www.texaspolicy.com/sites/default/files/documents/2013-03-RR05-MedicaidBlockGrants-Final.pdf.

[30] Ibid., p. 10.

[31] Robert Moffit, “Medicare Drugs: Why Congress Should Reject Government Price Fixing,” The Heritage Foundation Issue Brief 3880, March 18, 2013, http://www.heritage.org/research/reports/2013/03/medicare-drugs-why-congress-should-reject-government-price-fixing. ­­­

Higher Premiums Now, Higher Premiums Later

As we’ve previously reported, the main take-away from the Kaiser survey of employer-sponsored coverage is that premiums rose this year by an average $672 per family –and more than $3,000 since Barack Obama was elected in 2008. Worse yet, a look at other elements of the survey demonstrates that many Americans will be affected by even higher premiums when all of Obamacare’s mandates take effect:

  • Eight percent of covered workers face a waiting period of four or more months (Exhibit 3.8, p. 60) to qualify for employer health coverage.  But the law specifies that employers must shorten waiting periods to no more than 90 days.  These workers will face premium increases thanks to Obamacare.
  • Approximately one in seven (14%) covered workers — and more than one in four (27%) covered workers in small firms — have single deductibles of $2,000 or more (Exhibit 7.6, p. 117). But the law caps deductibles for a single policy at $2,000. These workers will face premium increases thanks to Obamacare.
  • A majority (51%) of workers in high deductible health plans have family plan deductibles of over $2,000 (Exhibit 8.8, p. 160). But the law caps single plan deductibles at $2,000 per year. These workers will face premium increases thanks to Obamacare.
  • More than two in five (42%) workers in high deductible health plans have family plan deductibles of over $4,000 (Exhibit 8.10, p. 162). But the law caps family plan deductibles at $4,000 per year. These workers will face premium increases thanks to Obamacare.
  • More than one in eight covered workers (13%) are in plans with no annual out-of-pocket maximum (Exhibit 7.29, p. 140). But the law prohibits annual limitation on cost-sharing above a government-defined threshold. These workers will face premium increases thanks to Obamacare.

All these workers will face premium increases as a direct result of provisions in Obamacare. And that assumes that workers will get to keep their coverage at all. For the nearly one in five (19%) workers in high-deductible plans, Secretary Sebelius and HHS will publish regulations that hold the potential for many, if not most, high-deductible plans to be considered NOT “government-approved.” And given that premiums in high-deductible and consumer-driven health plans were more than $2,000 cheaper than the average PPO insurance policy, according to the Kaiser study, a finding by the Administration that these plans are not “government-approved” will result in millions more Americans BOTH losing their current coverage AND being forced to purchase even more expensive insurance.

Democrats will claim that today’s higher premiums are an anomaly. But looking at the survey data, and analyzing the provisions of the law, it becomes obvious that when it comes to skyrocketing premiums thanks to Obamacare, you ain’t seen nothing yet.

President Obama’s Two-fold Dishonesty on Cutting Medicare Benefits

Amidst the debate on the campaign trail, there’s been a lot of heated rhetoric of late about Medicare “benefits” and who’s doing what (or not) to them.  For instance, in a recent speech the President said that “I’ve proposed reforms that will save Medicare money by getting rid of wasteful spending in the health care system.  Reforms that will not touch your Medicare benefits.”

There’s only one problem: That statement is flat-out FALSE.  The President HAS enacted cuts to Medicare benefits — namely, additional means-testing in Obamacare –and proposed even more Medicare benefit cuts.  For instance, in his budget submitted to Congress this spring, the President proposed:

  • Increasing means-tested premiums under Parts B and D by 15%, and freezing the income thresholds at which means testing applies until 25 percent of beneficiaries are subject to such premiums;
  • Increasing the Medicare Part B deductible by $25 in 2017, 2019, and 2021;
  • Introducing a home health co-payment of $100 per episode in cases where an episode lasts five or more visits and is NOT proceeded by a hospital stay; and
  • Imposing 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.

The problem is not necessarily the policy proposals for these particular benefit cuts, which many may find meritorious.  The Medicare Payment Advisory Commission (MedPAC) has previously recommended introducing home health co-payments as a way to ensure appropriate utilization.  Congresses controlled by both Republicans and Democrats have enacted some (limited) means-testing in Medicare.  And Medigap reform has been an element ofbipartisan proposals to extend Medicare’s solvency and make the program more efficient.

Instead, the fundamental problem is the President’s twofold dishonesty when it comes to cutting Medicare benefits.  First, in saying that he hasn’t proposed cutting Medicare benefits when he has.  Second, and just as importantly, in the way he has proposed cutting those benefits — all the benefit changes the President proposed in his budget would not take effect until 2017, after he leaves office.  Just like with the Cadillac tax — scheduled to take effect in 2018 — or the massive changes to Exchange insurance subsidies that will make health care less affordable after 2019, Barack Obama wants to give away all the government “goodies” while he’s in office — and stick the next President with the bill after he leaves.  That’s not leadership; that’s the antithesis of leadership.