Tag Archives: government-run plan

What You Need to Know about Invisible High Risk Pools

Last Thursday afternoon, the House Rules Committee approved an amendment providing an additional $15 billion for “invisible high risk pools.” That surprising development, after several days of frenetic closed-door negotiations and a study on the pools released Friday, may have some in Washington trying to make sense of it all.

If you want the short and dirty, here it is: Thursday’s amendment doesn’t resemble the model cited by pool proponents, undermines principles of federalism, relies on government price controls to achieve much of its premium savings, and requires far more taxpayer funding than the amendment actually provided. But other than that, it’s great!

Want more info? Read on.

The Amendment Text Does Not Match Its Maine Model

The legislative text the Rules Committee adopted last week bears little resemblance to the invisible risk pool model the amendment’s proponents have described.

In response to my article last week asking whether the invisible risk pool funding differs from Obamacare’s reinsurance program, supporters cited a blog post highlighting the way such a pool works in Maine. Under Maine’s program, insurers cede their highest risks to the pool prospectively—i.e., when individuals apply for insurance. Insurers also cede to the pool most of those high-risk patients’ premium payments, to help pay for the patients’ health claims.

Conversely, insurers participating in Obamacare’s reinsurance program receive retrospective payments (i.e., after the patients incur high health costs), and keep all of the premium payments those patients make. In theory, then, those two differences do distinguish the Obamacare reinsurance program from the Maine pool.

But there’s one other key distinction: The amendment the Rules Committee adopted last week doesn’t include the parameters of the Maine model. The original version proposed by Rep. Gary Palmer—the amendment language upon which the Milliman study was based—more closely tracked the Maine model. But the Rules Committee instead passed an amendment with generic language leaving much more discretion to the Trump administration. On Friday, Politico explained why:

The [Milliman] study…assumes that insurers would agree up front to surrender most of the premiums paid by high-risk enrollees, in exchange for protection against potentially costly claims down the line… Palmer included those specifics the first time he proposed adding a risk-sharing program to the [American Health Care Act], roughly two weeks ago. But they were stripped out of the final version presented Tuesday, and likely for good reason…Insurers likely wouldn’t be too enthusiastic about having that much skin in the game. Instead, the amendment essentially tells state and federal officials to sort out the details later—and most importantly, after the program is passed into law.

The federal pools may end up looking nothing like the Maine program advocates are citing as the model—because the administration will determine all those critically important details after the fact. Or, to coin a phrase, we have to pass the bill so that you can find out what’s in it.

The Amendment Undermines State Sovereignty

As currently constructed, the pool concept undermines state sovereignty over insurance markets. Paradoxical as it may sound, the amendment adopted last Thursday is both too broad and too narrow. With respect to the invisible high risk pool concept, the legislation doesn’t include enough details to allow policy-makers and insurers to determine how they will function. As noted above, all of those details were essentially punted to the administration to determine.

But the amendment is also too narrow, in that it conditions the $15 billion on participation in the invisible risk pool model. If a state wants to create an actual high risk pool, or use some other concept to stabilize their insurance markets, they’re out of luck—they can’t touch the $15 billion pot of money.

Admittedly, the amendment the Rules Committee adopted last Thursday isn’t nearly as bad as the original Palmer amendment on invisible pools. That original amendment required all insurers to participate in the invisible pools “as a condition of doing business in a state”—potentially violating both the Fifth Amendment for an unconstitutional taking against insurers, and the Tenth Amendment by undermining states’ sovereignty over their insurance markets and business licensing.

In a post last week, I cited House Speaker Paul Ryan’s February criticism of Obamacare: “They’re subsidies that say, ‘We will pay some people some money if you do what the government makes you do.’” That’s exactly what this amendment does: It conditions some level of funding on states taking some specific action—not the only action, perhaps not even the best action, to stabilize their insurance markets, just the one Washington politically favors, therefore the one Washington will attempt to make all states take.

Ryan was right to criticize the Obamacare insurance subsidy system as “not freedom.” The same criticism applies to the invisible pool funding—it isn’t freedom. It also isn’t federalism—it’s big-government, nanny-state “conservatism.”

The Pools’ Claimed Benefits Derive From Price Controls

Much of the supposed benefits of the pools come as a result of government-imposed price controls. The Milliman study released Friday—and again, conditioned upon parameters not present in the amendment the Rules Committee adopted Thursday—models two possible scenarios.

The first scenario would create a new insurance pool in “repeal-and-replace” legislation, with the invisible pools applying only to the new market (some individuals currently on Obamacare may switch to the new market, but would not have to). The second scenario envisions a single risk pool for insurers, combining existing enrollees and new enrollees under the “replace” plan.

In both cases, Milliman modeled assumptions from the original Palmer amendment (i.e., not the one the Rules Committee adopted last Thursday) that linked payments from the invisible risk pools to 100 percent of Medicare reimbursement rates. The study specifically noted the “favorable spread” created as a result of this requirement: the pool reduces premiums because it pays doctors and hospitals less than insurers would.

Under the first scenario, in which Obamacare enrollees remain in a separate market than the new participants in “replace” legislation, a risk pool reimbursing at Medicare rates would yield total average rate reductions of between 16 and 31 percent. But “if [risk pool] benefits are paid based on regular commercially negotiated fees, the rate reduction becomes 12% to 23%”—about one-third less than with the federally dictated reimbursement levels.

Under the second scenario, in which Obamacare and “replace” enrollees are combined into one marketplace, premiums barely drop when linked to commercial payment rates. Premiums would fall by a modest 4 to 14 percent using Medicare reimbursement levels, and a miniscule 1 to 4 percent using commercial reimbursement levels.

Admittedly, the structure of the risk pool creates an inherent risk of gaming—insurers could try to raise their reimbursement rates to gain more federal funds from the pool. But if federal price controls are the way to lower premiums (and for the record, they aren’t), why not just create a government-run “public option” linked to Medicare reimbursement levels and be done with it?

The Study Says This Doesn’t Provide Enough Money

According to the study, the amendment adopted doesn’t include enough federal funding for invisible risk pools. The Milliman study found that invisible risk pools will require more funding than last Thursday’s amendment provided—and potentially even more funding than the entire Stability Fund. Under both scenarios, the invisible risk pools would require anywhere from $3.3 billion to $17 billion per year in funding, or from $35 billion to nearly $200 billion over a decade.

By contrast, Thursday’s amendment included only $15 billion in funding to last from 2018 through 2026. And the Stability Fund itself includes a total of $130 billion in funding—$100 billion in general funds, $15 billion for maternity and mental health coverage, and the $15 billion specifically for invisible risk pools. If all 50 states participate, the entire Stability Fund may not hold enough money needed to fund invisible risk pools.

Remember too that the Milliman study assumes that 1) insurers will cede most premium payments from risk pool participants to help finance the pool’s operations and 2) the pool will pay claims using Medicare reimbursement rates. If either or both of those two assumptions do not materialize—and insurers and providers will vigorously oppose both—spending for the pools will increase still further, making the Milliman study a generous under-estimate of the program’s ultimate cost.

Let States Take the Reins

All of the above notwithstanding, the invisible high risk pool model could work for some states—emphasis on “could” and “some.” If states want to explore this option, they certainly have the right to do so.

But, as Obamacare itself has demonstrated, Washington does not represent the source and summit of all the accumulated wisdom in health care policy. States are desperate for the opportunity to innovate, and create new policies in the marketplace of ideas—not have more programs foisted upon them by Washington, as the Rules Committee amendment attempts to do. Moving in the direction of the former, and not the latter, would represent a true change of pace. Here’s hoping that Congress finally has the courage to do so.

This post was originally published at The Federalist.

Past as Prologue? A Review of “The System”

A young president promising hope and change takes over the White House. Immediately embarking upon a major health-care initiative, he becomes trapped amidst warring factions in his party in Congress, bickering interest groups, and an angry public, all laying the groundwork for a resounding electoral defeat.

Barack Obama, circa 2009-10? Most definitely. But the same story also applies to Bill Clinton’s first two years in office, a period marked by a health-care debate in 1993-94 that paved the way for the Republican takeover of both houses of Congress.

In their seminal work “The System,” Haynes Johnson and David Broder recount the events of 1993-94 in detail—explaining not just how the Clinton health initiative failed, but also why. Anyone following the debate on Obamacare repeal should take time over the holidays to read “The System” to better understand what may await Congress and Washington next year. After all, why spend time arguing with your in-laws at the holiday table when you can read about people arguing in Congress two decades ago?

Echoes of History

For those following events of the past few years, the Clinton health debate as profiled in “The System” provides interesting echoes between past and present. Here is Karen Ignani of the AFL-CIO, viewed as a single-payer supporter and complaining that insurance companies could still “game the system” under some proposed reforms. Ironic sentiments indeed, as Ignani went on to chair the health insurance industry’s trade association during the Obamacare debate.

There are references to health care becoming a president’s Waterloo—Johnson and Broder attribute that quote to Grover Norquist, years before Sen. Jim DeMint uttered it in 2009. Max Baucus makes an appearance—he opposed in 1994 the employer mandate he included in Obamacare in 2009—as do raucous rallies in the summer of 1994, presaging the Obamacare town halls 15 years later.

Then there are the bigger lessons and themes that helped define the larger debate:

“Events, Dear Boy, Events:” The axiom attributed to Harold Macmillan about leaders being cast adrift by crises out of their control applied to the Clintons’ health-care debate. Foreign crises in Somalia (see “Black Hawk Down”) and Haiti sapped time on the presidential calendar and press attention, and distracted messaging. During the second half of 2009, Obama spent most of his time and energy focused on health care, leading some to conclude he had turned away from solving the economic crisis.

Old Bulls and Power Centers: “The System “spends much more time profiling the chairs of the respective congressional committees—including Dan Rostenkowski at House Ways and Means, John Dingell at House Energy and Commerce, and Patrick Moynihan at Senate Finance—than would have been warranted in 2009-10. While committee chairs held great power in the early 1990s, 15 years later House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid called most of the legislative shots from their leadership offices.

Whereas the House marked up three very different versions of health-care legislation in 1993-94, all three committees started from the same chairman’s mark in 2009. With Speaker Paul Ryan, like John Boehner before him, running a much more diffuse leadership operation than Pelosi’s tightly controlled ship, it remains to be seen whether congressional leaders can drive consensus on both policy strategy and legislative tactics.

The Filibuster: At the beginning of the legislative debate in 1993, Robert Byrd—a guardian of Senate rules and procedures—pleaded for Democrats not to try and enact their health agenda using budget reconciliation procedures to avoid a filibuster. Democrats (begrudgingly) followed his advice in 1993, only to ignore his pleadings 16 years later, using reconciliation to ram through changes to Obamacare. Likewise, what and how Republicans use reconciliation, and Democrats use the filibuster, on health care will doubtless define next year’s Senate debate.

Many Obama White House operatives such as Rahm Emanuel, having lived through the Clinton debate, followed the exact opposite playbook to pass Obamacare.

They used the time between 1993 and 2009 to narrow their policy differences as a party. Rather than debating between a single-payer system and managed competition, most of the political wrangling focused on the narrower issue of a government-run “public option.” Rather than writing a massive, 1,300-page bill and dropping it on Capitol Hill’s lap, they deferred to congressional leaders early on. Rather than bashing special interest groups publicly, they cut “rock-solid deals” behind closed doors to win industry support. While their strategy ultimately led to legislative success, the electoral consequences proved eerily similar.

Lack of Institutional Knowledge

The example of Team Obama aside, Washington and Washingtonians sometimes have short memories. Recently a reporter e-mailed asking me if I knew of someone who used to work on health care issues for Vice President-elect Mike Pence. (Um, have you read my bio…?) Likewise, reporters consider “longtime advisers” those who have worked the issue since the last presidential election. While there is no substitute for experience itself, a robust knowledge of history would come in a close second.

Those who underestimate the task facing congressional Republicans would do well to read “The System.” Having read it for the first time the week of President Obama’s 2009 inauguration, I was less surprised by how that year played out on Capitol Hill than I was surprised by the eerie similarities.

George Santayana’s saying that “Those who cannot remember the past are condemned to repeat it” bears more than a grain of truth. History may not repeat itself exactly, but it does run in cycles. Those who read “The System” now will better understand the cycle about to unfold before us in the year ahead.

This post was originally published at The Federalist.

How Bailing Out Health Insurers Will Lead to Single Payer Health Care

The bad news for Obamacare keeps on coming. Major health carriers are leaving insurance exchanges, and other insurance co-operatives the law created continue to fail, leaving tens of thousands without health coverage. Those on exchanges who somehow manage to hold on to their insurance will face a set of massive premium increases—which will hit millions of Americans weeks before the election.

Many on the Right believe Obamacare was deliberately designed to fail, and fear that we’re on a slippery slope toward single-payer. On the other side of the spectrum, the Left hopes conservatives’ fears—and liberals’ dreams—will be answered. But is either side right?

The reality is more nuanced than the rhetoric would suggest. Whether government runs all of health care is less material than whether government pays for all of health care. The latter will, sooner or later, lead to the former. That’s why the debate over bailing out Obamacare is so important. Ostensibly “private” health insurers want tens of billions of dollars in taxpayer-funded subsidies—because they claim these subsidies are the only thing standing between a government-run “public option” or a single-payer system.

But the action insurers argue will prevent a government-run system will in reality create one. If insurers get their way, and establish the principle that both they and Obamacare are too big to fail, we will have created a de facto government-run insurance system. Whether such system is run through a handful of heavily regulated, crony capitalist “private” insurers or government bureaucrats represents a comparatively trifling detail.

The Biggest Wolf Is Not the Closest

In considering the likelihood of single-payer health care, one analogy lies in the axiom that one should shoot the wolf outside one’s front door. Single-payer health care obviously represents the biggest wolf—but not the closest. While liberals no doubt want to create a single-payer health care system—Barack Obama has repeatedly said as much—they face a navigational problem: Can you get there from here?

The answer is no—at least not in one fell swoop. Creating a single-payer system would throw 177.5 million Americans off their employer-provided health insurance. That level of disruption would be orders of magnitude greater than the cancellation notices associated with the 2013 “like your plan” fiasco, which itself prompted President Obama to beat a hasty, albeit temporary, retreat from Obamacare’s mandates. Recall too that the high taxes needed to fund a statewide single-payer effort prompted Vermont—Vermont—to abandon its efforts two years ago.

Understanding the political obstacles associated with throwing half of Americans off their current health insurance, liberals’ next strategy has focused on creating a government-run health plan to “compete” with private insurers. Hillary Clinton endorsed this approach, and Democratic senators made a new push on the issue this month. When stories of premium spikes and plan cancellations hit the fan next month, liberals will inevitably claim that a government-run plan will solve all of Obamacare’s woes (although even some liberal analysts admit the law’s real problem is a product healthy people don’t want to buy).

Can the Left succeed at creating a government-run health plan? Probably not at the federal level. Liberals have noted that only one Democratic Senate candidate running this year references the so-called “public option” on his website. Thirteen Senate Democrats have yet to co-sponsor a resolution by Sen. Jeff Merkley (D-Oregon) calling for a government-run plan. Such legislation faces a certain dead-end as long as Republicans control at least one chamber of Congress. Given the failure to enact a government-run plan with a 60-vote majority in 2009, an uncertain future even under complete Democratic control.

What About Single-Payer Inside States?

What then of state efforts to create a government-run health plan? The Wall Street Journal featured a recent op-ed by Scott Gottlieb on this subject. Gottlieb notes that Section 1332 of Obamacare allows for states to create and submit innovation waivers—waivers that a Hillary Clinton administration would no doubt eagerly approve from states wanting to create government-run plans. He also rightly observes that the Obama administration has abused its authority to approve costly Medicaid waivers despite supposed requirements that these waivers not increase the deficit; a Clinton administration can be counted on to do the same.

But another element of the state innovation waiver program limits the Left’s ability to generate 50 government-run health plans. Section 1332(b)(2) requires states to enact a law “that provides for state actions under a waiver.” The requirement that legislation must accompany a state waiver application will likely limit a so-called “public option” to those states with unified Democratic control. Because Obamacare, and the 2010 and 2014 wave elections it helped spark, decimated the Democratic Party, Democrats currently hold unified control in only seven states.

Even at the state level, liberals will be hard-pressed to find many states in which to create their socialist experiment of a government-run health plan. In those few targets, health insurers and medical providers—remember that government-run health plans can only “lower” costs by arbitrarily restricting payments to doctors and hospitals—will make a powerful coalition for the Left to try and overcome. Also, in the largest state, California, the initiative process means that voters—and the television ads health-care interests will use to influence them—could ultimately decide the issue, one way or the other.

So if single-payer represents the biggest wolf, but not the one closest to the door, and government-run plans represent a closer wolf, but only a limited threat at present, what does represent the wolf at the door? Simple: the wolf in sheep’s clothing.

Too Big To Fail, Redux

The wolf in sheep’s clothing comes in the form of insurance industry lobbyists, who have been arguing to Republican staff that only making the insurance exchanges work will fend off calls for a government-run plan—or, worse, single-payer. They claim that extending and expanding the law’s current bailouts—specifically, risk corridors and reinsurance—can stabilize the market, and prevent further government intrusion.

Well, they would say that, wouldn’t they. But examining the logic reveals its hollowness: If Republicans pass bad policy now, they can fend off even worse policy later. There is of course another heretofore unknown concept of conservative Republicans choosing not to pass bad policy at all.

That’s why comments suggesting that at least some Republicans believe Obamacare must be fixed no matter who is elected president on November 8 are so damaging. That premise that Congress must do something because Obamacare and its exchanges are “too big to fail” means health insurers are likewise “too big to fail.” If this construct prevails, Congress will do whatever it takes for the insurers to stay in the marketplace; if that means turning on the bailout taps again, so be it.

But once health insurers have a clear backstop from the federal government, they will take additional risk. Insurers have said so themselves. In documents provided to Congress, carriers admitted they under-priced premiums in the law’s first three years precisely because they believed they had an unlimited tap on the federal fisc to cushion their losses. Republican efforts in Congress to rein in that bailout spigot have met furious lobbying by health insurers—and attempts by the Obama administration to strike a corrupt bargain circumventing Congress’ restrictions.

Efforts to end the bailouts and claw back as much money as possible to taxpayers would shoot the wolf at the door. Giving insurers more by way of bailout funds—socializing their risk—will only encourage them to take additional risk, exacerbating a boom-and-bust cycle that will inevitably result in a federal takeover of all that risk. When the federal government provides the risk backstop, you have a government-run system, regardless of who administers it.

While the insurance industry may view more bailouts as their salvation, Obamacare’s version of TARP looks more like a TRAP. By socializing losses, purportedly to prevent single-payer health care, creating a permanent insurer bailout fund will effectively create one. While remaining mindful of the other wolves lurking, Congress should focus foremost on eliminating the one at its threshold: Undo the Obamacare bailouts, and prove this law is not too big to fail.

This post was originally published at The Federalist.

Have Republicans Gone Wobbly on Obamacare?

In the weeks after Saddam Hussein’s August 1990 invasion of Kuwait, British Prime Minister Margaret Thatcher famously remarked to President George H.W. Bush that “this was no time to go wobbly.” The Iron Lady’s maxim could well have applied to the Senate majority leader last week, when he made comments suggesting Republicans should have a hand in “fixing” Obamacare—the law collapsing in front of our very eyes—in 2017.

In comments at a Chamber of Commerce event in Louisville last Monday, Sen. Mitch McConnell (R-Kentucky) said the law “is crashing”—an obvious statement to all but the law’s most grizzled supporters. But McConnell also “said the next president will have to work with Congress to keep the situation from worsening, though he did not specifically say the health care law would be repealed.”

Those last comments in particular—about the imperative to “fix” Obamacare—should cause conservatives to remember three key points.

1. It’s Not Conservatives’ Job to Fix Liberals’ Bad Law

A crass political point, perhaps, but also an accurate one. Barack Obama, Nancy Pelosi, and Harry Reid rammed Obamacare through on a straight party-line vote, despite Republicans’ warnings, because, in President Obama’s words, “I’m feeling lucky.” These days, it’s the American people who might not be feeling so lucky, with insurers leaving the insurance exchanges in droves and premiums ready to spike.

Some might ask the reasonable question whether Republicans, as the governing party in Congress, should come together for the good of the country to make President Obama’s disastrous law work. But ask yourself what Democrats would do if the circumstances were reversed: Do you think that, if Republicans had enacted premium support for Medicare or personal accounts for Social Security on a straight-party line vote, and those new programs suffered from technical and logistical problems, Pelosi and Reid would put partisanship aside and try to fix the reformed programs? If you do, I’ve got some land to sell you.

We know Reid and Pelosi wouldn’t come together in the national interest, because they didn’t do so ten years ago to support the surge in Iraq. Instead, they passed legislation undermining the surge and calling for a troop withdrawal. The surge succeeded despite Reid and Pelosi, not because of them. So if Democrats abandoned the national interest to score political points a decade ago, why should Republicans bail them out of their Obamacare woes now?

2. Hillary Clinton’s Proposed ‘Solutions’ Range from Bad to Worse

On health care, Hillary Clinton’s campaign proposals have thus far fallen largely into three buckets: 1) increasing Obamacare subsidies, paid for by tax increases; 2) creating a government-run health plan; and 3) expanding price controls against pharmaceutical companies. Conservatives should endorse exactly none of those proposals. Moreover, Clinton’s proposals would actually exacerbate the exchanges’ fundamental problem: A product too few individuals want to buy because federal regulations and mandates have driven up premiums, making the purchase of coverage irrational for all but the sickest individuals.

But McConnell’s statement that “exactly how it [Obamacare] is changed will depend on the election” implies that a Clinton victory will allow her to set the tone and agenda for negotiations on “fixing” Obamacare. It also implies that Republicans should begin negotiating against themselves, and start rationalizing ways to accept proposals coming from a President Hillary: “Well, we could live with a government-run health plan, provided it were state-based…” or “We might be able to justify billions more in spending on new subsidies if…”

In addition to representing the antithesis of good negotiation, such a strategy brings with it both policy and political risk. Negotiating changes to Obamacare on a bipartisan basis puts Republicans on the hook if those changes don’t work. Clinton’s ideas for more taxes, regulations, and spending won’t make the exchanges solvent; if anything, they will only postpone the inevitable for a while longer.

3. Ridiculous Straw Men Can’t Justify Bailouts

Insurance industry spokesmen have been flooding Republican offices on Capitol Hill making this argument: Congress has to grant insurers massive new bailouts, or the American people will end up with a government-run health plan, or worse, single-payer health care.

That argument relies on several levels of specious reasoning. Unless Republicans lose both houses of Congress in November—a possible outcome, but an unlikely one—insurers’ argument pre-supposes that a Republican Congress will vote to enact a government-run health plan, or single-payer health care. As liberals themselves have pointed out, only one Democrat running for Senate this year even mentioned the so-called “public option” on his website. So why is this government-run health plan even a concern, when Reid couldn’t enact it in 2009 with a 60-vote Senate majority?

The honest answer is it probably isn’t—insurers are just trying to scare Republicans into bailing them out. It’s the oldest straw-man argument in the book: We must do something; this is something; therefore, we must do this.

If you don’t believe me, just read the following: “Everyone in this room knows what will happen if we do nothing. Our deficit will grow. More families will go bankrupt. More businesses will close. More Americans will lose their coverage when they are sick and need it the most. And more will die as a result. We know these things to be true.”

Those words come from none other than Barack Obama, as he tried to sell Obamacare in his address to Congress in September 2009. We know where that speech led us, and we should know better than to follow such illogical reasoning again.

Phineas Taylor Barnum once famously remarked that “There’s a sucker born every minute.” Here’s hoping that Republicans will disprove that adage next year, and decline to accept the sucker’s bet associated with trying to fix an inherently unfixable law.

This post was originally published at The Federalist.

Summary of President’s Budget Proposals

Overall, the budget:

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

A full summary follows below.

 

Discretionary Spending

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

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

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

Other Health Care Points of Note

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

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

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

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

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

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

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

 

Medicare Proposals (Total savings of $292.2 Billion)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

208 Things in Obamacare That Democrats Support

Last week, former HELP Committee staffer John McDonough wrote a list of “50 provisions I ask the media to ask Romney et al. if they are committed to repealing as President.”  McDonough noted that “there are [Obamacare] provisions opponents could pick out to create an alternative list for elimination.”

We know a challenge when we hear one; our list is submitted below, with sections from the statute duly noted.  Remember when reading this list:  We KNOW that President Obama and Democrats all support these provisions in Obamacare – because they all voted to enact them into law.  So members of the media can readily ask President Obama and Democrat Members of Congress why they supported a law that…

  1. Imposes $800 billion in tax increases, including no fewer than 12 separate provisions breaking candidate Obama’s “firm pledge” during his campaign that he would not raise “any of your taxes” (Sections 9001-9016)?
  2. Forces Americans to purchase a product for the first time ever (Section 1501)?
  3. Creates a board of 15 unelected and unaccountable bureaucrats to make binding rulings on how to reduce Medicare spending (Section 3403)?
  4. Pays over $800 billion in subsidies straight to health insurance companies (Sections 1401, 1402, and 1412)?
  5. Requires all individuals to buy government-approved health insurance plans, imposing new mandates that will raise individual insurance premiums by an average of $2,100 per family (Section 1302)?
  6. Forces seniors to lose their current health care, by enacting Medicare Advantage cuts that by 2017 will cut enrollment in half, and cut plan choices by two-thirds (Section 3201)?
  7. Imposes a 40 percent tax on health benefits, a direct contradiction of Barack Obama’s campaign promises (Section 9001)?
  8. Relies upon government bureaucrats to “issue guidance on best practices of plain language writing” (Section 1311(e)(3)(B))?
  9. Provides special benefits to residents of Libby, Montana – home of Max Baucus, the powerful Chairman of the Senate Finance Committee, who helped write the law even though he says he hasn’t read it (Section 10323)?
  10. Imposes what a Democrat Governor called the “mother of all unfunded mandates” – new, Washington-dictated requirements of at least $118 billion – at a time when states already face budget deficits totaling a collective $175 billion (Section 2001)?
  11. Imposes reductions in Medicare spending that, according to the program’s non-partisan actuary, would cause 40 percent of all Medicare providers to become unprofitable, and could lead to their exit from the program (Section 3401)?
  12. Raises premiums on more than 17 million seniors participating in Medicare Part D, so that Big Pharma can benefit from its “rock-solid deal” struck behind closed doors with President Obama and Congressional Democrats (Section 3301)?
  13. Creates an institute to undertake research that, according to one draft Committee report prepared by Democrats, could mean that “more expensive [treatments] will no longer be prescribed” (Section 6301)?
  14. Creates a multi-billion dollar “slush fund” doled out solely by federal bureaucrats, which has already been used to fund things like bike paths (Section 4002)?
  15. Subjects states to myriad new lawsuits, by forcing them to assume legal liability for delivering services to Medicaid patients for the first time in that program’s history (Section 2304)?
  16. Permits taxpayer dollars to flow to health plans that fund abortion, in a sharp deviation from prior practice under Democrat and Republican Administrations (Section 1303)?
  17. Empowers bureaucrats on a board that has ruled against mammograms and against prostate cancer screenings to make binding determinations about what types of preventive services should be covered (Sections 2713 and 4104)?
  18. Precludes poor individuals from having a choice of health care plans by automatically dumping them in the Medicaid program (Section 1413(a))?
  19. Creates a new entitlement program that one Democrat called “a Ponzi scheme of the first order, the kind of thing that Bernie Madoff would have been proud of” – a scheme so unsustainable even the Administration was forced to admit it would not work (Section 8002)?
  20. Provides $5 billion in taxpayer dollars to a fund that has largely served to bail out unions and other organizations who made unsustainable health care promises to retirees that they cannot afford (Section 1102)?
  21. Creates a tax credit so convoluted it requires seven different worksheets to determine eligibility (Section 1421)?
  22. Imposes multiple penalties on those who marry, by reducing subsidies (and increasing taxes) for married couples when compared to two individuals cohabiting together (Sections 1401-02)?
  23. Extends the Medicare “payroll tax” to unearned income for the first time ever, including new taxes on the sale of some homes (Section 1402)?
  24. Impedes state flexibility by requiring Medicaid programs to offer a specific package of benefits, including benefits like family planning services (Sections 2001(a)(2), 2001(c), 1302(b), and 2303(c))?
  25. Requires individuals to go to the doctor and get a prescription in order to spend their own Flexible Spending Account money on over-the-counter medicines (Section 9003)?
  26. Expands the definition of “low-income” to make 63 percent of non-elderly Americans eligible for “low-income” subsidized insurance (Section 1401)?
  27. Imposes a new tax on the makers of goods like pacemakers and hearing aids (Section 9009)?
  28. Creates an insurance reimbursement scheme that could result in the federal government obtaining Americans’ medical records (Section 1343)?
  29. Permits states to make individuals presumptively eligible for Medicaid for unlimited 60-day periods, thus allowing any individual to receive taxpayer-funded assistance ad infinitum (Section 2303(b))?
  30. Allows individuals to purchase insurance on government exchanges – and to receive taxpayer-funded insurance subsidies – WITHOUT verifying their identity as American citizens (Section 1411)?
  31. Gives $300 million in higher Medicaid reimbursements to one state as part of the infamous “Louisiana Purchase” – described by ABC News as “what…it take[s] to get a wavering senator to vote for health care reform” (Section 2006)?
  32. Raises taxes on firms who cannot afford to buy coverage for their workers (Section 1513)?
  33. Forces younger Americans to pay double-digit premium increases so that older workers can pay slightly less (Section 1201)?
  34. Prohibits states from modifying their Medicaid programs to include things like modest anti-fraud protections (Section 2001)?
  35. Includes a special provision increasing federal payments just for Tennessee (Section 1203(b))?
  36. Allows individuals to purchase health insurance across state lines – but only if politicians and bureaucrats agree to allow citizens this privilege (Section 1333)?
  37. Allows the HHS Secretary and federal bureaucrats to grant waivers exempting people from Obamacare’s onerous mandates, over half of which have gone to members of union plans (Section 1001)?
  38. Creates a pseudo-government-run plan overseen by the federal government (Section 1334)?
  39. Removes a demonstration project designed to force government-run Medicare to compete on a level playing field with private plans (Section 1102(f))?
  40. Gives the Secretary of HHS an UNLIMITED amount of federal funds to spend funding state insurance Exchanges (Section 1311(a))?
  41. Creates a grant program that could be used by liberal groups like ACORN or AARP to conduct “public education activities” surrounding Obamacare (Section 1311(i))?
  42. Applies new federal mandates to pre-Obamacare insurance policies, thus proving that you CAN’T keep the insurance plan you had – and liked – before the law passed (Sections 2301 and 10103)?
  43. Prohibits individuals harmed by federal bureaucrats from challenging those decisions, either in court or through regulatory processes (Sections 3001, 3003, 3007, 3008, 3021, 3022, 3025, 3133, 3403, 5501, 6001, AND 6401)?
  44. Earmarks $100 million for “construction of a health care facility,” a “sweetheart deal” inserted by a Democrat Senator trying to win re-election (Section 10502)?
  45. Puts yet another Medicaid unfunded mandate on states, by raising payments to primary care physicians, but only for two years, forcing states to come up with another method of funding this unsustainable promise when federal funding expires (Section 1202)?
  46. Imposes price controls that have had the effect of costing jobs in the short time since they were first implemented (Section 1001)?
  47. Prohibits individuals from spending federal insurance subsidies outside government-approved Exchanges (Section 1401(a))?
  48. Provides a special increase in federal hospital payments just for Hawaii (Section 10201(e)(1))?
  49. Imposes new reporting requirements that will cost businesses millions of dollars, and affect thousands of restaurants and other establishments across the country (Section 4205)?

And instead of including a 50th item on our list, we’re going to include 159 separate items.  These are the 159 new boards, bureaucracies, and programs created by Obamacare.  You can find the list here.

No matter which way you look at it, this list provides 208 easy reasons why the American people still continue to reject Democrats’ unpopular 2700-page health care law.

Administration Report Reveals an Inconvenient Truth: Employers WILL Drop Coverage

On Wednesday, the Administration released a brief report claiming to take success for expanding access to coverage through SCHIP.  The Administration’s talking point regarding the report was that 1.2 million previously uninsured children gained coverage through the government-run program.  However, a Washington Post story on the report included this interesting fact, which the official HHS report conveniently omitted:

“In addition to the 1.2 million newly insured children, 3 million children who formerly had private insurance were picked up by [S]CHIP or Medicaid over the same period.”

In other words, for every child who obtained new coverage through the SCHIP program, an additional 2.5 children DROPPED their private coverage to obtain subsidized insurance courtesy of federal taxpayers.  This sky-high “crowd-out” effect – in which individuals drop private coverage to enroll in a government-funded plan – shows just how attractive Obamacare’s lucrative insurance subsidies likely will be to both employees and employers beginning in 2014.

But the same Administration that just released a report showing that only two in seven of the newly enrolled in SCHIP were previously uninsured continues to assert that employers will not drop coverage en masse.  They maintain this position despite the numerous studies, papers, briefs, reports, employer questionnaires, consultant presentations, surveys, op-eds, interviews, quotes, and comments from other prominent Democrats suggesting that employers will drop coverage in numbers far greater than the White House lets on.  However, this week’s report – or, more specifically, the crowd-out numbers that HHS decided to omit from the report – reveal the inconvenient truth this Administration has yet to admit: Employers WILL drop coverage, and the cost of Obamacare will explode as a result.

Liberals’ Silly Contortions over Premium Support

Earlier this week the Center for American Progress released a paper, and former Obama Administration official Zeke Emanuel wrote a blog post, attacking the Ryan-Wyden premium support model.  The gist of both documents is their assertion that government-run Medicare would attract sicker beneficiaries than private plans, and in so doing fatally undermine the government-run program.  From the CAP report:

“No version of premium support fully prevents private health insurance plans from attracting healthier beneficiaries, driving up premiums for those who remain in traditional Medicare.  In addition, no version of premium support creates a level playing field between private plans and traditional Medicare.  As a result of these two factors, more and more beneficiaries would gradually shift to private plans over time.”

Compare the above position to the (in)famous quote from a Congressional Democrat two years ago, in which she said that a government-run plan for those under age 65 would eradicate private insurance:

“Next to me was a guy from the insurance company, who then argued against the public health insurance option, saying it wouldn’t let private insurance compete – that a public option will put the private insurance industry out of business and lead to single payer [loud cheering]. My single payer friends: He was right. The man was right.”

So the liberal groups who once claimed that a government-run plan “will put the private insurance industry out of business and lead to single payer” NOW believe that government-run Medicare CANNOT compete on a “level playing field” against the private sector.  Why didn’t they tell us this two years ago…?

There are three possible explanations for this abrupt U-turn by the left:

  • Liberals believe that risk adjustment to adjust for beneficiaries’ health status will not work effectively, and that allowing plans to offer benefits actuarially equivalent to, but not exact replicas of, government-run Medicare will attract healthier beneficiaries.  In this case, the left is admitting Obamacare will fail – because Obamacare includes provisions allowing for actuarially equivalent plans (Section 1302(d)) and a risk adjustment program (Section 1343).
  • Liberals believe that unlike the above-65 population in Medicare, everyone below age 65 has identical health status, rendering concerns about certain plans attracting sicker-than-average beneficiaries moot.
  • Liberals will say one thing when it comes to expanding government control, and another when it comes to giving individuals more private choices.

Feel free to decide amongst yourselves which option you find most accurate…

The Myth of “Market Power”

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

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

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

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

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

Premium Support and True Competition in Medicare

The ongoing discussion about entitlement reform has sparked a debate about some of the details of the current Medicare program, and how it might change under various reform proposals.  At the Incidental Economist blog, Boston University professor Austin Frakt wrote a post last week arguing that under premium support, traditional government-run Medicare might actually thrive.  Much of his post was based on the fact that Medicare pays providers much less than private insurers – a difference that will accelerate if provisions of Obamacare are implemented as scheduled – although he did admit that access in traditional Medicare might become constricted if 40 percent of providers become unprofitable from taking Medicare patients, as the program’s actuary has suggested.

Frakt went on to re-state a popular syllogism that falls short:

“Why are so many seeming to lack confidence that the program can compete?  After all, look at what’s going on today.  Private plans are at a tremendous advantage and have been for many years.  They receive per beneficiary subsidies way above the average cost of traditional Medicare.  They offer many additional benefits and many plans offer lower premiums and cost sharing relative to traditional Medicare.  Still, traditional Medicare retains 75% of the market.  Competitive bidding would reduce the overpayments to Medicare Advantage plans, reducing the advantage they have in the market today.”

The “overpayment” argument misses the point, for several reasons:

  1. Why does Medicare retain 75% of market share?  Because new enrollees in Medicare are enrolled not in the cheapest plan, or the best-rated plan, or the plan with the broadest provider network, or the plan with the best benefits.  Instead, beneficiaries are automatically enrolled in the government-run plan.
  2. Other studies of plan switching strongly suggest that seniors do NOT switch plans on a regular basis.  The Medicare Payment Advisory Commission (MedPAC) found earlier this year that “only about 6 percent of Part D enrollees have switched plans voluntarily each year.”  So once people enroll in a plan, they’re likely to stay in that plan – meaning that because government-run Medicare has a structural monopoly on enrollment, many seniors are not likely even to think about switching to a Medicare Advantage private plan.
  3. Because Medicare beneficiaries must make an affirmative choice to enroll in Medicare Advantage – and because Medicare Advantage plans CANNOT take away government-run Medicare’s structural enrollment monopoly by undercutting the government-run plan on price – they MUST use better benefits to attract seniors.

Former CBO Director Alice Rivlin acknowledged the structural deficiencies in the current program in her testimony before the Deficit Reduction Committee earlier this month:  “If a private healthcare plan currently has lower costs than FFS Medicare in its area, it cannot offer a rebate to enrollees as an incentive to sign up. Instead, it must increase benefits – which in and of itself increases Medicare spending.  Therefore, beneficiaries in areas with high FFS Medicare costs who enroll in private plans receive a host of free supplementary benefits, financed by the government.”  Rivlin again illustrates that Medicare Advantage plans have little incentive to under-bid Medicare on price – they must offer more benefits in order to attract seniors to enrollIn other words, the supposed “overpayments” are actually a symptom of a larger disease – the disease being the structural obstacles in the way of Medicare Advantage plans obtaining larger market share by offering a better deal to beneficiaries than government-run Medicare.

One easy way to solve this problem would be to automatically enroll new beneficiaries in the lowest-cost plan, whether that plan is a private Medicare Advantage plan or government-run Medicare.  Ironically enough, MedPAC – which spent years attacking “overpayments” in Medicare Advantage – has remained strangely silent about the structural bias in favor of government-run Medicare that caused this problem in the first place.  Unfortunately, this deafening silence may mean that neither MedPAC’s ostensibly non-partisan “experts,” nor liberal advocates fixated on a single-payer health care system, have an interest in putting private health plans on equal footing – both financial AND structural – with government-run Medicare.