Tag Archives: Stability Fund

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.

Updates to House Republicans’ Managers Amendments

On Thursday evening, House leadership released the text of a second-degree managers amendment making additional policy changes. That amendment:

  • Delays repeal of the Medicare “high-income” tax until 2023;
  • Amends language in the Patient and State Stability Fund to allow states to dedicate grant funds towards offsetting the expenses of rural populations, and clarify the maternity, mental health, and preventive services allowed to be covered by such grants;
  • Appropriates an additional $15 billion for the Patient and State Stability Fund, to be used only for maternity and mental health services; and
  • Allows states to set essential health benefits for health plans, beginning in 2018.

Earlier on Thursday, the Congressional Budget Office released an updated cost estimate regarding the managers amendment. CBO viewed its coverage and premium estimates as largely unchanged from its original March 13 projections. However, the budget office did state that the managers package would reduce the bill’s estimated savings by $187 billion — increasing spending by $49 billion, and decreasing revenues by $137 billion. Of the increased spending, $41 billion would come from more generous inflation measures for some of the Medicaid per capita caps, and $8 billion would come from other changes. Of the reduced revenues, $90 billion would come from lowering the medical care deduction from 7.5 percent to 5.8 percent of income, while $48 billion would come from accelerating the repeal of Obamacare taxes compared to the base bill. Note that this “updated” CBO score released Thursday afternoon does NOT reflect any of the changes proposed Thursday evening; scores on that amendment will not be available until after Friday’s expected House vote.

Updated ten-year costs for repeal of the Obamacare taxes include:

  • Tax on high-cost health plans (also known as the “Cadillac tax”)—but only through 2026 (lowers revenue by $66 billion);
  • Restrictions on use of Health Savings Accounts and Flexible Spending Arrangements to pay for over-the-counter medications (lowers revenue by $5.7 billion);
  • Increased penalties on non-health care uses of Health Savings Account dollars (lowers revenue by $100 million);
  • Limits on Flexible Spending Arrangement contributions (lowers revenue by $19.6 billion);
  • Medical device tax (lowers revenue by $19.6 billion);
  • Elimination of deduction for employers who receive a subsidy from Medicare for offering retiree prescription drug coverage (lowers revenue by $1.8 billion);
  • Limitation on medical expenses as an itemized deduction (lowers revenue by $125.7 billion)
  • Medicare tax on “high-income” individuals (lowers revenue by $126.8 billion);
  • Tax on pharmaceuticals (lowers revenue by $28.5 billion);
  • Health insurer tax (lowers revenue by $144.7 billion);
  • Tax on tanning services (lowers revenue by $600 million);
  • Limitation on deductibility of salaries to insurance industry executives (lowers revenue by $500 million); and
  • Net investment tax (lowers revenue by $172.2 billion).

A Fiscally Irresponsible Bill

Last week the Wall Street Journal, in endorsing House Republicans’ American Health Care Act, highlighted the legislation’s “fiscal bonus.” Yes, the bill’s Medicaid reforms warrant praise as a good effort to control entitlement spending. But that meritorious effort notwithstanding, the bill contains numerous structural flaws, with potentially more on the way, that could bust budgets for decades to come.

Some of the same leaders decrying or explaining away Congressional Budget Office scores showing large coverage losses due to the bill have proved far too willing to take the bill’s supposed deficit savings at face value. But a good CBO score doesn’t necessarily mean legislation will reduce the deficit; instead, it means that lawmakers and staff have worked hard to achieve a good CBO score.

CBO scores have inherent limitations — notably, the discipline (or lack thereof) on the part of lawmakers to adhere to a bill’s parameters. Two years ago this month, the Wall Street Journal endorsed a Medicare “doc fix” bill that increased the deficit by more than $140 billion in its first decade alone. In doing so, the editorial page argued that Congress’ “cycle[s] of fiscal deception” required a return to “honest budgeting,” stopping budget games by making spending increases more transparent.

Given this history, one question naturally follows: Does the American Health Care Act engage in similar cycles of fiscal deception likely to bust future budgets? Many signs point to yes. First, the bill expands access to Obamacare’s subsidy regime for calendar years 2018 and 2019. CBO believes the bill will reduce entitlement spending only slightly in its first few fiscal years — by $29 billion next year, and $42 billion the following — as the individual mandate’s repeal will cause some to drop coverage.

But in fiscal year 2020 — when the Obamacare entitlements would end and the new tax credit would begin — the bill assumes a massive $100 billion net reduction in entitlement spending. Net entitlement spending would fall still further, to $137 billion in fiscal year 2021, which begins on October 1, 2020, mere weeks before the presidential election.

With the bill’s major “cliff” in entitlement spending coming in a year divisible by four, it’s fair for conservatives to question whether these reductions will ever go into effect, and the promised deficit reduction will ever be achieved. If the “transition” provisions end up extended in perpetuity, conservatives will end up with “Obamacare Max” — an expanded Obamacare subsidy regime available to millions more individuals.

Second, the bill does not even attempt to undo the fraudulent entitlement accounting created by Obamacare. Section 223 of the reconciliation measure passed in January 2016 transferred $379.3 billion of that bill’s deficit savings back to the Medicare trust fund. That provision represented a recognition that, as vice presidential candidate Paul Ryan said on the campaign trail back in August 2012, “President [Obama] took $716 billion from the Medicare program—he raided it—to pay for Obamacare.” Not only does Speaker Ryan’s bill not attempt to make Medicare whole from the Obamacare “raid,” the managers amendment released Monday evening consumed much of the bill’s supposed savings.

Third, while conservatives have focused on the bill’s tax credits as a new entitlement, the measure effectively creates a second new entitlement, this one for insurers. CBO’s estimate of possible premium reductions by 2026 hinged in no small part on creation of a “Patient and State Stability Fund,” and use of grants from the fund to subsidize insurers’ high-cost patients. However, the bill stops federal payments to the “Stability Fund” in 2026—and therefore the score does not take into consideration that this $10-15 billion annual bailout fund for health insurers could become permanent.

Fourth, reports suggest that House lawmakers are relying upon a bipartisan group in the Senate to repeal outright Obamacare’s “Cadillac tax” (delayed until 2026 in the most recent bill), which would worsen deficits in future decades. Leadership sources pushing this move would then argue that the bill blows a hole in the budget not because it spends more money, but because it reduces revenue.

However, the 2016 reconciliation bill repealed all of Obamacare’s tax increases and its new entitlements, while leaving the deficit virtually unchanged over the next 50 years. By contrast, if lawmakers create two entitlements — the new tax credit regime and the “Stability Fund” — while also repealing the “Cadillac tax,” they will create a fiscal hole likely to reach into the trillions. To borrow a phrase, the American Health Care Act doesn’t have a revenue problem, it has a spending problem.

Budgetary “out-years” gimmicks brought us the Medicare “doc fix” mess in the first place, which should embolden conservatives to recognize fiscal chicanery and legerdemain when they see it.

Positive Medicaid reforms notwithstanding, the structure on which the American Health Care Act is based does fiscal responsibility a disservice. A conservative-controlled Congress can and should do better.

This post was originally published at the Washington Examiner.

Despite Trump Intervention, House GOP Still Not Repealing Obamacare

President Trump bragged that he won over many new converts to House Republicans’ “repeal-and-replace” legislation following a Friday meeting with Members of Congress at the White House. After the meeting, House leaders scheduled a vote for later this week on the measure, and introduced provisions implementing the agreement in a managers amendment package late last night.

So what tweaks did Trump promise to Congress members on Friday—and will they improve or detract from the legislation itself?

What Changes Were Announced After The Meeting?

The agreement in principle with the House Members includes several components:

  1. Abortion restrictions for Health Savings Accounts (HSAs): RSC Chairman Mark Walker (R-NC) and other pro-life Members asked for further restrictions on abortion funding. As a result, the agreement eliminates language allowing unspent tax credit dollars to get transferred into Health Savings Accounts, for fear those taxpayer dollars moved into HSAs could be used to cover abortions. However, as I noted recently, many of the other restrictions on taxpayer funding of abortion could well get stripped in the Senate, consistent with past precedent indicating that pro-life riders are incidental in their budgetary impact, and thus subject to the Senate’s “Byrd rule” preventing their inclusion on budget reconciliation.
  2. Prohibiting more states from expanding Medicaid: While this provision has been sold as ensuring no new states would expand Medicaid to able-bodied people, it does not do so—it only ensures that states that decide to expand after March 1 will receive the regular federal match levels for their able-bodied populations (i.e., not the 90-95 percent enhanced match). Neither the bill nor the managers package permanently ends the expansion to able-bodied adults—which the 2015/2016 reconciliation bill did—or ends the enhanced federal match for expansion states until January 2020, nearly three years from now.
  3. Medicaid work requirements: The agreement permits—but does not require—states to impose work requirements, a point of contention between some states and the Obama Administration. However, non-expansion states will have comparatively few beneficiaries on which to impose such requirements. Medicaid programs in non-expansion states consist largely of pregnant women, children, and elderly or disabled beneficiaries, very few of whom would qualify for the work requirements in the first place.

Medicaid: Block Grant vs. Per Capita Cap

The fourth component—allowing states to take their federal payments from a reformed Medicaid program as a block grant, instead of a per capita cap—warrants greater examination. In general, per capita caps have been viewed as a compromise between the current Medicaid program and a straight block grant fixed allotment. In the 1994-95 budget showdown with then-House Speaker Newt Gingrich, President Clinton proposed per capita caps for Medicaid as an alternative to the Republican House’s block grant plan.

A block grant and a per capita cap differ primarily in how the two handle fluctuations in enrollment: the latter adjusts federal matching funds to reflect changes in enrollment, whereas the former does not. Supporters of per capita caps often cite economic recessions as the rationale for considering their approach superior to block grants. Medicaid’s counter-cyclical nature—more people enroll during economic downturns, after losing employer-sponsored coverage—coupled with states’ balanced budget requirements, means that during recessions, states often contend with a “double whammy” of rising Medicaid rolls and declining tax revenues. Medicaid per capita caps would mitigate the effects of the first variable, giving states more latitude during tough economic times.

On the other hand, per capita caps give states a greater incentive to enroll more beneficiaries—and a greater disincentive to scrutinize potentially fraudulent applicants—because every new enrollee means greater revenue for the state (albeit capped per beneficiary).  Most notably, the per capita caps in the House bill grow at a faster rate than the block grant proposal in the managers package—per capita caps would grow at medical inflation, whereas block grants would grow with general inflation.

In general, while conservatives would support block grants to reduce the federal Medicaid commitment and encourage state economies, it remains unlikely that many states would embrace them—because it is not in their fiscal self-interest to do so,because it is not in their fiscal self-interest to do so, particularly given the disparity in the inflation measures in the House language. If true, this language may end up meaning very little.

Will This Be A Good Deal For Americans?

If Medicaid reforms comprised the entirety of the bill, they would likely be worth supporting, despite the complexities associated with the debate between expansion and non-expansion states. The move to per capita caps represents significant entitlement reform, and is consistent with the principles of federalism.

As a repeal bill, however, the measure as currently constituted falls short. The agreement on Friday made zero progress on repealing any other insurance benefit mandates in Obamacare—the primary drivers of higher premiums under the law. That’s one reason why CBO believes premiums will actually rise by 15-20 percent over the next two years. House leadership claims that the mandates must remain in place due to the procedural strictures of budget reconciliation in the Senate. But the inconsistencies in their bill—which repeals one of the mandates, modifies others, and leaves most others fully intact—contradict that rhetoric.

Moreover, by modifying rather than repealing some of the Obamacare mandates, the bill preserves the Washington-centered regulatory structure created by the law, undermining federalism and Tenth Amendment principles.

AHCA Leaves Much To Be Desired

From a fiscal standpoint generally, the bill also leaves much to be desired. It creates at least one new entitlement: refundable tax credits to purchase health insurance. It may create a second new entitlement, this one for insurance companies in the form of a “Patient and State Stability Fund,” totaling $100 billion over 10 years, which insurers will no doubt attempt to renew in a decade’s time. (The bill also does not repeal Obamacare’s risk corridor and reinsurance bailout provisions, allowing them to continue to disburse billions of dollars in claims owed to insurers.)

While CBO claimed the bill would reduce the deficit by $337 billion, the managers amendment goes to great lengths to spend all of that supposed savings—accelerating the repeal of Obamacare’s tax increases, and increasing the inflation measure for some of the per capita caps.

Moreover, it remains unclear whether the “transition” from Obamacare to the new tax credit regime will take place in January 2020 as scheduled. The CBO tables analyzing the bill’s fiscal impact clearly delineated how most of the measure’s spending reductions will hit in fiscal years 2020 and 2021—right in the middle of the presidential election cycle.

AHCA Doesn’t Fully ‘Repeal And Replace’

If President Trump or Republicans in Congress flinch on letting the transition take place as scheduled, the bill’s supposed deficit savings will disappear rapidly. Instead, conservatives could be left with “Obamacare Max”—the House bill actually expands and extends Obamacare insurance subsidies for 2018 and 2019—in perpetuity.

The bill’s lack of full repeal, the premium increases scheduled to take effect over the next two years, and the spending “cliff” hitting in 2020 leave the bill with little natural political constituency to support it. The way in which the bill falls short of repeal—by keeping Medicaid expansion, keeping Obamacare’s insurance regulations, and creating a new entitlement—makes it difficult to support from a policy perspective as well. Friday’s meeting may have brought new concessions at the margins, but it did not alter the bill’s fundamental structure, leaving it short of the repeal conservatives had been promised—and voted for mere months ago.

This post was originally published at The Federalist.