Tag Archives: New Jersey

How Graham-Cassidy’s Funding Formula Gives Washington Unprecedented Power

The past several days have seen competing analyses over the block-grant funding formula proposed in health-care legislation by Sens. Lindsay Graham (R-SC) and Bill Cassidy (R-LA). The bill’s sponsors have one set of spreadsheets showing the potential allocation of funds to states under their plan, the liberal Center on Budget and Policy Priorities has another, and consultants at Avalere (funded in this case by the liberal Center for American Progress) have a third analysis quantifying which states would gain or lose under the bill’s funding formula.

So who’s right? Which states will end up the proverbial winners and losers under the Graham-Cassidy bill? The answer is simple: Nope.

Policy-makers arguing over minute intricacies of the funding formula miss the fact that the bill gives the executive virtually unlimited discretion to change that funding formula. Whether the statutory formula benefits a given state could well matter less than what federal bureaucrats want to do to tilt the formula in favor of, or against, that state.

While the bill’s proponents claim the legislation will increase state authority, in reality the bill gives unelected bureaucrats the power to distribute nearly $1.2 trillion in taxpayer dollars unilaterally. In so doing, the bill concentrates rather than diminishes Washington’s power—and could set the course for the “mother of all backroom deals” to pass the legislation.

A Complicated Spending Formula

To start with, the bill repeals Obamacare’s Medicaid expansion and exchange subsidies, effective in January 2020. It then replaces those two programs with a block grant totaling $1.176 trillion from 2020 through 2026. All else equal, this set of actions would disadvantage states that expanded Medicaid, because the Medicaid expansion money currently being received by 31 states (plus the District of Columbia) would be re-distributed among all 50 states.

From there the formula gets more complicated. (You can read the sponsors’ description of it here.) The bill attempts to equalize per-person funding among all states by 2026, with funds tied to a state’s number of individuals with incomes between 50 percent and 138 percent of the poverty level.

The bill would adjust the funding formula to reflect both risk adjustment and actuarial value—in laymen’s terms, it would work to ensure that states with sicker-than-average individuals get more funding, and that states that choose to offer richer-than-average benefits don’t draw down excess federal funds as a result. Those adjustments would phase in over several years, with the goal of reaching per-person parity among states by 2026.

Thus far, the formula carries a logic to it. For years conservatives have complained that Medicaid’s match rate formula gives wealthy states more incentives to draw down federal funds than poor states, and that rich states like New York and New Jersey have received a disproportionate share of Medicaid funds as a result. The bill’s sponsors claim that the bill “treats all Americans the same no matter where they live.”

Would that that claim were true. Page 30 of the bill demonstrates otherwise.

The Trillion-Dollar Loophole

Page 30 of the Graham-Cassidy bill, which creates a “state specific population adjustment factor,” completely undermines the rest of the bill’s funding formula:

IN GENERAL.—For calendar years after 2020, the Secretary may adjust the amount determined for a State for a year under subparagraph (B) or (C) and adjusted under subparagraphs (D) and (E) according to a population adjustment factor developed by the Secretary.

In other words, if the secretary of Health and Human Services (HHS) doesn’t like the funding formula, he can change it however he likes. That’s a trillion-dollar loophole that leaves HHS bureaucrats with the ultimate say over how much money states will receive.

The bill does say that HHS must develop “legitimate factors” that affect state health expenditures—so it can’t allocate funding based on, say, the number of people who own red socks in Alabama. But beyond those two words, pretty much anything goes.

The bill says the “legitimate factors” for population adjustment “may include state demographics, wage rates, [and] income levels,” but it doesn’t limit the factors to those three characteristics—and it doesn’t limit the amount that HHS can adjust the funding formula to reflect those characteristics either. If a hurricane like Harvey struck Texas three years from now, Secretary Tom Price would be within his rights under the bill to cite a public health emergency and dedicate 100 percent of the federal grant funds—which total $146 billion in 2020—solely to Texas.

That scenario seems unlikely, but it shows the massive and virtually unprecedented power HHS would have under the bill to control more than $1 trillion in federal spending by executive fiat. To top it off, pages 6 through 8 of the bill create a separate pot of $25 billion to subsidize insurers for 2019 and 2020, and tell the Centers for Medicare and Medicaid Services administrator to “determine an appropriate procedure” for allocating the funds. That’s another blank check of $25,000,000,000 in taxpayer funds, given to federal bureaucrats to spend as they see fit.

In an op-ed over the weekend, former Florida Gov. Jeb Bush (R-FL) rightly criticized Obamacare for “put[ting] enormous power in the hands of a few people in Washington.” But the Graham-Cassidy proposal he endorses would imbue federal bureaucrats with an authority over spending the likes of which Obamacare never even contemplated.

Backroom Deals Ahead

With an unprecedented level of authority granted to federal bureaucrats to determine how much funding states receive, you can easily guess what’s coming next. Unnamed Senate staffers already invoked strip-club terminology in July, claiming they would “make it rain” on moderates with hundreds of billions of dollars in “candy.” Under the current version of the bill, HHS staff now have virtual carte blanche to promise all sorts of “state specific population adjustment factors” to influence the votes of wavering senators.

The potential for even more backroom deals than the prior versions of “repeal-and-replace” demonstrates the pernicious power that trillions of dollars in spending delivers to Washington. Draining the swamp shouldn’t involve distributing money from Washington out to states, whether under a simple formula or executive discretion. It should involve eliminating Washington’s role in doling out money entirely.

That’s what Republicans promised when they said they would repeal Obamacare—to end the law’s spending, not work on “spreading the wealth around.” That’s what they should deliver.

This post was originally published in The Federalist.

On Health Care Bill, Federalism to the Rescue

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

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

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

The High Prices Are The Fault of Too Many Rules

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

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

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

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

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

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

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

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

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

This post was originally published at The Federalist.

Weekly Newsletter — June 2, 2008

Health Centers Bill Would Authorize Significant Spending Increase

This week, the House is expected to take up under suspension of the rules legislation (HR 1343) reauthorizing the community health center program.  The bill authorizes $14 billion in spending over the next five fiscal years, subject to annual appropriations.  In addition, the bill would expand the scope of an existing government program to extend federal liability protection to volunteer medical practitioners working at community health centers.

Some conservatives may be concerned that the amount of spending contemplated by this legislation—a 40% increase in funding over a bill the House passed in 2006—may be inappropriate as a matter of fiscal policy, and further should not be considered under expedited House procedures.  Some conservatives may also be concerned that the legislation’s stated goal of doubling the number of patients treated at community health centers by 2015 may be used as a justification for further spending increases in future years.  Lastly, some conservatives may be concerned with a proposed expansion of a federal liability program for health center workers that has its roots in the flaws of the current medical liability system.  Some conservatives may instead champion the comprehensive liability reform that all medical practitioners—private and public, volunteer and paid—need in order to restore the integrity of the doctor-patient relationship and reduce the amount of harmful litigation.

The Outlook Ahead

As Congress returns from its Memorial Day recess, several health care items remain ripe for legislative activity in the coming weeks.  Democrat leaders have advised that a final version of mental health parity legislation may be voted on by both chambers, and recent reports indicate that negotiations in the Senate on health IT may yield activity prior to the August recess.  In addition, legislative provisions repealing Medicaid fiscal integrity regulations, providing incentives for states to expand the State Children’s Health Insurance Program (SCHIP) to wealthier families, and imposing restrictions on physician-owned specialty hospitals remain under consideration as part of the wartime supplemental appropriations measure.

However, the most prominent health debate will center on the scheduled July 1 reduction in Medicare physician reimbursements under the sustainable growth rate (SGR) mechanism, and any action Congress may take to forestall such reductions.  In anticipation of the debate on the Medicare legislative package, here are two Policy Briefs providing background on comparative effectiveness research and the Medicare Advantage program.

Articles of Note: A Tale of Two States

Last Thursday’s Wall Street Journal contained two editorials on the diverging status of health insurance markets across the 50 states.  One article highlighted several key reforms enacted by Gov. Charlie Crist (R-FL) and the legislature to reform Florida’s insurance market.  With the legislation’s passage, Florida became the largest of a growing number of states that are permitting carriers to offer comprehensive, low-cost insurance policies free from onerous state benefit mandates.  Supporters of the concept believe that such a reform could reduce health insurance premiums by permitting carriers to create innovative insurance products and consumers to buy the plan that most suits their needs—allowing, for instance, a 20-something single male to decline maternity coverage in exchange for a lower insurance rate.

Meanwhile, a Republican Assemblyman in New Jersey introduced legislation permitting Garden State residents to purchase health insurance policies offered in other states.  The initiative closely resembles federal legislation (HR 4460) offered by Congressman John Shadegg (R-AZ), and would, like the Florida legislation, attempt to reduce health insurance premiums by circumventing costly state regulations and increasing the options for consumers to find affordable coverage.  Such a proposal could have significant implications in New Jersey, where guaranteed issue regulations—which encourage individuals to wait to purchase health insurance until they become sick—have raised premiums to nearly twice the national average, pricing many younger New Jerseyans out of purchasing coverage.

Many conservatives may support both these efforts, and hope that the success of Florida’s experiment provides the incentive for New Jersey and other states to follow its lead.  The Journal editorial notes that the plans created by the Florida measure are “not a cure-all,” but conservatives may believe that these and similar efforts to create a more consumer-friendly health care environment could play a significant role in reducing the growth of health care costs over time.

Read the articles here:

“The Florida Revelation…”

http://online.wsj.com/article_print/SB121201589150427551.html

“…And Escape from New Jersey”

http://online.wsj.com/article_print/SB121201600312927511.html

Weekly Newsletter — May 19, 2008

Democrats Advance Provisions to Expand SCHIP to Wealthier Families

This past week, Democrats in both the House and the Senate took actions to block guidance from the Administration that would keep the State Children’s Health Insurance Program (SCHIP) on mission.  On Thursday, the House Energy and Commerce Health Subcommittee held a hearing on legislation (HR 5998) that would override guidance issued by the Centers for Medicare and Medicaid Services (CMS) last August.  That guidance is intended to ensure first that individuals with private health insurance do not drop their coverage in order to join a government-funded program, and second that states target their SCHIP funds at the low-income families for whom the program was created before expanding their state health plans to cover children from wealthier families.

That same day, Sen. Frank Lautenberg (D-NJ) attached legislative provisions mirroring HR 5998 to the wartime supplemental appropriations measure.  The provisions were attached along with language similar to a House bill (HR 5613) that would suspend several Medicaid anti-fraud regulations.  Sen. Lautenberg’s home state of New Jersey—which extends government-funded health insurance to “low-income” families making over $70,000 for a family of four—is one that has taken legal action against CMS to block the SCHIP guidance.

Some conservatives may be troubled, but not surprised, by the Democrat attempts to ensure that states can expand their SCHIP programs up the income ladder—consistent with legislation that passed the House last year permitting “low-income” families with over $80,000 in income to be added to government rolls.  Given that the Administration has clarified the guidance to ensure that no child need be dropped off the SCHIP rolls as a result of the CMS policy, many conservatives would support the Administration’s attempts to keep the SCHIP program targeted on the populations for whom it was created, and oppose Democrat efforts to override these reasonable limits.

A Policy Brief on this issue can be found here.

Ways and Means Hearing Examines HSAs

Last week, the House Ways and Means Health Subcommittee held a hearing analyzing the growth of Health Savings Accounts (HSAs).  The Subcommittee heard testimony from the CEO of Alegent Health, a Nebraska-based health system that has implemented consumer-driven health care for its employees.  Since embarking on a consumer-driven model in 2005, Alegent has provided free preventive care and other incentives for healthy behaviors, while increasing price and quality transparency for its employees and patients alike.  The results have been impressive: 92% participation by employees in consumer-directed plans, with high contribution rates to HSAs from low-income employees, lower costs, and healthier workers.

Many conservatives may believe that Alegent Health represents a successful model of how the growth of HSAs and consumer-driven health care can reduce rising health care costs.  By empowering employees to take control of their lifestyle and health decisions, HSAs can encourage healthy behaviors that will reverse the growth of chronic diseases such as those linked to obesity, while incentivizing workers to accumulate real and portable savings that can be used to pay for health expenses.  Some conservatives may believe the testimony at the Ways and Means hearing provided a welcome example of HSAs’ effectiveness, and a reminder why Democrat attempts further to regulate this new form of health care should be viewed with significant caution.

A Policy Brief providing background on HSA enrollment can be found here.

Article of Note: Rationed Care Kills

From the United Kingdom comes a story in the Daily Mail by Sarah Anderson, an ophthalmologist fighting twin battles: to save her father’s life and against Britain’s National Health Service.  Her father’s kidney tumor could be treated by a new drug—but while the pharmaceutical has been approved for use in Europe for two years, Britain’s National Institute for Clinical Effectiveness (NICE) will not complete its assessment of the drug’s usefulness until January.  Until then, local NHS branches can refuse to provide the drug, leaving Anderson’s family to pay for their father’s treatment on their own, or face the inevitable consequences that will follow if he cannot obtain it.

Some conservatives may be concerned by this story’s cautionary tale, particularly in the context of efforts by Democrats to establish a similar “comparative effectiveness” institute under the aegis of the federal government.  Conservatives may not only believe that such an approach would put bureaucrats, and not doctors and patients, at the center of medical policy, but would also result in the types of costly delays and care rationing that put lives at stake.

Anderson’s ultimate verdict on her family’s dilemma is a sobering one with which many conservatives would agree: “If Dad should lose his life to cancer, it would be devastating—but to lose his life to bureaucracy would be far, far worse.”

Read the article here:

“How the NHS Is Letting My Father Die”

http://www.dailymail.co.uk/pages/live/articles/health/healthmain.html?in_article_id=565430&in_page_id=1774