Tag Archives: federalism

Summary of Fiscal Year 2018 Budget

UPDATE: The official White House budget document, posted on Tuesday, revealed an additional policy proposal, extending a series of mandatory spending programs included in the 2015 Medicare Access and SCHIP Reauthorization Act (MACRA) for two more years. These programs include community health center funding, the National Health Service Corps, abstinence education programs, health profession opportunity grants, and other related public health programs. These proposals would cost a total of $9.9 billion over a decade, of which the majority ($7.2 billion) would go toward community health centers.

Some conservatives may be concerned that the Trump Administration’s proposal for a temporary, two-year extension of these mandatory spending provisions would effectively re-create the scenario caused by the Medicare sustainable growth rate — which saw mandatory spending being extended in piecemeal increments, so as to hide the spending’s full deficit impact.

Original post follows below…

Late Monday afternoon, a document briefly appeared on the Department of Health and Human Services website as the Fiscal Year 2018 Budget in Brief. It’s unclear whether the document was a draft of the HHS budget, or merely a case of a staffer posting the official document online too early (our money would be on the latter). It also must be noted that other budget materials—the White House/Office of Management and Budget document, as well as supplemental materials from the Treasury and others—provide more detail and information not present solely within the HHS budget.

That said, based on the review of the document posted, the health budget seems in many respects functionally incoherent:

  • It proposes significant entitlement savings from Medicaid, over and above those included in Obamacare repeal, while proposing no direct savings from Medicare—a program that will spend more than $9 trillion in the coming decade, and which faces insolvency by 2028;
  • It grants states more flexibility with regards to Medicaid reform, while with respect to medical liability reform, it prescribes a solution from Washington—one that conservatives have argued is inconsistent with Tenth Amendment principles; and
  • It assumes $250 billion in savings from Obamacare repeal—more than the most recent estimate of the House legislation—a “magic asterisk” not likely to be achieved, but one on which the budget relies in order to achieve balance within a decade.

A summary of the document follows below.  We will have further information on the budget in the coming days, as more materials get released.

Discretionary Spending

While press reports in recent days have focused on the amount of “cuts” proposed in the President’s budget, it’s worth noting the HHS budget’s overall spending levels. When it comes to budget authority, the budget would spend $1.113 trillion in Fiscal Year 2018, which is a 1.24% reduction compared to the $1.127 trillion preliminary number for the current fiscal year, and a 0.54% reduction compared to the $1.119 trillion for Fiscal Year 2016.

Furthermore, the HHS budget actually increases the number of full-time equivalents (FTEs) within the Department—from 77,499 in FY16, to 79,505 in FY17, to 80,027 in FY18.

When compared to Fiscal Year 2017 amounts, the budget calls for the following changes in discretionary spending by major HHS divisions (tabulated by budget authority):

  • $850 million (31.0%) reduction for the Food and Drug Administration, as the Administration proposes increasing FDA user fees to compensate for reductions in taxpayer funding;
  • $449 million (4.2%) reduction for the Health Services and Resources Administration;
  • $55 million (1.1%) reduction for the Indian Health Service;
  • $1.3 billion (17.2%) reduction for the Centers for Disease Control;
  • $5.78 billion (18.2%) reduction for the National Institutes of Health;
  • $385 million (9.3%) reduction for the Substance Abuse and Mental Health Services Administration; and
  • $379 million (9.6%) reduction for the discretionary portion of the Centers for Medicare and Medicaid Services program management account.

Food and Drug Administration:  As noted above, the budget envisions a “recalibration” of how to pay for FDA pre-market review activities. Specifically, the budget would increase industry user fees “to fund 100 percent of cost for pre-market review and approval activities” for brand and generic prescription drugs and medical devices.

Medicare Proposals (Total savings of $22.6 Billion, including interactions)

Medicare Appeals:  Proposes new mandatory spending of $127 million in Fiscal 2018, and $1.27 billion over a decade, to address the pending backlog of Medicare appeals.

IPAB Repeal:  Repeals Obamacare’s Independent Payment Advisory Board (IPAB), at a cost of $7.6 billion over a decade. While opposing Obamacare’s notion that a board of unelected bureaucrats should be empowered to make rulings lowering Medicare spending nationwide, some conservatives may also oppose efforts to repeal a spending constraint on our nation’s largest health care entitlement without any similar efforts to control the program’s large (and growing) outlays.

Liability Reform:  Achieves Medicare savings of $31.4 billion from medical liability reforms. The reforms would impose caps on non-economic damages, provide safe harbors for physicians based on following clinical guidelines, allow for the creation of health courts, provide for a three-year statute of limitations, eliminate joint and several liability, allow courts to modify contingency arrangements, and provide for periodic payments for large jury awards.

The proposal would yield total savings of $55 billion overall. The largest share of $31.4 billion would come from Medicare—in part because a portion of physician fees are based on medical liability insurance payments. Medicaid savings would total $399 million. Much of the remaining $23.2 billion would come from revenue interactions with the current exclusion from employer-provided health insurance—i.e., a lowering of health insurance costs and premiums resulting in workers receiving slightly less of their compensation as pre-tax health benefits, and slightly more of their compensation as after-tax cash wages.

While supporting the concept of liability reform generally, some conservatives may be concerned that the budget’s proposals violate the principles of federalism. States can enact liability reforms on their own—and many states like Texas have done so, without any mandates from Washington. Some conservatives may therefore view this proposal as an example of “big government conservatism” inconsistent with the Tenth Amendment.

Medicaid and Other Health Proposals (Total savings of $627 Billion)

The HHS document notes that “the budget includes a net savings to Medicaid of $627 billion over 10 years, not including additional savings to Medicaid as a result of the Administration’s plan to repeal and replace Obamacare.”

Medicaid Reform:  Assumes $610 billion in savings (again, over and above Obamacare repeal) from Medicaid reform, giving states the choice between a per capita cap or a block grant beginning in 2020. The document specifically notes that this proposal will allow states to promote solutions that encourage work and promote personal responsibility.

State Children’s Health Insurance Program:  Assumes a two-year reauthorization of the State Children’s Health Insurance Program (SCHIP). The budget also proposes eliminating two Obamacare-related provisions—the increase in the enhanced federal match rate for SCHIP, and the maintenance of effort requirements imposed on states—in both cases at the end of the current fiscal year.

The budget would cap the level at which states could receive the enhanced federal SCHIP match at 250 percent of the federal poverty level ($61,500 for a family of four in 2017). Some conservatives would argue that this provision is one way to ensure federal funds are directed towards the vulnerable populations that need them most; guidance issued by the Bush Administration in 2007 provides other examples of potential policies to include.

Finally, the budget also proposes undoing an Obamacare change that required states to transition certain children off of SCHIP and into expanded Medicaid, allowing states to re-enroll these children into SCHIP.

On net, the SCHIP extension would save the federal government $5.8 billion over ten years, reflecting new costs to the SCHIP program ($13.9 billion), savings to Medicaid ($16.7 billion), and savings to other federal health programs ($3 billion).

Liability Reform:  As noted above, the budget assumes an additional $399 million in Medicaid savings from enacting liability reform.

Repeal of Obamacare

The budget assumes a net of $250 billion in savings from an Obamacare repeal/replace measure, savings accruing to both HHS and Treasury. Some conservatives, noting that the most recent score of Obamacare legislation showed a net savings of only $150 billion—with more new spending added since then—may question whether or not this assumption is realistic.

Five Questions About This Week’s “Repeal-and-Replace” Developments

At a Thursday morning press conference, Speaker Ryan and House leaders unveiled amendment language providing an additional $15 billion in funding for “invisible high risk pools,” which the House Rules Committee was scheduled to consider Thursday afternoon. That amendment was released following several days of conversations, but no bill text, surrounding state waivers for some (or all—reports have varied on this front) of Obamacare’s “Big Four” regulations—guaranteed issue, community rating, essential health benefits, and actuarial value. Theoretically, states could use the risk pool funds to subsidize the costs of individuals with pre-existing conditions, should they decide to waive existing Obamacare regulations regarding same.

Given these developments regarding risk pools and waivers and regulations (oh my!), it’s worth posing several key questions about the still-fluid discussions:

Do Republicans believe in limited executive authority, or not?

The text of the amendment regarding risk pool funding states that the Administrator of the Centers for Medicare and Medicaid Services (CMS) “shall establish…parameters for the operation of the program consistent with this section.”

That’s essentially all the guidance given to CMS to administer a $15 billion program. Following consultations with stakeholders—the text requires such discussions, but doesn’t necessarily require CMS to listen to stakeholder input—the Administration can define eligible individuals, the standards for qualification for the pools (both voluntary or automatic), the percentage of insurance premiums paid into the program, and the attachment points for insurers to receive payments from the program.

This extremely broad language raises several potential concerns:

  • Health and Human Services Secretary Tom Price has previously cited the number of references to “the Secretary shall” or “the Secretary may” in Obamacare as showing his ability to modify, change, or otherwise undermine the law. Republicans who give such a broad grant of authority to the executive would allow a future Democrat Administration to return the favor.
  • Nothing in the amendment text directs funding towards the states that actually utilize the waiver process being discussed. In other words, states that opt-out of the Obamacare regulations, and wish to utilize the funds to help individuals with pre-existing conditions affected by same, could lose out on funding to those states that retain all of the Obamacare regulations.
  • The wide executive authority does little to preclude arbitrary decisions by the executive. If the Administration wants to “come after” a state or an insurer, this broad grant of power may give the Administration the ability to do so, by limiting their ability to claim program funds.

As I have previously written, some conservatives may believe that the answer to Barack Obama’s executive unilateralism is not executive unilateralism from a Republican Administration. Such a broad grant of authority to the executive in the risk pool program undermines that principle, and ultimately Congress’ Article I constitutional power.

Do Republicans believe in federalism, or not?

Section (c)(3) of the amendment text allows states to operate risk pools in their respective states, beginning in 2020. However, the text also states that the parameters under which those state pools will operate will be set at the federal level by CMS. Some may find it slightly incongruous that, even as Congress debates allowing states to opt-out of some of Obamacare’s regulations, it wants to retain control of this new pot of money at the federal level, albeit while letting states implement the federally-defined standards.

How is the new funding for “invisible high risk pools” substantively different from Obamacare’s reinsurance program?

Section (d)(5) of the amendment text requires CMS to establish “the dollar amount of claims for eligible individuals after which the program will provide payments to health insurance issuers and the proportion of such claims above such dollar amount that the program will pay.”

The amendment language echoes Section 1341(b)(2) of Obamacare, which required the Administration to establish payments to insurers for Obamacare’s reinsurance program. That existing reinsurance mechanism, like the proposed amendment text, has attachment points (an amount at which reinsurance kicks in) and co-insurance (health insurers will pay a certain percentage of claims above the attachment point, while the program funding will pay a certain percentage).

Congressional leadership previously called the $20 billion in Obamacare reinsurance funding a “bailout” and “corporate welfare.” But the $15 billion in funding under the proposed amendment echoes the Obamacare mechanism—only with more details missing and less oversight. Why do Republicans now support a program suspiciously similar to one that they previously opposed?

Why do conservatives believe any states will actually apply for regulatory waivers?

The number of states that have repealed Obamacare’s Medicaid expansion thus far is a nice round figure: Zero. Given this experience, it’s worth asking whether any state would actually take Washington up on its offer to provide regulatory relief—particularly because Congress could decide to repeal all the regulations outright, but thus far has chosen not to do so.

Moreover, if Congress places additional conditions on these waivers, as some Members have discussed, even states that want to apply for them may not qualify. Obamacare already has a waiver process under which states can waive some of the law’s regulations—including the essential health benefits and actuarial value (but not guaranteed issue and community rating). However, those waiver requirements are so strict that no states have applied for these types of waivers—Health Savings Account and other consumer-directed health care options likely do not meet the law’s criteria. If the House plan includes similarly strict criteria, the waivers will have little meaning.

Will the Administration actively encourage states to apply for regulatory waivers?

President Trump has previously stated that he wants to keep Obamacare’s pre-existing conditions provisions in place. Those statements raise questions about how exactly the Administration would implement a program seeking to waive those very protections. Would the Administration actively encourage states to apply? If so, why won’t the Administration support repealing those provisions outright—rather than requiring states to come to the federal government to ask permission?

Conversely, if the Administration wishes to discourage states from using this waiver program, it has levers to do so. As noted above, the current amendment language gives the Administration very broad leeway regarding the $15 billion risk pool program—such that the Administration could potentially deny funds to states that move to waive portions of the Obamacare regulations.

The combination of the broad grant of authority to the executive, coupled with the President’s prior comments wanting to keep Obamacare’s pre-existing conditions provision, could lead some conservatives to question whether or not they are being led into a potential “bait-and-switch” scenario, whereby the regulatory flexibility promised prior to the bill’s passage suddenly disappears upon enactment.

Federalism’s Quiet Victory

More than a week after the Supreme Court ruling on Obamacare, some have discovered the ruling was not the unqualified victory for the Obama Administration that reporters made it out to be on the day of the decision.  Multiple press reports have focused on statements by governors indicating they may not, or will not, participate in the law’s now-optional expansion of Medicaid. (A good summary of where states stand on the expansion based on public comments to date can be found here.)

On the substance, it’s easy to see why states would be greatly concerned.  As Matt Salo, head of the National Association of Medicaid Directors, stated, the idea that the Medicaid expansion is “free” to states is nothing but a massive prevarication:

State officials retort that the notion that expansion is free for states until 2017 is “a big lie,” in Salo’s words.  While the federal government will pay many of the administrative costs, states will share in the expense of some information technology and personnel.  And the requirement that most individuals carry insurance is expected to spur at least some of an estimated 13 million people who currently qualify for Medicaid, but are not enrolled to sign up, Salo said.  States will receive their traditional federal funding match for those people.

Those administrative costs will be significant — one Heritage Foundation study pegged them at nearly $12 billion in the first six years alone.  And there’s also the fact that the law’s spending reductions are widely predicted by experts to be unsustainable, meaning it’s entirely possible Congress could reduce the federal Medicaid match –sticking the states with even more added costs – down the line if lawmakers need to undo Medicare payment reductions to ensure seniors still have access to care.

More fundamentally, however, the ruling gives states something they have not had in their relations with the federal government in quite some time – leverage.  The federal government will no longer be able blithely to dismiss state concerns, or order them to expand Medicaid just as Washington says — or else.  It’s particularly noteworthy that just one day after the Supreme Court ruling, former Speaker Pelosi publicly floated the idea of “re-thinking” the federal Medicaid match — increasing the federal share to compensate states for their unfunded mandates.  It’s unclear whether that would actually happen — or if so how the increased federal payments would be paid for — but it shows that in light of the ruling, federal politicians cannot ignore states’ concerns, a step in the right direction in restoring the long-lost balance between Washington and the states.

And that is as the Framers intended it to be.  In Federalist 46, James Madison wrote that federal infringements on the states would spark popular outrage, just as Obamacare sparked a majority of states to sue the federal government for exercising unconstitutional coercive power on their sovereignty:

Should an unwarrantable measure of the federal government be unpopular in particular States, which would seldom fail to be the case, or even a warrantable measure be so, which may sometimes be the case, the means of opposition to it are powerful and at hand.  The disquietude of the people; their repugnance and, perhaps, refusal to co-operate with the officers of the Union; the frowns of the executive magistracy of the State; the embarrassments created by legislative devices, which would often be added on such occasions, would oppose, in any State, difficulties not to be despised; would form, in a large State, very serious impediments; and where the sentiments of several adjoining States happened to be in unison, would present obstructions which the federal government would hardly be willing to encounter.

But ambitious encroachments of the federal government, on the authority of the State governments, would not excite the opposition of a single State, or of a few States only.  They would be signals of general alarm.  Every government would espouse the common cause.  A correspondence would be opened. Plans of resistance would be concerted. One spirit would animate and conduct the whole.  The same combinations, in short, would result from an apprehension of the federal, as was produced by the dread of a foreign, yoke; and unless the projected innovations should be voluntarily renounced, the same appeal to a trial of force would be made in the one case as was made in the other.

The Court’s ruling echoed Madison’s comments about the “general alarm” that the law has inflicted upon the states; it struck down the coercive requirements of the Medicaid expansion as “economic dragooning” that puts “a gun to the head” of states.  What’s more, Chief Justice Roberts’ ruling laid down a marker implying that additional laws could also be struck down as unconstitutional impositions on states: “We have no need to fix a line [defining coercion] either.  It is enough for today that wherever that line may be, this statute is surely beyond it.”

Whatever one thinks of the merits of the Chief Justice’s opinion on the individual mandate, the Court’s ruling on the Medicaid expansion is already having an impact on politics and policy in dozens of states — and the constitutional implications of the decision could influence the state-federal relationship for years to come.  This at least is an outcome many conservatives can value.

George Will on Obamacare and Federalism

If you have some time this snowy Saturday, I would highly recommend George Will’s Sunday column (pasted in full below) as a good read.  The piece summarizes the lesser-known element of the Obamacare challenges to be heard by the Supreme Court in two months’ time – the argument that the law’s Medicaid expansion represents a commandeering of the states, in violation of the Tenth Amendment.  The article notes that any state refusing to expand its Medicaid program under Obamacare will forfeit ALL Medicaid funding; studies have demonstrated such a scenario would be so economically (therefore politically) remote as to be all but impossible.  And as the states’ brief to the Court noted a few weeks ago, the Court has already adopted the principle that federal strings attached to spending programs can become so great as to be coercive; if the Court will not reject as coercive the largest ever mandated expansion of the program that represents the largest portion of state budgets, what will it reject?  Will notes that it is this argument – limiting principles (or lack thereof) on Congressional power – that unites the challenges to the individual mandate and the Medicaid expansion:

“The Obamacare issues of Medicaid coercion and the individual mandate are twins.  They confront the court with the same challenge, that of enunciating judicially enforceable limiting principles.  If there is no outer limit on Congress’s power to regulate behavior in the name of regulating interstate commerce, then the Framers’ design of a limited federal government is nullified.  And if there is no outer limit on the capacity of this government to coerce the states, then federalism, which is integral to the Framers’ design, becomes evanescent.”

Therein lie the stakes for the American people that the Court will consider later this spring.