Tag Archives: waivers

Five Factors That Could Interfere with Graham-Cassidy’s State Health Care Waivers

Some conservative writers—including others who write for this publication—have opined that the legislation written by Sens. Lindsay Graham (R-SC) and Bill Cassidy (R-LA) offers states the ability to innovate and reform their health care systems. Most conservatives, including this one, consider state flexibility an admirable goal.

Certainly reforming Medicaid—through a block grant or per capita cap, coupled with additional flexibility to allow states to manage their programs more freely—would go a long way towards improving care, and reducing health care costs.

But does Graham-Cassidy as written deliver on its promise regarding Obamacare insurance regulations? On the two critical questions surrounding the legislation—will it lower insurance premiums, and will it generate a system that works for states?—a textual analysis of the bill yields significant doubts. At least five issues could hinder the results its sponsors have promised, and which all conservatives hope for.

1. Subsidizing Moral Hazard

The language on the top of page 15 explicitly links waivers to funding from the new system of block grants the bill creates. Any waiver will only apply to 1) coverage provided by an insurer receiving block grant funding and 2) coverage “provided to an individual who is receiving a direct benefit (including reduced premium costs or reduced out-of-pocket costs)” under the block grant.

This requirement that each and every person subjected to a non-Obamacare-compliant plan must receive a “direct benefit” subsidized by federal taxpayers has several potential perverse consequences. By definition, it encourages moral hazard. Because individuals will know that if they are subjected to health underwriting, or an otherwise noncompliant plan, they must receive federal subsidies, it will encourage them not to buy health insurance until they need it.

It means that either states will have to extend taxpayer-subsidized benefits to highly affluent individuals (allowing them to buy noncompliant plans), or have to permit only low- and middle-income families to buy noncompliant plans (to restrict the subsidies to low-income families). Both scenarios seem politically problematic to the point of being untenable.

If states try to provide a de minimis direct benefit—say, a $1 monthly premium subsidy—to some enrollees to minimize the two problems described above, they would face high overhead costs, and a complex system to administer.

When considering the two considerations above—will the bill lower premiums, and will it work?—this provision alone seems destined to preclude either from occurring. The moral hazard could increase premiums, not lower them, driving more healthy people out of the marketplace by telling them they will receive subsidies if and when they become sick and need coverage. The requirement that every person subjected to a waiver must receive subsidized benefits appears potentially destabilizing to insurance markets, while also creating political problems and administrative complexity.

2. Encouraging Lawsuits

The provision on page 12 requiring states applying for waivers to describe “how the state intends to maintain access to adequate and affordable health insurance coverage for individuals with pre-existing conditions” presents two concerns. First, a future Democratic administration could use rulemaking to define “adequate and affordable health insurance coverage” so narrowly—prohibiting co-payments or cost-sharing of more than $5, for instance—that no state could maintain access to “adequate and affordable” coverage, thereby eliminating their ability to apply for and receive a waiver.

Second, courts have ruled that Medicaid waiver applications are subject to judicial review, a standard that would presumably apply to the Graham-Cassidy waivers as well. While a Congressional Research Service report notes that courts have traditionally given deference to the Centers for Medicare and Medicaid Services (CMS) on waiver applications, the Ninth Circuit Court of Appeals in 1994 did in fact strike down a California waiver application that CMS had previously approved.

If a state receives a waiver, it seems highly likely that individuals affected, with the strong encouragement of liberal activists, will seek relief in court, and point to the page 12 language to argue that the court should strike down the waiver for not providing “adequate and affordable coverage” to people with pre-existing conditions. At minimum, the ensuing legal uncertainty could place states’ waiver programs in limbo for months or even years. And only one judge, or one circuit court, that views the pre-existing condition language as applying to more than states’ waiver application could undermine the program.

Congress could theoretically include language in Graham-Cassidy precluding judicial review of administrative decisions regarding waivers, as Democrats did 13 separate times in Obamacare. But on this particular bill, such a provision likely would not pass muster with the “Byrd rule” that applies to budget reconciliation measures.

Specifically, language prohibiting judicial review would have no (or a minimal) budgetary impact, and would represent matter outside the committees with jurisdiction over the reconciliation bill (Senate Judiciary versus Senate Finance and HELP Committees), both points of order that would see the provision stricken absent 60 Senate votes (which the bill does not have) to retain it.

Given the ongoing political controversy surrounding pre-existing conditions, some moderates may view the inclusion of this phrase as critical to their support for the bill. But its inclusion could ultimately undermine the entire waiver process and one of conservatives’ prime goals from the “repeal-and-replace” process, namely relief from Washington-imposed regulatory burdens.

3. Encourages Activist Judges and Bureaucrats

Language on page 13 of the bill includes language limiting any regulatory waiver: “A health insurance issuer may not vary premium rates based on an individual’s sex or membership in a protected class under the Constitution of the United States.” Here again, a future Democratic administration, or activist judges, could easily take an expansive view of “protected class” to include age, family status, gender identity, etc., in ways that undermine the waivers’ supposed regulatory relief.

4. Allows States to Waive Only Some Regulations

While states may waive some Obamacare regulations, they can’t waive others, an internal inconsistency that belies the promise of “flexibility.” For instance, states cannot waive the under-26 mandate if they so choose. Moreover, language on page 15 prohibiting a waiver of “any requirement under a federal statute enacted before January 1, 2009” precludes states from waiving regulations that preceded Obamacare, such as those related to mental health parity.

If the sponsors believe in state flexibility, they should allow states to waive all federal insurance regulations, even ones, such as the under-26 mandate or mental health parity, they may personally support. Or better yet, they should move to repeal the regulations entirely, and let states decide which ones they want to re-enact on the state level.

5. No Funding Equals No Waivers

Because the bill explicitly ties waivers to federal funding, as noted above, the “cliff” whereby block grant funding ends in 2027 effectively ends waiver programs then as well. Such a scenario would put conservative policy-makers in the perverse position of asking Washington to increase federal spending, because any regulatory relief under Obamacare would otherwise cease.

Meaning of Federalism

The potential concerns above demonstrate how Graham-Cassidy may not provide full flexibility to states. Whether through cumbersome administrative requirements, a future Democratic administration, court rulings, or key omissions, states could find that as written, the bill’s promise of flexibility might turn into a mirage.

Given that, it’s worth remembering the true definition of federalism in the first place. Federalism should not represent states getting permission from Washington to take certain actions (and only certain actions). It should represent the people delegating some authority to the federal government, and some to the states. A bill that looked to do that—to remove the Obamacare regulatory apparatus entirely, and allow states to decide whether and what portions of the law they wish to reimpose—would help to restore the principles of federalism, and a true balance between Washington and the states.

This post was originally published at The Federalist.

Summary of Graham-Cassidy Legislation

A PDF of this document is available at the Texas Public Policy Foundation website

Last week, Senators Lindsey Graham (R-SC) and Bill Cassidy (R-LA) introduced a new health care bill. The legislation contains some components of the earlier Better Care Reconciliation Act (BCRA), considered by the Senate in July, with some key differences on funding streams. A full summary of the bill follows below, along with possible conservative concerns where applicable. Cost estimates are included below come from prior Congressional Budget Office (CBO) scores of similar or identical provisions in BCRA.

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

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

Title I

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

Eliminates provisions that limit repayment of subsidies for years after 2017. Subsidy eligibility is based upon estimated income, with recipients required to reconcile their subsidies received with actual income during the year-end tax filing process. Current law limits the amount of excess subsidies households with incomes under 400 percent of the federal poverty level (FPL, $98,400 for a family of four in 2017) must pay. This provision would eliminate that limitation on repayments, which may result in fewer individuals taking up subsidies in the first place.

Repeals the subsidy regime entirely after December 31, 2019.

Small Business Tax Credit:             Repeals Obamacare’s small business tax credit, effective in 2020. Disallows the small business tax credit beginning in 2018 for any plan that offers coverage of abortion, except in the case of rape, incest, or to protect the life of the mother—which, as noted above, some conservatives may believe will be stricken during the Senate’s “Byrd rule” review. Saves $6 billion over ten years.

Individual and Employer Mandates:             Sets the individual and employer mandate penalties to zero, for all years after December 31, 2015. The individual mandate provision cuts taxes by $38 billion, and the employer mandate provision cuts taxes by $171 billion, both over ten years.

Stability Fund:          Creates two state-based funds intended to stabilize insurance markets—the first giving funds directly to insurers, and the second giving funds to states. The first would appropriate $10 billion each for 2018 and 2019, and $15 billion for 2020, ($35 billion total) to the Centers for Medicare and Medicaid Services (CMS) to “fund arrangements with health insurance issuers to address coverage and access disruption and respond to urgent health care needs within States.” Instructs the CMS Administrator to “determine an appropriate procedure for providing and distributing funds.” Does not require a state match for receipt of stability funds. Some conservatives may be concerned this provision provides excessive authority to unelected bureaucrats to distribute $35 billion in federal funds as they see fit.

Eliminates language in BCRA requiring CMS to reserve one percent of fund monies “for providing and distributing funds to health insurance issuers in states where the cost of insurance premiums are at least 75 percent higher than the national average”—a provision which some conservatives opposed as an earmark for Alaska.

Market-Based Health Care Grant Program:       Creates a longer-term stability fund for states with a total of $1.176 trillion in federal funding from 2020 through 2026—$146 billion in 2020 and 2021, $157 billion in 2022, $168 billion in 2023, $179 billion in 2024, and $190 billion in 2025 and 2026. Eliminates BCRA provisions requiring a state match. States could keep their allotments for two years, but unspent funds after that point could be re-allocated to other states. However, all funds would have to be spent by December 31, 2026.

Expands BCRA criteria for appropriate use of funds by states, to include assistance for purchasing individual insurance, and “provid[ing] health insurance coverage for individuals who are eligible for” Medicaid, as well as the prior eligible uses under BCRA: to provide financial assistance to high-risk individuals, including by reducing premium costs, “help stabilize premiums and promote state health insurance market participation and choice,” provide payments to health care providers, or reduce cost-sharing. However, states may spend no more than 15 percent of their resources on the Medicaid population (or up to 20 percent if the state applies for a waiver, and the Department of Health and Human Services concludes that the state is using its funds “to supplement, and not supplant,” the state Medicaid match)—a restriction that some may believe belies the bill’s purported goal of giving states freedom and flexibility to spend the funds as they see fit.

Some conservatives may be concerned that, by doling out nearly $1.2 trillion in spending, the bill does not repeal Obamacare, so much as it redistributes Obamacare funds from “blue states” to “red states,” per the formulae described below. Some conservatives may also be concerned that the bill creates a funding cliff—with spending dropping from $190 billion in 2026 to $0 in 2027—that will leave an impetus for future Congresses to spend massive new amounts of money in the future.

Grant Formula:         Sets a complex formula for determining state grant allocations, tied to the overall funding a state received for Medicaid expansion, the basic health program under Obamacare, and premium and cost-sharing subsidies provided to individuals in insurance Exchanges. Permits states to select any four consecutive fiscal quarters between September 30, 2013 and January 1, 2018 to establish the base period. (The bill sponsors have additional information regarding the formula calculations here.)

Intends to equalize grant amounts by 2026, with a phase-in of the new methodology for years 2021 and 2025. Specifically, the bill would by 2026 set funding to a state’s number of low-income individuals when compared to the number of low-income individuals nationwide. Defines the term “low-income individuals” to include those with incomes between 50 and 138 percent of the federal poverty level (45-133% FPL, plus a 5 percent income disregard created by Obamacare). In 2017, those numbers total $12,300-$33,948 for a family of four.

Adjusts state allocations (as determined above) according to three additional factors:

  1. Risk Adjustment:      The bill would phase in risk adjustment over four years (between 2021 and 2024), and limit the risk adjustment modification to no more than 10 percent of the overall allotment. Risk adjustment would be based on clinical risk factors for low-income individuals (as defined above).
  2. Coverage Value:        The coverage value adjustment would phase in over four years (between 2024 and 2027), based on whether the average actuarial value (percentage of expected health expenses paid) of coverage for low-income individuals (as defined above) in a given state exceeded the “lowest possible actuarial value of health benefits” satisfying State Children’s Health Insurance Program benefit requirements.
  3. Population Adjustment:              Permits (but does not require) the Secretary of Health and Human Services (HHS) to adjust allocations according to a population adjustment factor. Requires HHS to “develop a state specific population adjustment factor that accounts for legitimate factors that impact the health care expenditures in a state”—such as demographics, wage rates, income levels, etc.—but as noted above, does not require HHS to adjust allocations based upon those factors.

Some conservatives may be concerned that, despite the admirable intent to equalize funding between high-spending and low-spending states, the bill gives excessive discretion to unelected bureaucrats in Washington to determine the funding formulae. Some conservatives may instead support repealing all of Obamacare, and allowing states to decide for themselves what they wish to put in its place, rather than doling out federal funds from Washington. Finally, some may question why the bill’s formula criteria focus so heavily on individuals with incomes between 50-138 percent FPL, to the potential exclusion of individuals and households with slightly higher or lower incomes.

Waivers:         In conjunction with the health care grant program above, allows (but does not require) states to waive certain regulatory requirements. Specifically, states could waive any provision that:

  1. Restricts criteria for insurers to vary premiums on the individual and small group markets, “except that a health insurance issuer may not vary premium rates based on an individual’s sex or membership in a protected class under the Constitution of the United States;”
  2. Prevents premium contributions from varying “on the basis of any health status-related factor” in the individual and small group markets;
  3. Requires coverage of certain benefits in the individual and small group markets; and
  4. Requires insurers in the individual and small group markets to offer rebates to enrollees if their spending fails to meet certain limits (i.e., a medical loss ratio requirement).

To receive the waiver, the state must describe how it “intends to maintain access to adequate and affordable health insurance coverage for individuals with pre-existing conditions,” along with “such other information as necessary for the Administrator to carry out this subsection”—language that could be used by a future Democratic Administration to undermine the waiver program’s intent. States can only waive federal statutory requirements enacted after January 1, 2009—i.e., under the Obama Administration.

Moreover, any provision waived “shall only be waived with respect to health insurance coverage” provided by an insurer receiving funding under the state program—and “to an individual who is receiving a direct benefit (including reduced premium costs or reduced out-of-pocket costs) under a state program that is funded by a grant under this subsection.” Some conservatives may be concerned that, by tying waiver of regulations so closely to receipt of federal grant funds, this provision would essentially provide limited regulatory relief. Furthermore, such limited relief would require states to accept federal funding largely adjudicated and doled out by unelected bureaucrats.

Some conservatives may be concerned that, while well-intentioned, these provisions do not represent a true attempt at federalism—one which would repeal all of Obamacare’s regulations and devolve health insurance oversight back to the states. It remains unclear whether any states would actually waive Obamacare regulations under the bill; if a state chooses not to do so, all of the law’s costly mandates will remain in place there, leaving Obamacare as the default option. Moreover, the language requiring states “to maintain adequate and affordable health insurance coverage for individuals with pre-existing conditions” could lead to a private right of action against states utilizing the waivers—and judicial rulings that either undermine, or eliminate, the regulatory relief the waivers intend to provide.

Some conservatives may view provisions requiring anyone to whom a waiver applies to receive federal grant funding as the epitome of moral hazard—ensuring that individuals who go through health underwriting will receive federal subsidies, no matter their level of wealth or personal circumstances. By requiring states to subsidize bad actors—for instance, an individual making $250,000 who knowingly went without health coverage for years—with federal taxpayer dollars, the bill could actually raise health insurance premiums, not lower them.

Some may note that the bill could allow a future Democratic Administration—or, through its reference to “membership in a protected class under the Constitution,” activist judges—to inhibit future waiver applications, and/or impose undue and counter-productive restrictions on the supposed state “flexibility” in the bill. Finally, some conservatives may be concerned that—because the grant program funding ends in 2027, and because all individuals subject to waivers must receive grant funding—the waiver program will effectively end in 2027, absent a new infusion of taxpayer dollars.

Contingency Fund:               Appropriates a total of $11 billion—$6 billion for calendar year 2020, and $5 billion for calendar 2021—for a contingency fund for certain states. Three-quarters of the funding ($8.25 billion total) would go towards states that had not expanded Medicaid as of September 1, 2017, with the remaining one-quarter ($2.75 billion) going towards “low-density states”—those with a population density of fewer than 15 individuals per square mile.

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

Repeal of Some Obamacare Taxes:             Repeals some Obamacare taxes:

  • Restrictions on use of Health Savings Accounts and Flexible Spending Arrangements to pay for over-the-counter medications, effective January 1, 2017, lowering revenues by $5.6 billion;
  • Increased penalties on non-health care uses of Health Savings Account dollars, effective January 1, 2017, lowering revenues by $100 million;
  • Medical device tax, effective January 1, 2018, lowering revenues by $19.6 billion; and
  • Elimination of deduction for employers who receive a subsidy from Medicare for offering retiree prescription drug coverage, effective January 1, 2017, lowering revenues by $1.8 billion.

Some conservatives may be concerned that the bill barely attempts to reduce revenues, repealing only the smallest taxes in Obamacare—and the ones that corporate lobbyists care most about (e.g., medical device tax and retiree prescription drug coverage provision).

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

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

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

In an addition from BCRA, permits periodic fees for direct primary care to physicians to be 1) reimbursed from a Health Savings Account without being considered “insurance” and 2) considered a form of “medical care” under the Internal Revenue Code.

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

Medicaid Expansion:           Phases out Obamacare’s Medicaid expansion to the able-bodied, effective January 1, 2020. After such date, only members of Indian tribes who reside in states that had expanded Medicaid—and who were eligible on December 31, 2019—would qualify for Obamacare’s Medicaid expansion. Indians could remain on the Medicaid expansion, but only if they do not have a break in eligibility (i.e., the program would be frozen to new enrollees on January 1, 2020).

Repeals the enhanced federal match (currently 95 percent, declining slightly to 90 percent) associated with Medicaid expansion, effective in 2020. Also reduces the federal Medicaid match for Puerto Rico and U.S. territories from 55 percent to 50 percent. (The federal Medicaid match for the District of Columbia would remain at 70 percent.)

The bill repeals provisions regarding the Community First Choice Option, eliminating a six percent increase in the Medicaid match rate for some home and community-based services.

Retroactive Eligibility:       Effective October 2017, restricts retroactive eligibility in Medicaid from three months to two months. These changes would NOT apply to aged, blind, or disabled populations, who would still qualify for three months of retroactive eligibility.

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

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

States may not impose requirements on pregnant women (through 60 days after birth); children under age 19; the sole parent of a child under age 6, or sole parent or caretaker of a child with disabilities; or a married individual or head of household under age 20 who “maintains satisfactory attendance at secondary school or equivalent,” or participates in vocational education. Adds to existing exemptions (drafted in BCRA) provisions exempting those in inpatient or intensive outpatient substance abuse treatment and full-time students from Medicaid work requirements. No separate budgetary impact noted; included in larger estimate of coverage provisions.

Provider Taxes
:        Reduces permissible Medicaid provider taxes from 6 percent under current law to 5.6 percent in fiscal year 2021, 5.2 percent in fiscal year 2022, 4.8 percent in fiscal year 2023, 4.4 percent in fiscal year 2024, and 4 percent in fiscal year 2025 and future fiscal years—a change from BCRA, which reduced provider taxes to 5 percent in 2025 (0.2 percent reduction per year, as opposed to 0.4 percent under the Graham-Cassidy bill). Some conservatives may view provider taxes as essentially “money laundering”—a game in which states engage in shell transactions solely designed to increase the federal share of Medicaid funding and reduce states’ share. More information can be found here. CBO believes states would probably reduce their spending in response to the loss of provider tax revenue, resulting in lower spending by the federal government.

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

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

While the cap would take effect in fiscal year 2020, states could choose their “base period” based on any eight consecutive quarters of expenditures between October 1, 2013 and June 30, 2017. The CMS Administrator would have authority to make adjustments to relevant data if she believes a state attempted to “game” the look-back period. Removes provisions in BCRA allowing late-expanding Medicaid states to choose a shorter period as their “base period” for determining per capita caps, which may have improperly incentivized states that decided to expand Medicaid to the able-bodied.

Creates four classes of beneficiaries for whom the caps would apply: 1) elderly individuals over age 65; 2) blind and disabled beneficiaries; 3) children under age 19; and 4) all other non-disabled, non-elderly, non-expansion adults (e.g., pregnant women, parents, etc.). Excludes State Children’s Health Insurance Plan enrollees, Indian Health Service participants, breast and cervical cancer services eligible individuals, and certain other partial benefit enrollees from the per capita caps. Exempts declared public health emergencies from the Medicaid per capita caps—based on an increase in beneficiaries’ average expenses due to such emergency—but such exemption may not exceed $5 billion.

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

Eliminates provisions in the House bill regarding “required expenditures by certain political subdivisions,” which some had derided as a parochial New York-related provision.

Provides a provision—not included in the House bill—for effectively re-basing the per capita caps. Allows the Secretary of Health and Human Services to increase the caps by between 0.5% and 3% (a change from BCRA, which set a 2% maximum increase) for low-spending states (defined as having per capita expenditures 25% below the national median), and lower the caps by between 0.5% and 2% (unchanged from BCRA) for high-spending states (with per capita expenditures 25% above the national median). The Secretary may only implement this provision in a budget-neutral manner, i.e., one that does not increase the deficit. However, this re-basing provision shall NOT apply to any state with a population density of under 15 individuals per square mile.

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

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

Exempts low-density states (those with a population density of fewer than 15 individuals per square mile) from the caps, if that state’s grant program allocation (as described above) fails to increase with medical inflation, or if the Secretary determines the allotment “is insufficient…to provide comprehensive and adequate assistance to individuals in the state” under the grant program described above. Some conservatives may question the need for this carve-out for low density states—which the Secretary of HHS can apparently use at will—and why a small allocation for a program designed to “replace” Obamacare should have an impact on whether or not states reform their Medicaid programs.

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

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

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

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

In a change from BCRA, the bill removes language permitting states to roll over block grant payments from year to year—a move that some conservatives may view as antithetical to the flexibility intended by a block grant, and biasing states away from this model. Reduces federal payments for the following year in the case of states that fail to meet their maintenance of effort spending requirements, and permits the HHS Secretary to make reductions in the case of a state’s non-compliance. Requires the Secretary to publish block grant amounts for every state every year, regardless of whether or not the state elects the block grant option.

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

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

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

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

Exempts states from per capita caps, waivers, state plan amendments, and other provisions of Title XIX of the Social Security Act while participating in Medicaid block grants.

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

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

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

Disproportionate Share Hospital (DSH) Payments:     Adjusts reductions in DSH payments to reflect shortfalls in funding for the state grant program described above. For fiscal years 2021 through 2025, states receiving grant allocations that do not keep up with medical inflation will have their DSH reductions reduced or eliminated; in fiscal year 2026, states with grant shortfalls will have their DSH payments increased.

Title II

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

Community Health Centers:             Increases funding for community health centers by $422 million for Fiscal Year 2018—money intended to offset reductions in spending on Planned Parenthood affiliates (see “Federal Payments to States” above). Spends $422 million over ten years.

Catastrophic Coverage:      Allows all individuals to buy Obamacare catastrophic plans, currently only available to those under 30, beginning on January 1, 2019.

Enforcement:            Clarifies existing law to specify that states may require that plans comply with relevant laws, including Section 1303 of Obamacare, which permits states to prohibit coverage of abortion in qualified health plans. While supporting this provision’s intent, some conservatives may be concerned that this provision may ultimately not comply with the Senate’s Byrd rule regarding the inclusion of non-fiscal matters on a budget reconciliation bill.

Cost-Sharing Subsidies:      Repeals Obamacare’s cost-sharing subsidies, effective December 31, 2019, and does not appropriate funds for cost-sharing subsidy claims for plan years through 2019. The House of Representatives filed suit against the Obama Administration (House v. Burwell) alleging the Administration acted unconstitutionally in spending funds on the cost-sharing subsidies without an explicit appropriation from Congress. The case is currently on hold pending settlement discussions between the Trump Administration and the House.

CBO Report Shows Bogus Nature of Obamacare “Sabotage” Charges

If you need any additional evidence as to the trumped-up (pardon the pun) charges of Obamacare “sabotage” leveled against the current president, look no further than the Congressional Budget Office (CBO) report about cost-sharing subsides released yesterday. In the report, CBO concluded that ending subsidy payments—which the law never appropriated to begin with—would keep premiums roughly constant for most individuals, increase spending on insurance subsidies, and increase the number of insured Americans modestly.

Which one of those outcomes do Democrats oppose? Exactly none. Which illustrates why all the self-righteous indignation about President Trump “sabotaging” Obamacare is as much about the individual inhabiting the Oval Office as it is about health care policy.

Check the Cost-Sharing Analysis

The CBO report, as with other prior analyses, assumed that eliminating the cost-sharing reductions—used to reimburse insurers for providing discounted deductibles and co-payments to certain low-income households—would lead insurers to raise premiums, but only for certain plans. Because the law requires insurers to lower cost-sharing regardless of whether the federal government provides separate reimbursement payments for that, insurers would “load” those reductions on to silver insurance plans—but only on insurance exchanges. This change would exempt plans sold off the exchanges, where individuals do not qualify for subsidies, from the higher premium effects.

The higher premiums for silver plans on exchanges would lead to higher spending on insurance subsidies, which Obamacare links to the second-lowest silver premium. And those richer subsidies would attract some more individuals to insurance markets, reducing the number of uninsured by about one million.

Democrats may seize upon CBO’s finding that this scenario would increase the deficit as reason to oppose it. But if Democrats cared about protecting taxpayers, they would have objected to the Obama administration’s actions—actions that the Government Accountability Office concluded last year violated the statute—placing insurance companies ahead of ordinary taxpayers in receiving reinsurance payments. They didn’t object on behalf of taxpayers then, so why object in this case? Is it really about policy, or is it just crass politics?

Liberal Hypocrisy on the Individual Mandate

Likewise, liberals charge that the president could refuse to enforce Obamacare’s individual mandate, encouraging healthy people to drop coverage and causing insurance markets to deteriorate further. In reality though, his room for maneuver is more limited. If the president decided to issue blanket exemptions to the mandate, or not enforce it, insurers likely would sue the administration for failing to execute its constitutional duties—and they could, and should, win. Under our Constitution, the president can, should, and must enforce all the laws, including the mandate, not just the ones he agrees with.

Given their own party’s history with the mandate, liberals’ sudden insistence on its “enforcement” sounds more than a bit rich. Democrats were the ones who, when faced with the fact that non-compliance with the mandate could lead to jail time, expressly wrote the law to prevent the use of such enforcement mechanisms. And the last administration was, if anything, far too liberal with hardship exemptions to the mandate, giving them to individuals who received a notice from a utility threatening to shut off service, or those who had a close family member die in the past three years.

So is the issue with President Trump’s supposed non-enforcement of the mandate, or the fact that he’s the one making decisions on exactly how the mandate will be enforced?

Pester People into Enrolling

The Trump administration could certainly influence insurance markets through outreach efforts. Liberal groups have spent weeks complaining that the Department of Health and Human Services has not solicited them for this fall’s open enrollment season.

But put things into perspective. A Politico story in January noted that the Trump administration reduced television advertising by about $800,000 per day for the last four days of open enrollment—a few million dollars. If Obamacare—entering its fifth open enrollment period this fall—is so fragile that losing a few million dollars of advertising will tank insurance markets, what does that say about the stability, let alone the wisdom, of the law in the first place?

The federal government shouldn’t need to spend millions of dollars every year pestering people into enrolling in coverage, not least because insurance companies can and should do that themselves. President Trump should enforce the law as it’s written—a novel task compared to his predecessor, who seemingly relished in re-writing it unilaterally—but sabotage? Democrats sabotaged the law themselves when they passed it seven years ago, and no amount of opportunistic (and disingenuous) rhetoric can change that fact.

This post was originally published at The Federalist.

Legislative Update: “Skinny” Repeal Bill

A little bit ago, Sen. McConnell introduced text of the Health Care Freedom Act, the “skinny” repeal bill, on the Senate floor. Text is available here, and a CBO score here. A vote is expected later this evening.

The substitute amendment as introduced would:

  • Repeal the individual mandate tax/penalties, retroactive to January 1, 2016, reducing revenues by $38 billion over ten years;
  • Suspend the employer mandate penalties for periods from January 1, 2016 through December 1, 2024, reducing revenues by $146 billion over ten years;
  • Extend the moratorium on the medical device tax from December 31, 2017 to December 31, 2020, reducing revenues by $5.8 billion over ten years;
  • Increase contribution limits to Health Savings Accounts for periods between January 1, 2018 and December 31, 2020, reducing revenues by $5 billion over ten years;
  • Prohibit federal funding for one year to any non-profit provider that offers elective abortions and receives more than $1 million in Medicaid funding (a change from $350 million in earlier drafts of repeal legislation, to address concerns by the Senate Parliamentarian that the provision only targets Planned Parenthood), saving $100 million over ten years;
  • Eliminates funding for the Prevention and Public Health Fund for fiscal years after 2018, saving $11.1 billion over ten years;
  • Increases mandatory spending for community health centers by $422 million in fiscal year 2017;
  • Provides $2 billion for states to prepare and submit Section 1332 Obamacare waivers;
  • Makes certain technical changes to the Section 1332 Obamacare waiver process;
  • Provides for an automatic approval of Section 1332 waiver applications 45 days after submission by a state;
  • Provides for a Section 1332 waiver to last for eight years unless a state requests a shorter duration, with additional eight-year renewal periods possible;
  • Prohibits Department of Health and Human Services from revoking an approved Section 1332 waiver during the eight-year period;
  • Does NOT amend the criteria used to determine the waivers, such that all state waivers must continue to cover as many individuals as Obamacare, and provide coverage at least as robust as under the law — a move that some conservatives may believe will severely limit states’ ability to innovate.

The Congressional Budget Office believes that the bill as a whole will reduce the deficit by a total of $178.8 billion — $135.6 billion in on-budget savings, and $43.2 billion in off-budget (i.e., Social Security) savings. In 2026, CBO believes that the substitute would, compared to current law, reduce the number of Americans in Medicaid by 7 million, the number of Americans in Exchange coverage by 6 million, and the number of Americans in employer-sponsored coverage by 2 million.

Some conservatives may be concerned that the bill does not represent a repeal of Obamacare, leaving in place most of the law’s taxes, its new entitlements, all of its regulations, and more than 400 of the 419 legislative sections of the original 2010 statute. Moreover, some conservatives may be concerned that, by effectively repealing the individual mandate but retaining Obamacare’s costly insurance regulations, the substitute would only increase the cost of health insurance for struggling middle-class families.

Does Andy Slavitt Know Anything About Medicaid?

The debate on health care has seen numerous examples of hyperbolic rhetoric in recent months. But one series of allegations made earlier this month takes the cake, both for its factual ignorance and logical incoherence. That these demonstrably false allegations were made by a former senior official in the Obama administration makes them that much more disconcerting.

While many Americans were enjoying a long Independence Day weekend, former acting administrator of the Centers for Medicare and Medicaid Services (CMS) Andy Slavitt took to Twitter to make the bold claim that Republicans were changing their health-care bill “not just to gut Medicaid, but to allow states to eliminate it.”

Before delving into his bill of particulars, it’s worth rebutting the overall claim that Republicans would allow states to “eliminate” Medicaid. That’s false—and provably so. Under our Constitution, the federal government cannot require states to participate in a program to begin with. By definition, the Republican health-care bill cannot “allow states to eliminate” Medicaid—states already have that right, and always will. That’s the point of the Tenth Amendment, and of federalism. Perhaps Slavitt needs to read the Constitution, and if he doesn’t have a copy, I will gladly lend him mine.

Moreover, Slavitt’s allegation reflects not just ignorance of fundamental constitutional principles, but the history of Medicaid itself. Arizona did not join the Medicaid program until 1982, 17 years after Medicaid’s creation, and nearly a decade after every other state joined the program. If, as Slavitt claims, Republicans are concocting some nefarious plot to “allow” states to “eliminate” Medicaid, then why did a Democratic Congress “allow” Arizona not to join Medicaid for nearly two decades after the program’s creation? Again, his allegations are, in a word, nonsense—because he either does not know, or does not wish to know, how Medicaid works.

These Waivers Ain’t New, Buddy

As Slavitt’s general claim is outlandishly ignorant, so too the details supposedly bolstering his assertions. Specifically, he claims that “the new state waiver process in the Senate bill already allows Medicaid to be replaced by giving [people] a subsidy.” Setting aside the question of whether giving some Medicaid beneficiaries access to private insurance coverage represents good policy, this claim likewise lacks any factual basis—because the waiver program he mentions has nothing to do with Medicaid.

Slavitt’s claim about a “new state waiver process” references Section 207 of the Senate bill (pages 138-145 here). That language doesn’t create a “new” state waiver process; rather, it amends an existing waiver program created by Section 1332 of Obamacare. Under Section 1332(a)(2) of the law, states can only use the innovation program to waive specific requirements: 1) the individual mandate to purchase coverage; 2) the employer mandate to offer coverage; 3) subsidies for exchange coverage, which states can take as a block grant and distribute to their citizens through other means; and 4) some insurance regulations, such as the definition of a qualified health plan, essential benefits, and actuarial value requirements (see page 98 here). While the Senate bill would change the way states could apply for waivers, it would not change what provisions states could waive.

To summarize: The waiver process outlined above—which Slavitt claims will be used to “eliminate” Medicaid by moving Medicaid beneficiaries off private coverage—says nothing about Medicaid. The Medicaid Payment and Access Commission, which advises Congress on Medicaid policies, admits this Section 1332 waiver process “cannot be used to change Medicaid.” Regulatory guidance put out by CMS while Andy Slavitt was running it noted the inability of Section 1332 waivers to reform Medicaid. And a reporter helpfully pointed all this out to Slavitt during his Twitter posts, yet he didn’t change his argument one whit, or even bother to acknowledge these inconvenient truths.

Credibility: Shot

While at CMS, Slavitt ran an organization which, as the New York Times noted, “finances health care for one in three Americans and has a budget bigger than the Pentagon’s.” For that reason, there’s no other way to say it: Given the number of false statements in Slavitt’s Medicaid Twitter rant, he is either grossly misinformed about how Medicaid operates—in other words, he was never competent to run such a large organization in the first place—or he’s flat-out lying to the American public now.

Either way, his statements deserve much more scrutiny than they’ve received from an otherwise fawning press. Instead of writing pieces lionizing Slavitt as an Obamacare “rabble-rouser,” analysts should focus more on his misstatements and hypocrisy—his apparent failure to go on Obamacare himself while running the law’s exchanges, and his attacks on Republican plans to cap Medicaid spending, even though Obamacare did the exact same thing to Medicare. The American people deserve an honest, serious debate about the future of health care in our country. Unfortunately, they’re not getting it from Andy Slavitt.

This post was originally published in The Federalist.

The Need for Medicaid Reform

There’s often a disconnect between Washington and the rest of the country, and Medicaid reform is no exception. The House of Representatives last month passed a bill including major Medicaid reforms—either a per capita spending cap or a block grant for states. The new presidential administration has pledged its support for added state flexibility for running Medicaid programs.

All that sounds nice, you might be thinking, but what does it mean—both for states, and for Medicaid recipients themselves? A recent paper I compiled for the Wyoming Liberty Group provides some sense of what a reformed Medicaid program might look like. The overhaul being contemplated in Washington—the largest in more than half a century—would, if done correctly, give states flexibility to modernize Medicaid and provide better care to patients, which could end up saving taxpayers money.

Reform Means Better, Less Expensive Care

Medicaid reform means better care for patients. It means states can choose the best care options for beneficiaries without worrying about checking bureaucratic boxes. That freedom will allow more elderly and disabled beneficiaries to stay in their homes, rather than moving to nursing institutions—the preferred option for most seniors, and a more economical one.

A series of reforms in Rhode Island begun nearly a decade ago provide some sense of what Medicaid transformation can accomplish. Nonpartisan analysts found that Rhode Island’s reforms saved tens of millions of dollars, while “improving members’ access to more appropriate services.” Providing better care not only represents good policy—it can also save taxpayers money.

Medicaid reform could mean new efforts to coordinate care. Recent innovations from the private sector—such as payment bundles for all the costs of a procedure—would give providers more incentives to provide effective care the first time, while publicly releasing de-identified patient data would give providers the analytic tools they need to become more efficient.

Medicaid reform also means more consumer-oriented options for patients. It involves giving patients the tools to save money for taxpayers, then sharing some of those savings with them. Whether providing incentives for healthy behaviors—similar to the “Safeway model” popular with many large employers—or encouraging patients to shop around for non-emergency procedures like MRIs, these incentives can present a “win-win” proposition to both patients and taxpayers.

Link Benefits to Contributions

A reformed Medicaid program means providing links to employment, and employment-based health insurance, for eligible beneficiaries. Work requirements and job training programs will encourage individuals to develop translatable skills that will improve their employment prospects, and ultimately benefit the economy. Encouraging patients to accept employment-based insurance wherever offered, and transforming Medicaid so it more closely resembles employer plans, will create smoother transitions for beneficiaries.

Finally, a reformed Medicaid program would serve as a wise steward of taxpayer dollars. Enhanced eligibility checks and increased asset recovery efforts would preserve scarce taxpayer resources for the vulnerable patients who need them most. With improper payments in the program having risen by nearly 25 percent to more than $36 billion last fiscal year, state Medicaid programs need the resources and incentives to ferret out this waste and fraud and return it to taxpayers.

While Medicaid serves an important purpose for the needy populations for which it was designed, the program needs updating to respond to twenty-first-century medicine. Moreover, with the size of Medicaid nearly tripling as a percentage of state budgets over the past three decades, an unreformed Medicaid program will continue to crowd out other important state spending priorities like law enforcement, education, and transportation.

Medicaid reform may well take different forms in different states. Wyoming’s large rural population impacts its health system in numerous ways. Managed care has yet to come to Medicaid, and social isolation in rural communities helps explain why Wyoming has an above-average percentage of aged beneficiaries in nursing homes. These unique characteristics mean that the solutions that work for Medicaid recipients in Cheyenne may not work for those in Charlotte, and vice versa.

But given freedom from Washington—freedom that should be forthcoming under the new administration—every state can transform its Medicaid program. All it takes is federal flexibility, and for policy-makers to embrace a vision for a modern Medicaid system. With a comprehensive waiver, Wyoming—and every other state—can transform and revitalize Medicaid. It’s time to embrace the opportunity and do just that.

This post was originally published at The Federalist.

Reforming Medicaid to Serve Wyoming Better

A PDF copy of this report is available on the Wyoming Liberty Group website.

Reforming Medicaid to Serve Wyoming Better

              In the past several years, Wyoming has accomplished several key changes to its Medicaid program. A series of reforms regarding long-term care, and other methods to improve care delivery and coordination, have stabilized the overall spending on Medicaid—and reduced expenditures on a per-beneficiary basis.

However, the commitment by both the new Administration and Congressional leaders to examine Medicaid reform closely presents Wyoming with the possibility to accelerate its current reform efforts. Seema Verma, the new head of the Centers for Medicare and Medicaid Services (CMS) and a former Medicaid consultant, has publicly committed to provide states with greater flexibility and freedom to innovate.[1] Likewise, legislation advancing fundamental Medicaid reform has begun to advance in Congress.

Whether through a block grant, per capita allotments, or enhanced waiver authority from the federal government, states like Wyoming can and should receive greater freedom to manage their programs, in exchange for a series of fixed federal payments. Upon receiving this flexibility, Wyoming can put into place additional reforms that will improve care for beneficiaries, encourage transitions to employment and employer-based health coverage where appropriate, reduce health costs, and save taxpayer funds. These reforms would modernize Medicaid to incorporate the best of 21st century medicine, help Baby Boomers as that generation ages into retirement, and alleviate the fiscal challenges Wyoming faces in managing its Medicaid program.

The Problem

Enacted into law in 1965, the Medicaid program as originally designed provided federal matching funds to states to cover discrete populations, including the blind, needy seniors, and individuals with disabilities. Over time, expansions of the program to new populations, and changes in the delivery of health care, have made the Medicaid program large, costly, and unwieldy for states to manage. A significant body of evidence demonstrates that, after more than a half-century, Medicaid is long overdue for a modernization.

Cost:    According to government-provided data, Medicaid now approaches Medicare for the title of largest taxpayer-funded health care program. According to non-partisan government actuaries, state and federal taxpayers combined will spend an estimated $595.5 billion on Medicaid in the current fiscal year—$368.9 billion by the federal government, and $226.6billion by states.[2] By comparison, the Congressional Budget Office projects that this fiscal year, Medicare will spend a net of $598 billion, excluding premium payments by enrollees.[3] Even as the Baby Boomers retire in the coming decade, Medicaid will stay on pace with Medicare when it comes to total expenditures—Medicaid spending will total an estimated $57.5 billion in fiscal year 2025, compared to an estimated $1.005 trillion in net Medicare spending the same fiscal year.[4]

On the state level, rising spending on Medicaid has crowded out other key state priorities like education, transportation, and law enforcement. While states often cut back on those other programs during recessions, Medicaid spending continues to grow in both good economic times and bad. For instance, for fiscal year 2017, states adopted a total of $7.7 billion in spending increases on Medicaid when compared to fiscal 2016—less than the growth of K-12 education spending ($8.9 billion increase), but more than spending on higher education or corrections (both $1.1 billion increases).[5] But in fiscal year 2012—as states recovered from the last recession—states sharply cut K-12 education ($2.5 billion decrease) and higher education ($5 billion decrease) to finance a massive increase in Medicaid spending ($15 billion increase).[6]

With program spending growing at a near-constant pace, Medicaid has grown substantially over the past several decades to become the largest line-item in most state budgets. In fiscal year 2016, Medicaid consumed an average of 29.0 percent of state spending from all fund sources, and 20.3 percent of general fund expenditures.[7] By comparison, in fiscal year 1996, Medicaid consumed 20.3 percent of state spending, and 14.8 percent of general fund spending—and in fiscal year 1987, Medicaid consumed only 10.2 percent of state spending, and 8.1 percent of general fund spending.[8] With program spending nearly tripling as a size of their overall budgets from 1987 through 2016, Medicaid growth has limited states’ ability to provide for other critical state priorities—or return some of taxpayers’ hard-earned cash back into their pockets.

Quality:            Unfortunately, many Medicaid programs suffer from poor access to physicians, high rates of emergency room usage, and poor quality outcomes. A New England Journal of Medicine survey using “secret shopper” methods found that two-thirds of Medicaid children were denied appointments with specialty physicians, compared to only 11% of patients with private insurance coverage. Moreover, those Medicaid patients that did receive appointments had to wait an average of more than three weeks longer than privately insured children.[9] Perhaps unsurprisingly, beneficiaries themselves think much less of Medicaid coverage due to their lack of access:

You feel so helpless thinking, something’s wrong with this child and I can’t even get her into a doctor….When we had real insurance, we could call and come in at the drop of a hat.[10]

Even supporters of Medicaid call an enrollment card nothing more than a “hunting license”—a card that grants beneficiaries the ability to go try to find a physician that will actually treat them.[11]

Because of the difficulties beneficiaries face in obtaining timely access to physicians, Medicaid patients often end up with worse outcomes than the general population as a whole. The Oregon Health Insurance Experiment—which compared outcomes for identically situated groups of uninsured individuals, some of whom enrolled in Medicaid and some of whom did not—concluded that patients who enrolled in Medicaid received no measurable improvements in their physical health than those that remained uninsured.[12] Moreover, the newly enrolled Medicaid patients increased their emergency room usage by 40 percent when compared to those who did not obtain coverage—and those disparities persisted over time.[13] Such results tend to bolster previous findings that patients with Medicaid coverage may end up with worse outcomes than uninsured patients.[14]

Impact in Wyoming:  A January 2015 brief by the Kaiser Family Foundation, and a 2014 Government Accountability Office (GAO) report on Medicaid variations by state, provide helpful metrics comparing Wyoming’s Medicaid program to its peers. The Kaiser brief analyzed per-beneficiary spending in Medicaid for “full-benefit” patients—that is, excluding any partial benefit enrollees.[15] As the table below shows, as of 2011, Wyoming’s spending on aged beneficiaries led the nation—nearly double the national average—and its spending on individuals with disabilities ranked high as well.

Moreover, per-beneficiary spending in Wyoming grew at a rapid, above-average pace for the aged and disabled populations. During the years 2000 to 2011, costs per beneficiary nationally grew by an average of 3.7% for aged beneficiaries and 4.5% for individuals with disabilities. By comparison, in Wyoming spending rose an average of 6.8%—again, nearly twice the national average—for aged beneficiaries, and an above-average 5.45% for individuals with disabilities during the same 2000-2011 period.[16]

   

Aged

Individuals with Disabilities  

Adults

 

Children

United States $17,522 $18,518 $4,141 $2,492
Wyoming $32,199 $25,346 $3,986 $1,967
Difference $14,677 $6,828 -$155 -$525
Wyoming Rank Highest 7th Highest 31st Highest 46th Highest

The 2014 GAO report provides additional context as to why Wyoming has relatively high levels of spending on aged and disabled populations.[17] Whereas the Kaiser report studied spending for the years 2000 through 2011, GAO analyzed spending for federal fiscal year 2008 only. However, like Kaiser, GAO also found that Wyoming’s per-enrollee spending on aged ($21,662) and disabled ($24,644) beneficiaries significantly exceeded national averages ($17,609 and $19,135, respectively).[18]

In addition to analyzing per-beneficiary spending by state, the GAO study also examined factors known to influence spending—and on these, Wyoming and its rural neighbors also ranked high. Wyoming ranked more than ten percentage points above the national average for the percentage of aged beneficiaries receiving long-term care services (48.7% in Wyoming vs. 37.7% nationally), and for the percentage of aged Medicaid enrollees ever institutionalized during the year (35.7% in Wyoming vs. 24.5% nationally).[19] Crucially, most of Wyoming’s neighbors—North Dakota, South Dakota, Montana, and Colorado—also have percentages of aged seniors receiving long-term care services, and receiving institutional care, well above national averages, and in some cases higher than Wyoming. These data suggest that the difficulties of life in rural and frontier communities may result in above-average rates of institutionalization, as aged or disabled individuals cannot live far from care support structures.

The prior reports indicating high levels of spending on Wyoming’s Medicaid program do not consider the significant reforms the state has implemented to date. Efforts to increase the percentage of beneficiaries receiving home and community-based services, rather than institutional care, have driven the percentage of members receiving long-term care in the home above 50%.[20] As a result, spending on Medicaid has remained relatively flat from fiscal years 2010 through 2015. Per enrollee costs have actually declined over that period, particularly for the aged population.[21]

However, the Kaiser and GAO studies illustrate the challenges and the opportunities the Medicaid program faces in Wyoming. Despite the reforms put in place to date, spending on the aged and disabled population remains at comparatively high levels. While spending on aged beneficiaries has declined from $32,199 per enrollee in 2011 to $26,222 in fiscal 2015, even that lower level remains higher than the national per-beneficiary average in 2011 ($17,522).

But if Wyoming can build upon its existing Medicaid reforms to improve care for the aged and vulnerable population—coordinating care better, and ensuring that individuals who can be treated at home are not inappropriately diverted into institutional settings—then beneficiaries will benefit, as will taxpayers. If Medicaid enrollees receive better care, their lives will improve in both measurable and immeasurable ways. Likewise, simply bringing spending on aged and disabled beneficiaries down to national averages will drive millions of dollars in savings to the Medicaid program.

The Vision

Ultimately, the Medicaid program would work best if transformed into a block grant or per capita allotment to states. Under either of these proposals, states would receive additional flexibility from the federal government to manage their health care programs, in exchange for a series of fixed payments from Washington. The American Health Care Act, passed by the House of Representatives on May 4, contains both options, creating a new system of per capita spending caps for Medicaid, while allowing states to choose a block grant for some of their Medicaid populations.[22]

While fundamental changes to Medicaid’s funding formulae must pass through Congress, the incoming Administration can work from its first days to give states more freedom and flexibility to manage their Medicaid programs. Specifically, Section 1115 of the Social Security Act gives the Secretary of Health and Human Services the power to waive certain requirements under Medicaid and the State Children’s Health Insurance Program (SCHIP) for “any experimental, pilot, or demonstration project which, in the judgment of the Secretary, is likely to assist in promoting the objectives” of the programs.[23]

Unfortunately, the Obama Administration  often refused or watered down Section 1115 waiver requests from Republican governors. For instance, the last Administration repeatedly refused requests from governors to impose work requirements for able-bodied adults as a condition of participation in the Medicaid program.[24] Ironically, Obamacare actually made the process of obtaining waivers more difficult; one section of the law imposed new requirements, including a series of hearings, that states must undertake when applying for a waiver.[25] In the years since, federal legislative changes have sought to streamline the process for states requesting extensions of waivers already granted.[26]

In the hands of the right Administration, waiver authority could provide states with a significant amount of flexibility to reform their Medicaid programs. Among the finest examples of such reform is the Rhode Island Global Compact Waiver, approved in the waning days of the George W. Bush Administration on January 16, 2009. The waiver combined and consolidated myriad Medicaid waivers into one comprehensive waiver, with a capped allotment on overall spending. Rather than considering the silos of various program requirements, or specific waivers on discrete issues, Rhode Island was able to examine Medicaid reform holistically—focusing on the big picture, rather than specific bureaucratic dictates from Washington.[27]

Given flexibility from Washington, Rhode Island succeeded in controlling Medicaid expenditures—indeed, in reducing them on a per beneficiary basis. Overall spending remained roughly constant from 2010 through 2013, while enrollment grew by 6.6%.[28] Per beneficiary costs declined by 5.2% over that four-year period—a decline in absolute terms, even before factoring in inflation.[29] Perhaps most importantly, an independent report from the Lewin Group found that the Global Compact was “highly effective in controlling Medicaid costs,” while “improving members’ access to more appropriate services.”[30] In other words, Rhode Island reduced its Medicaid costs not by providing less care to beneficiaries—but providing more, and more appropriate, care to them.

The Rhode Island example has particular applicability to Wyoming’s Medicaid program. Just as Wyoming spends above national averages on Medicaid care for the aged and individuals with disabilities, so too did Rhode Island have a highly institutionalized population prior to implementing its Global Compact. Moreover, Wyoming’s current system of discrete waivers—two (including one pending with CMS) under Section 1115, and seven separate long-term care waivers under Section 1915 of the Social Security Act—lends itself towards potential care silos and unnecessary duplication. Consolidating these myriad waivers into one global waiver would allow Wyoming to “see the forest for the trees”—focusing on overall changes that will improve the quality of care. Implementing a global waiver will also give Wyoming the flexibility to accelerate reforms regarding delivery of long-term supports and services to the aged and disabled population, while introducing new consumer-oriented options for non-disabled beneficiaries.

Specific Solutions

A block grant, per capita allotment, or waiver along the lines of Rhode Island’s Global Compact provides the vision that will give states the tools needed to reform Medicaid for the 21st century. Fortunately, states have experimented with several specific reforms that can provide more granular details regarding how a reformed Medicaid program might look. Proposals in documents such as House Republicans’ “Better Way” plan, released last year, and a report issued by Republican governors in 2011, provide good sources of ideas.[31] Both individually and collectively, these solutions can 1) improve the quality of care beneficiaries receive; 2) better engage beneficiaries with the health care system, and where appropriate, provide a transition to employment and employer-sponsored coverage; 3) reduce health costs overall; and 4) provide sound stewardship of the taxpayer dollars funding the Medicaid program.

Delivery System Reform

With a Medicaid program based around fee-for-service medicine—which pays doctors and hospitals for every service they perform—Wyoming in particular would benefit from reforms that encourage greater value and coordination in health care delivery. As explained above, the state’s above-average spending on aged and disabled beneficiaries speaks to the way in which uncoordinated care can result in health problems for patients—and ultimately, greater expenses for taxpayers.

Promote Home and Community-Based Services (HCBS):         The Lewin Group’s analysis of Rhode Island’s Global Compact Waiver delineated many of the ways in which that state reformed its Medicaid program to de-institutionalize aged and disabled beneficiaries. Between the January 2009 approval of the waiver and the December 2011 report, Rhode Island achieved impressive savings from providing more coordinated, and “right-sized,” care to patients:

  • Shifting nursing home services into the community saved $35.7 million during the period examined by the study;
  • More accurate rate setting in nursing homes saved an additional $15 million in 2010 alone;
  • Better care management for adults with disabilities and special needs children saved between $4.5 and $11.9 million; and
  • Enrollment in managed care significantly increased the access of adults with disabilities to physician services.[32]

The results from the Rhode Island waiver demonstrate the possible savings to Wyoming associated with reform of long-term services and supports (LTSS)—savings that the Lewin report confirms came not from denying care to beneficiaries, but by improving it.

Other states have also taken actions to promote HCBS. Testifying before the Congressionally-chartered Commission on Long-Term Care in 2013, Tennessee’s head of Long-Term Supports and Services proposed several solutions, focused largely on turning the bias in favor of nursing home care toward a bias in favor of HCBS—to use nursing homes as a last resort, rather than a first resort.[33] Her proposals included a possible limit on nursing home capacity; converting nursing home “slots” into HCBS care “slots;” and requiring patients to try HCBS as the default option before moving to a more intense (i.e., institutional) setting.[34] Integrating these proposals into a comprehensive waiver would not only provide Wyoming residents with more appropriate care, it could also save taxpayers money.

Managed Care:            Wyoming could benefit by exploring the use of managed care plans to deliver Medicaid services to beneficiaries. Providing plans with a capitated payment—that is, a flat payment per beneficiary per month—would give them an incentive to streamline care. Moreover, a transition to managed care would provide more fiscal certainty to the state, as payment levels would not change during a fiscal or contract year.

In June 2014, a report commissioned by the Wyoming Legislature and prepared for the Wyoming Department of Health recommended against pursuing full-risk managed care, despite an admitted high level of vendor interest in doing so.[35] Three years later, Wyoming should explore the issue again, as both the Department of Health and medical providers in Wyoming have additional experience implementing other forms of coordinated care. The 2014 report notes that managed care plans have numerous tools available that could help reduce costs, particularly for high-cost patients, including data analytics, case managers, and quality metric incentives. Given the unique capacities that managed care plans bring to the table, it is worth exploring again the issue of whether full-risk plans could improve care to Wyoming beneficiaries while providing fiscal stability to the state.

While managed care could provide significant benefits to Wyoming, the state may be hamstrung by Medicaid’s current requirement that beneficiaries have the choice of at least two managed care plans. Given that Wyoming has only one insurer participating on its insurance Exchange this year, and a heavily rural population, this requirement may not be realistic or feasible. If approved by CMS, a waiver application could enable only one managed care plan to deliver care to rural Wyomingites.

Provider-Led Groups:              In addition to managed care products organized and sold by insurance companies, Wyoming could also explore the possibility of creating groups led by teams of providers to manage care delivery. Similar to the accountable care organization (ACO) model promoted through the Medicare program, these provider-led groups could provide coordinated care to patients, either on a fully- or partially-capitated payment model.

In recent years, at least 18 state Medicaid programs have either adopted or studied the creation of various provider-led organizations.[36] Adopters include neighboring states like Utah and Colorado, as well as southern states like Louisiana and Alabama. Whether a hospital-led ACO, or a group of doctors providing direct primary care to patients, these provider-led organizations would have greater incentives to coordinate care for patients, hopefully resulting in better health outcomes, and reduced spending for the Medicaid program.

Payment Bundling:     One other option for reforming delivery systems lies in bundled payments, which would see Medicaid providing a lump-sum payment for all the costs of a procedure (e.g., a hip replacement and associated post-operative therapy). Such concepts date back more than a quarter-century; a Medicare demonstration that began in the summer of 1991 reduced spending on heart bypass patients by $42.3 million—a savings of nearly 10 percent.[37] More recently, Pennsylvania’s Geisinger Health System helped bring the payment bundle model into the national lexicon, implementing a 90-day “warranty” on heart bypass patients beginning in February 2006.[38]

In recent years, government payers have increasingly adopted the payment bundle as a means to improve care quality and limit spending increases. Beginning in 2011, Arkansas’ Medicaid program worked with its local Blue Cross affiliate to improve health care delivery through payment improvement, and has implemented an episode-of-care payment model (i.e., a payment bundle) as one of its efforts.[39] Likewise, Medicare has moved ahead with efforts to embrace bundled payments—offering providers the option of a retrospective or prospective lump-sum payment for an inpatient stay, post-acute care provided after the stay, or both.[40]

A reformed Medicaid program in Wyoming could offer providers the opportunity to utilize bundled payment models as one vehicle to deliver better care. Ideally, Medicaid need not mandate participation from providers, as Medicare has done for some payment bundles, but instead help to encourage broader trends in the industry.[41] While not as dramatic a change as a move toward managed care, the bundled payment option may appeal to some providers as a “middle ground” for those not yet ready to embrace a fully capitated payment model.

De-Identified Patient Data:   In a bid to harness the power of “big data,” the federal government has made de-identified Medicare patient claims information available to companies that can analyze the information for patterns of care usage. Those initiatives have recently expanded to Medicaid, with one start-up compiling a database of 74 million Medicaid patients.[42] Wyoming could ask outside vendors or consultants to analyze its claims data for relevant patterns and trends—yielding valuable insights into the delivery of care, and potentially improving outcomes for beneficiaries. By releasing its own Medicaid data and encouraging companies to analyze it, Wyoming will encourage the development of Wyoming-specific solutions to the state’s unique health care needs.

Consumer-Directed Options

As part of a move towards modernizing Medicaid, Wyoming should adopt several different consumer-directed elements for its health coverage. These provisions would give beneficiaries incentives to act as smart shoppers, using ideas proven to lower the growth of health care costs. Providing appropriate incentives to beneficiaries will also make Medicaid coverage more closely resemble private health insurance plans—providing an easy transition for beneficiaries who move into employer-based coverage as their income rises.

Health Opportunity Accounts:            In 2005, provisions in the Deficit Reduction Act created Health Opportunity Accounts.[43] The language in the statute called for several demonstration projects by states, who could offer non-elderly and non-disabled beneficiaries the choice to enroll in Health Opportunity Accounts on a voluntary basis. The Opportunity Accounts would be used to pay for medical expenses up to a deductible, at which point traditional insurance coverage would take over. While the Opportunity Accounts under the demonstration would function in many respects like a Health Savings Account (HSA)—the state and/or charities would fund the accounts, and beneficiaries could build up savings within them—they included a twist. Upon becoming ineligible for Medicaid, beneficiaries could access most of their remaining Opportunity Account balance for a period of up to three years, to purchase either health insurance coverage or “job training and tuition expenses.”[44]

By creating an HSA-like account mechanism, and giving beneficiaries the flexibility to use their Opportunity Account funds on job training or health insurance expenses upon becoming ineligible for Medicaid, the Opportunity Account demonstration promoted both smart health care shopping and employment opportunities for Medicaid beneficiaries. Unfortunately, in 2009 a Democratic Congress and President Obama passed legislation prohibiting the approval of any new Health Opportunity Account demonstrations— effectively killing this innovative program before it had a chance to take root.[45]

Thankfully, some states have continued to incorporate HSA-like incentives into their Medicaid programs. In the non-Medicaid space, HSAs and consumer-directed options have demonstrated their ability to reduce health care costs. A 2012 study in the prestigious journal Health Affairs found that broader adoption of the HSA model could reduce health care costs by more than $57 billion annually.[46] If extended into the Medicaid realm, slower growth of health costs would save taxpayers—in Wyoming and elsewhere.

The upcoming reauthorization of the State Children’s Health Insurance Program (SCHIP)—currently due to expire on September 30, 2017—gives Congress an opportunity to re-examine Health Opportunity Accounts. Regardless of whether lawmakers in Washington reinstate this particular model, however, account-based health coverage in Medicaid deserves a close look in Wyoming as part of a comprehensive reform waiver. Although the Opportunity Account mechanism was somewhat prescriptive in its approach, allowing beneficiaries to keep some portion of remaining account balances upon becoming ineligible for Medicaid represents an innovative and sound concept. Such a program could represent a true win-win: Both the state and beneficiaries receive a portion of the benefits from lower health spending—cash which the beneficiary can use to help adjust to life after Medicaid.

Right to Shop:              Thanks to several states’ reform of transparency laws, patients can now engage in a “right to shop” in many locations across the country.[47] The movement centers around the basic principle that consumers should share in the benefits of savings from choosing less expensive locations for medical and health procedures. Particularly for non-urgent care—for instance, medical tests or radiological procedures—variations among medical facilities provide patients with the opportunity to achieve significant savings by choosing a less costly provider.

Results from large employers illustrate how price transparency and competition have yielded savings for payers and consumers alike. A California Public Employees’ Retirement System (CalPERS) program of reference pricing—in which CalPERS set a maximum price of $30,000 for hip and knee replacements—led to savings of $2.8 million ($7,000 per patient) to CalPERS, and $300,000 (nearly $700 per patient) in lower cost-sharing, in its first year alone. The program led hospitals to renegotiate their rates with CalPERS, which expanded its reference pricing program to other procedures the very next year.[48]

Other estimates suggest that the potential savings from transparency and competition could range into the tens of billions of dollars. One study concluded that reference pricing for a handful of specific procedures could reduce health spending by 1.6 percent—or nearly $10 billion, if applied to all individuals with employer-sponsored health coverage.[49] A separate estimate found that eliminating variation in “shoppable” (i.e., high-cost and known in advance) health services could reduce spending on individuals with employer health coverage by $36 billion.[50]

A reformed Medicaid program should look to bring these positive effects of “patient power” to Medicaid—by allowing consumers to share in the savings from choosing wisely among providers. The right to shop could work particularly well in conjunction with an account-based model for Medicaid reform, which provides a ready vehicle for the state to deposit a portion of savings to beneficiaries. Citizens have literally saved millions of dollars using the right to shop; tapping into those savings for the Medicaid program would benefit taxpayers significantly.[51] Moreover, by incentivizing all providers to price their services more competitively, right to shop will exert downward pressure on health costs—an important goal for our nation’s health care system.

Wellness Incentives:   Over the past several years, successful employers have used incentives for healthy behaviors to help control the skyrocketing growth in health care costs. For instance, Safeway used such incentives to keep overall health costs flat over four years—at a time when costs for the average employer plan grew by 38 percent.[52]

Many large employers have increasingly embraced the results of the “Safeway model,” offering employees incentives for participating in healthy behaviors. According to the most recent annual survey of employer-provided health plans, approximately one-third of large employers (those with over 200 workers) offer employees incentives to complete a health risk assessment (32%), undergo biometric screening (31%), or participate or complete a wellness program (35%).[53] Among the largest employers—those with over 5,000 workers—nearly half offer incentives for risk assessments (50%), biometric screening (44%), and wellness programs (48%).[54] The trend of employer wellness incentives suggests Wyoming should bring this innovation to its Medicaid program.

Even though Obamacare passed on a straight party-line vote, expanding employer wellness incentives represented one of the few areas of bipartisan agreement. Language in the law permitted employers to increase the permitted variation for participation in wellness programs from 20 percent of premiums to 30 percent.[55] Medicaid programs should have the flexibility to implement such changes to their programs without requesting permission from Washington—and Wyoming should incorporate incentives for healthy behaviors into its revised Medicaid program as part of a comprehensive waiver.

Premiums and Co-Payments:              In addition to more innovative models discussed above, a revised Medicaid program in Wyoming could look to impose modest cost-sharing on beneficiaries through a combination of premiums and co-payments. Applying cost-sharing to specific services—for instance, unnecessary use of the emergency room for non-urgent care—should encourage beneficiaries to find the most appropriate source of care. Reasonable, enforceable cost-sharing would encourage beneficiaries to take responsibility for their care, making them partners in the road to better health.

Transition to Employment and Employer-Based Health Insurance

In many cases, individuals on Medicaid can, and ultimately should, make the transition to employment, and to the employer-based health insurance that comes with many quality jobs. However, the benefits currently provided by Medicaid bear little resemblance to most forms of employer-based coverage. In conjunction with the consumer-directed options discussed above, Wyoming should implement other steps to encourage beneficiaries to make the transition into work, and encourage the adoption of employer-based health insurance.

Work Requirements:               Fortunately, the Trump Administration has indicated a willingness to embrace state flexibility in Medicaid—which with respect to work requirements in particular would represent a welcome change from the Obama Administration.[56] A requirement that able-bodied Medicaid beneficiaries either work, look for work, or prepare for work through enrollment in job-training programs would help transform state economies, as even voluntary job-referral programs have led to some impressive success stories. In the neighboring state of Montana, one participant obtained skills that helped her find not just a job, but a new career:

“I think it’s a success story,” [Ruth] McCafferty says about the [Medicaid] jobs program. “I love this. I’m the poster child!”

McCafferty is a 53-year-old single mom with three kids living at home. Seven months ago, she lost her job in banking, and interviews for new jobs weren’t panning out.…

The jobs component of [her Medicaid coverage] means she also got a phone call from her local Job Service office, saying they might be able to hook her up with a grant to pay for training to help her get a better job than the one she lost. She was pretty skeptical, but came in anyway…

Job Service ended up paying not just for online training, but a trip to Helena to take a certification exam. Now, they’re funding an apprenticeship at a local business until she can start bringing in her own clients and get paid on commission.

“I’m able to support my family,” [McCafferty] says. “I’ve got a career opportunity that’s more than just a job.”[57]

Ruth McCafferty is not the only success story associated with Montana’s Medicaid Job Service program. Five in six individuals who participated in the program are now employed, and with an average 50 percent increase in pay, to about $40,000 per year—enough in some cases to transition off of Medicaid.[58] Unfortunately, however, because the program is not mandatory for beneficiaries, only a few thousand out of 53,000 Medicaid enrollees have embraced this life-changing opportunity.[59]

In December 2015, the Congressional Budget Office noted that Obamacare’s Medicaid expansion will reduce beneficiaries’ labor force participation by about 4 percent, “creat[ing] a tax on additional earnings for those considering job changes” that would raise their income above the threshold for eligibility.[60] Rather than discouraging work, as under Obamacare, Medicaid should encourage work, and a transition into working life. Imposing a work requirement for Medicaid recipients, coupled with appropriate resources for job training and education, would help beneficiaries, taxpayers—and ultimately, Wyoming’s economy.

Flexible Benefits:         Particularly for non-disabled adults and optional coverage populations, Wyoming should consider offering a more flexible and limited set of insurance benefits than the standard Medicaid package. Congress moved down this route in 2005, using a section of the Deficit Reduction Act to create a set of “benchmark” benefits that certain populations could receive.[61] However, the “benchmark” plan section limits eligibility to certain populations, and excludes provisions permitting states to impose modest cost-sharing for beneficiaries.

As part of a comprehensive waiver, Wyoming should request the ability to shift non-disabled beneficiaries into “benchmark” plans. Moreover, the waiver application should include provisions for modest cost-sharing for beneficiaries, and make those cost-sharing payments enforceable. Receiving authority from Washington to customize health coverage options for non-traditional beneficiaries would give the state the ability to innovate, and tailor benefit packages to beneficiary needs and fiscal realities.

Premium Assistance:               Premium assistance—in which Medicaid helps subsidize premiums for employer-sponsored health coverage—could play an important role in encouraging the use of private insurance where available, while also keeping all members of a family on the same health insurance policy. Unfortunately, however, current regulatory requirements for premium assistance have proven ineffective and unduly burdensome. All current premium assistance programs require Medicaid programs to provide wrap-around benefits to beneficiaries.[62] In addition, two premium assistance options created by Congress in 2009 explicitly prohibit states from using high-deductible health plans—regardless of whether or not the state funds an HSA to subsidize beneficiaries’ medical expenses in conjunction with the high-deductible plan.[63]

As part of its comprehensive waiver application, Wyoming should ask for more flexibility to use Medicaid dollars to subsidize employer coverage, without providing additional wrap-around benefits. In addition, the state’s application should require non-disabled adults to utilize premium assistance where available—another policy consistent with maximizing the use of private health coverage.

Preventing “Crowd-Out”:        Many government-run health programs face the problem of “crowd-out”—individuals purposefully dropping their private health coverage to enroll in taxpayer-funded insurance. Prior studies have estimated the “crowd-out” rate for certain coverage expansions at around 60 percent.[64] In these cases, coverage expansions enrolled more people who dropped their private coverage than previously uninsured individuals—a poor use of taxpayers’ hard-earned dollars.

States like Wyoming should have the ability to impose reasonable restrictions on enrollment as one way to prevent “crowd-out.” For instance, ensuring enrollees do not have an available offer of employer coverage, or only enrolling persistently uninsured individuals (e.g., those uninsured for at least 90-180 days prior to enrollment), would prevent individuals from attempting to “game the system” and ensure efficient use of taxpayer dollars.

Program Integrity

Estimates suggest that health care fraud represents an industry of massive proportions, with tens of billions in taxpayer dollars lost every year to fraudulent activities.[65] Medicaid has remained on the Government Accountability Office (GAO) list of “high-risk” programs since 2003 “due to its size, growth, diversity of programs, and concerns about the adequacy of fiscal oversight.”[66] In its most recent update, GAO noted that improper payments—whether erroneous or fraudulent in nature—increased from a total of $29.1 billion in fiscal year 2015 to $36.3 billion in fiscal 2016—an increase of nearly 25 percent.[67]

A reformed Medicaid program in Wyoming would use flexibility provided by the federal government to strengthen programs and methods ensuring proper use of taxpayer dollars. Because any dollar stolen by a fraudster represents one dollar not used to help the patients—many of them aged and vulnerable—that Medicaid treats, policy-makers should work diligently to ensure that scarce taxpayer funds are used solely by the populations for whom Medicaid was designed.

Verify Eligibility and Identity:            A 2015 report by the Foundation for Government Accountability provides numerous cases of ineligible—or in some cases deceased—beneficiaries remaining on state Medicaid rolls:

  • Arkansas identified thousands of individuals not qualified for Medicaid benefits in 2014, including 495 deceased beneficiaries;
  • Pennsylvania removed over 160,000 individuals from benefit rolls in 2011, including individuals in prison and million-dollar lottery winners; and
  • In Illinois, state officials removed over 400,000 ineligible beneficiaries in one year alone, saving taxpayers approximately $400 million annually.[68]

In the past two years, Wyoming has taken decisive action to crack down on fraud. The eligibility checks begun in mid-2015 removed several thousand ineligible individuals from the Medicaid rolls.[69] Moreover, Act 57, passed by the state legislature last year, introduced a new comprehensive program to stop fraud.[70] By verifying eligibility and identity upon enrollment, monitoring eligibility through quarterly database checks, and prosecuting offenders where found, Act 57 should save Wyoming taxpayers, while ensuring that eligible beneficiaries can continue to receive the health services they need.[71]

Asset Recovery:            A 2015 Government Accountability Office (GAO) report raised concerns about whether Wyoming’s Medicaid program is appropriately protecting taxpayer dollars. GAO concluded that Wyoming ranks second in the percentage of Medicaid beneficiaries (20.6%) with additional private health insurance coverage, and third in the percentage of Medicaid beneficiaries (26.02%) with additional public health insurance coverage.[72] By comparison, GAO concluded that only 13.4% of Medicaid beneficiaries nationwide had an additional source of private insurance coverage—meaning Wyoming has a rate of additional private coverage among Medicaid beneficiaries roughly 50 percent higher than the national average.[73]

As with the concept of crowd-out—individuals dropping private coverage entirely to enroll in Medicaid—discussed above, Medicaid should serve as the payer of last resort, not of first instance. If another payer has liability with respect to a Medicaid beneficiary’s claims, the state has the duty—both a statutory obligation under the federal Medicaid law, and a moral obligation to its taxpayers—to avoid incurring those claims, and seek to recover payments already made when it is cost-effective to do so.

Asset recovery can take several forms. Improving recovery for third-party liability claims could involve participation in electronic data matching between Medicaid enrollment files and private insurer files; empowering any managed care organizations contracted to the Medicaid program to adjudicate third-party liability claims; and prohibiting insurers from denying third-party liability claims for purely procedural reasons, such as failure to obtain prior authorization.[74] As part of these efforts, Wyoming should have the freedom to hire contingency fee-based contractors as one means to stem the flow of improper payments to health care providers.

Long-term services and supports represent another area where Wyoming can take steps to ensure taxpayer dollars are spent on the vulnerable populations for whom Medicaid was designed. The state can and should utilize existing authority to recover funds from estates, or impose sanctions on individuals who transferred assets at below-market rates in their efforts to qualify for Medicaid.[75]

Conclusion

             In the past decade, Wyoming has made numerous reforms to its Medicaid program. The state has begun to re-balance care away from institutional settings where possible, and has implemented several programs to improve care coordination. These changes have helped stabilize Medicaid spending as a share of the budget, and reduce spending on a per-beneficiary basis.

However, given freedom and flexibility from Washington—flexibility which should be forthcoming under the new Administration—Wyoming can go further. This vision would see additional reforms designed to keep patients out of intensive and costly settings—whether the hospital or a nursing home—and an exploration of managed care options. Beyond the aged population, Wyoming would implement consumer-driven principles into Medicaid, giving beneficiaries greater incentives to take responsibility for their own care, and the tools to do so. And many recipients would ultimately transition out of Medicaid entirely, using skills they learned through Medicaid-sponsored job training programs to build a better life.

This vision stands within Wyoming’s reach—indeed, it stands within every state’s reach. All it takes is flexibility from Washington, and the desire on the part of policy-makers to embrace the vision for a modern Medicaid system. With a comprehensive waiver, Wyoming can transform and revitalize Medicaid. It’s time to embrace the opportunity and do just that.

 


[1] Letter by Health and Human Services Secretary Tom Price and Centers for Medicare and Medicaid Services Administrator Seema Verma to state governors regarding Medicaid reform, March 14, 2017, https://www.hhs.gov/sites/default/files/sec-price-admin-verma-ltr.pdf.

[2] Office of the Actuary, Centers for Medicare and Medicaid Services, “2016 Actuarial Report on the Financial Outlook for Medicaid,” https://www.medicaid.gov/medicaid/financing-and-reimbursement/downloads/medicaid-actuarial-report-2016.pdf, Table 3, p. 15.

[3] Congressional Budget Office, January 2017 Medicare baseline, https://www.cbo.gov/sites/default/files/recurringdata/51302-2017-01-medicare.pdf.

[4] 2016 Actuarial Report, Table 3, p. 15; CBO January 2017 Medicare baseline.

[5] National Association of State Budget Officers, Fiscal Survey of States: Spring 2016, https://higherlogicdownload.s3.amazonaws.com/NASBO/9d2d2db1-c943-4f1b-b750-0fca152d64c2/UploadedImages/Reports/Spring%202016%20Fiscal%20Survey%20of%20States-S.pdf, Table 11: Fiscal Year 2017 Recommended Program Area Adjustments by Value, p. 16.

[6] National Association of State Budget Officers, Fiscal Survey of States: Spring 2011, https://higherlogicdownload.s3.amazonaws.com/NASBO/9d2d2db1-c943-4f1b-b750-0fca152d64c2/UploadedImages/Fiscal%20Survey/Spring%202011%20Fiscal%20Survey.pdf, Table 11: Fiscal Year 2012 Recommended Program Area Adjustments by Value, p. 13.

[8] National Association of State Budget Officers, 1996 State Expenditure Report, April 1997, https://higherlogicdownload.s3.amazonaws.com/NASBO/9d2d2db1-c943-4f1b-b750-0fca152d64c2/UploadedImages/SER%20Archive/ER_1996.PDF, Table 3, p. 11.

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

[10] Vanessa Fuhrmans, “Note to Patients: The Doctor Won’t See You,” Wall Street Journal July 19, 2007, http://www.wsj.com/articles/SB118480165648770935.

[11] Statement by DeAnn Friedholm, Consumers Union, at Alliance for Health Reform Briefing on “Affordability and Health Reform: If We Mandate, Will They (and Can They) Pay?” November 20, 2009, http://www.allhealth.org/briefingmaterials/TranscriptFINAL-1685.pdf, p. 40.

[12] Katherine Baicker, et al., “The Oregon Experiment—Effects of Medicaid on Clinical Outcomes,” New England Journal of Medicine May 2, 2013, http://www.nejm.org/doi/full/10.1056/NEJMsa1212321.

[13] Amy Finklestein et al., “Effect of Medicaid Coverage on ED Use—Further Evidence from Oregon’s Experiment,” New England Journal of Medicine October 20, 2016, http://www.nejm.org/doi/full/10.1056/NEJMp1609533.

[14] Scott Gottlieb, “Medicaid Is Worse than No Coverage at All,” Wall Street Journal March 10, 2011, http://www.wsj.com/articles/SB10001424052748704758904576188280858303612.

[15] Katherine Young et al., “Medicaid Per Enrollee Spending: Variation Across States,” http://files.kff.org/attachment/issue-brief-medicaid-per-enrollee-spending-variation-across-states-2, Appendix Table 1, p. 9.

[16] Ibid., Appendix Table 2, p. 11.

[17] Government Accountability Office, “Medicaid: Assessment of Variation among States in Per-Enrollee Spending,” Report GAO-14-456, June 16, 2014, http://www.gao.gov/assets/670/664115.pdf.

[18] Ibid., Appendix II, pp. 40-41.

[19] Ibid., Appendix VII, pp. 53-54.

[20] Wyoming Department of Health, “Introduction to Wyoming Medicaid,” p. 31.

[21] Ibid., pp. 11, 14.

[22] Section 121 of H.R. 1628, the American Health Care Act, as passed by the U.S. House of Representatives on May 4, 2017.

[23] Section 1115 of the Social Security Act, codified at 42 U.S.C. 1315.

[24] Mattie Quinn, “On Medicaid, States Won’t Take Feds’ No for an Answer,” Governing October 11, 2016, http://www.governing.com/topics/health-human-services/gov-medicaid-waivers-arizona-ohio-cms.html.

[25] Section 10201 of the Patient Protection and Affordable Care Act, P.L. 111-148, created a new Section 1115(d) of the Social Security Act (42 U.S.C. 1315(d)) imposing such requirements.

[26] Section 1115 (e) and (f) of the Social Security Act, codified at 42 U.S.C. 1315(e) and (f).

[27] Testimony of Gary Alexander, former Rhode Island Secretary of Health and Human Services, on “Strengthening Medicaid Long-Term Supports and Services” before the Commission on Long Term Care, August 1, 2013, http://ltccommission.org/ltccommission/wp-content/uploads/2013/12/Garo-Alexander.pdf.

[28] Ibid., p. 4.

[29] Ibid., p. 4.

[30] Lewin Group, “An Independent Evaluation of Rhode Island’s Global Waiver,” December 6, 2011, http://www.ohhs.ri.gov/documents/documents11/Lewin_report_12_6_11.pdf, p. 3.

[31] House of Representatives Republican Task Force, “A Better Way—Our Vision for a Confident America: Health Care,” June 22, 2016, http://abetterway.speaker.gov/_assets/pdf/ABetterWay-HealthCare-PolicyPaper.pdf, pp. 23-28; Republican Governors Public Policy Committee, “A New Medicaid: A Flexible, Innovative, and Accountable Future,” August 30, 2011, https://www.scribd.com/document/63596104/RGPPC-Medicaid-Report.

[32] Lewin Group, “An Independent Evaluation.”

[33] The author served as a member of the commission, whose work can be found at www.ltccommission.org.

[34] Testimony of Patti Killingsworth, TennCare Chief of Long-Term Supports and Services, before the Commission on Long-Term Care on “What Would Strengthen Medicaid LTSS?” August 1, 2013, http://ltccommission.org/ltccommission/wp-content/uploads/2013/12/Patti-Killingsworth-Testimony.pdf.

[35] Health Management Associates, “Wyoming Coordinated Care Study,” June 27, 2014, http://legisweb.state.wy.us/InterimCommittee/2014/WyoCoordinatedCareReportAppendices.pdf.

[36] National Academy for State Health Policy, “State ‘Accountable Care’ Activity Map,” http://nashp.org/state-accountable-care-activity-map/.

[37] Health Care Financing Administration, “Medicare Participating Heart Bypass Demonstration,” Extramural Research Report, September 1998, https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/Reports/downloads/oregon2_1998_3.pdf.

[38] Reed Abelson, “In Bid for Better Care, Surgery with a Warranty,” New York Times May 17, 2007, http://www.nytimes.com/2007/05/17/business/17quality.html?pagewanted=all.

[39] State of Arkansas, “Health Care Payment Improvement Initiative—Episodes of Care,” http://www.paymentinitiative.org/episodesOfCare/Pages/default.aspx.

[40] Centers for Medicare and Medicaid Services, “Bundled Payments for Care Improvement Initiative: General Information,” https://innovation.cms.gov/initiatives/Bundled-Payments/.

[41] On December 20, 2016, the Centers for Medicare and Medicaid Services (CMS) announced that participation in new cardiac and orthopedic bundles would be mandatory for all hospitals in selected metropolitan statistical areas beginning July 1, 2017; see https://www.cms.gov/Newsroom/MediaReleaseDatabase/Fact-sheets/2016-Fact-sheets-items/2016-12-20.html. Both lawmakers and provider groups have suggested that CMS is imposing too many mandates on providers and exceeding its statutory and constitutional authority; see http://tomprice.house.gov/sites/tomprice.house.gov/files/assets/September%2029%2C%202016%20CMMI%20Letter.pdf.

[42] Steve Lohr, “Medicaid’s Data Gets an Internet-Era Makeover,” New York Times January 9, 2017, https://www.nytimes.com/2017/01/09/technology/medicaids-data-gets-an-internet-era-makeover.html.

[43] Section 6082 of the Deficit Reduction Act of 2005, P.L. 109-171, which created a new Section 1938 of the Social Security Act (42 U.S.C. 1396u-8).

[44] The statute provided that, upon a beneficiary becoming ineligible for Medicaid, 25 percent of state contributions to the Opportunity Account would be returned to the state, but the beneficiary would retain 100 percent of any other contributions to the account, along with 75 percent of state contributions.

[45] Section 613 of the Children’s Health Insurance Program Reauthorization Act of 2009, P.L. 111-2.

[46] Amelia Haviland et al., “Growth of Consumer-Directed Health Plans to One-Half of All Employer-Sponsored Insurance Could Save $57 Billion Annually,” Health Affairs May 2012, http://content.healthaffairs.org/content/31/5/1009.full.

[47] Josh Archambault and Nic Horton, “Right to Shop: The Next Big Thing in Health Care,” Forbes August 5, 2016, http://www.forbes.com/sites/theapothecary/2016/08/05/right-to-shop-the-next-big-thing-in-health-care/#6f0ebcd91f75.

[48] Amanda Lechner et al., “The Potential of Reference Pricing to Generate Savings: Lessons from a California Pioneer,” Center for Studying Health System Change Issue Brief No. 30, December 2013, http://hschange.org/CONTENT/1397/1397.pdf.

[49] Paul Fronstin and Christopher Roebuck, “Reference Pricing for Health Care Services: A New Twist on the Defined Contribution Concept in Employment-Based Health Benefits,” Employee Benefit Research Institute Issue Brief No. 398, April 2014, https://www.ebri.org/pdf/briefspdf/EBRI_IB_398_Apr14.RefPrcng.pdf.

[50] Bobbi Coluni, “Save $36 Billion in U.S. Health Care Spending through Price Transparency,” Thomson Reuters, February 2012, https://www.scribd.com/document/83286153/Health-Plan-Price-Transparency.

[51] Archambault and Horton, “Right to Shop.”

[52] Steven Burd, “How Safeway is Cutting Health Care Costs,” Wall Street Journal June 12, 2009, http://www.wsj.com/articles/SB124476804026308603.

[53] Kaiser Family Foundation and Health Research and Educational Trust, “Employer Health Benefits: 2016 Annual Survey,” September 14, 2016, http://files.kff.org/attachment/Report-Employer-Health-Benefits-2016-Annual-Survey, Exhibit 12.20, p. 227.

[54] Ibid.

[55] PPACA Section 1201, which re-wrote Section 2705 of the Public Health Service Act (42 U.S.C. 300gg-4).

[56] Quinn, “States Won’t Take Feds’ No.”

[57] Eric Whitney, “Montana’s Medicaid Expansion Jobs Program Facing Scrutiny,” Montana Public Radio November 21, 2016, http://mtpr.org/post/montanas-medicaid-expansion-jobs-program-facing-scrutiny.

[58] Ibid.

[59] Ibid.

[60] Edward Harris and Shannon Mok, “How CBO Estimates Effects of the Affordable Care Act on the Labor Market,” Congressional Budget Office Working Paper 2015-09, December 2015, https://www.cbo.gov/sites/default/files/114th-congress-2015-2016/workingpaper/51065-ACA_Labor_Market_Effects_WP.pdf, p. 12.

[61] Section 6044 of the Deficit Reduction Act, P.L. 109-171, codified at Section 1937 of the Social Security Act, 42 U.S.C. 1396u-7.

[62] Joan Aiker et al., “Medicaid Premium Assistance Programs: What Information Is Available about Benefit and Cost-Sharing Wrap-Around Coverage?” Kaiser Commission on Medicaid and the Uninsured Issue Brief, December 2015, http://files.kff.org/attachment/issue-brief-medicaid-premium-assistance-programs-what-information-is-available-about-benefit-and-cost-sharing-wrap-around-coverage; Joan Aiker, “Premium Assistance in Medicaid and CHIP: An Overview of Current Options and Implications of the Affordable Care Act,” Kaiser Commission on Medicaid and the Uninsured Issue Brief, March 2013, https://kaiserfamilyfoundation.files.wordpress.com/2013/03/8422.pdf.

[63] Section 301 of the Children’s Health Insurance Program Reauthorization Act of 2009, P.L. 111-3, codified at 42 U.S.C. 1397ee(c)(10)(B)(ii)(II) and 42 U.S.C. 1396e-1(b)(2)(B).

[64] Jonathan Gruber and Kosali Simon, “Crowd-Out 10 Years Later: Have Recent Public Insurance Expansions Crowded Out Private Health Insurance?” Journal of Health Economics February 21, 2008, http://economics.mit.edu/files/6422.

[65] “Medicare Fraud: A $60 Billion Crime,” 60 Minutes October 23, 2009, http://www.cbsnews.com/news/medicare-fraud-a-60-billion-crime-23-10-2009/.

[66] Government Accountability Office, “High-Risk Series: An Update,” Report GAO-15-290, February 2015, http://www.gao.gov/assets/670/668415.pdf, p. 366.

[67] Government Accountability Office, “High-Risk Series: Progress on Many High-Risk Areas, While Substantial Efforts Needed on Others,” Report GAO-17-317, February 2017,  http://www.gao.gov/assets/690/682765.pdf, p. 579.

[68] Jonathan Ingram, “Stop the Scam: How to Prevent Welfare Fraud in Your State,” Foundation for Government Accountability, April 2, 2015.

[69] Wyoming Department of Health, “Introduction to Wyoming Medicaid,” p. 13.

[70] Enrolled Act 57, Wyoming Legislature, 63rd Session.

[71] Ibid.

[72] Government Accountability Office, “Medicaid: Additional Federal Action Needed to Further Improve Third Party Liability Efforts,” GAO Report GAO-15-208, January 2015, http://gao.gov/assets/670/668134.pdf, Appendix II, Table 3, pp. 27-28.

[73] Ibid., Figure 1, p. 10.

[74] Ibid.

[75] Kirsten Colello, “Medicaid Financial Eligibility for Long-Term Services and Supports,” Congressional Research Service Report R43506, April 24, 2014, https://fas.org/sgp/crs/misc/R43506.pdf.

A PDF copy of this report is available on the Wyoming Liberty Group website.

CBO Analysis of Senate Republican Health Legislation

On June 26, the Congressional Budget Office (CBO) released its score of the Senate Republican Obamacare legislation. (Text is available here, and a summary here.) CBO found that the bill would:

  • Reduce deficits by about $321 billion over ten years—$202 billion more than the House-passed legislation.
  • Increase the number of uninsured by 15 million in 2018, rising to a total of 22 million by 2026—a slight short-term increase, and slight long-term decrease, of the uninsured numbers compared to the House bill.
  • Generally increase individual market insurance premiums between now and 2020, followed by a reduction in most parts of the country. However, impacts would vary based on states’ decisions regarding benefit structures, as listed below.
  • Reduce Medicaid spending by less than the House-passed measure ($772 billion vs. $834 billion), but have greater net savings with respect to insurance subsidies ($408 billion in deficit reduction vs. $276 billion for the House bill)—calculated as repeal of the Obamacare cost-sharing and premium subsidies, offset by the new spending on “replacement” subsidies.

In its analysis, CBO noted that it continues to use the March 2016 baseline to score the reconciliation legislation (as it did with the House bill). It has done so largely because 1) its updated January 2017 baseline was not available at the time Congress passed the budget resolution in early January and 2) the ten-year timeframe of the March 2016 baseline synchs with the timeframe of the current budget resolution. Had CBO used the January 2017 budget baseline to score the bill, coverage losses would likely have been smaller—CBO has reduced its estimates of Exchange coverage due to anemic enrollment. However, because premiums spiked in 2017, thus raising spending on subsidies, the fiscal effects likely would have been similar.

Premiums:    CBO believes premiums will rise by 20 percent compared to current law in 2018, and by about 10 percent compared to current law in 2019. The increases would stem largely from the effective repeal of the individual mandate (penalty set to $0), which would lead healthy individuals to drop coverage—offset in part by new “stability” funding to insurers.

In 2020, premiums would decline by about 30 percent compared to current law, and by 2026, premiums would be about 20 percent lower than current law (premium reductions declining slightly as “stability” funding declines in years after 2021). The premium reductions would come largely because of a decrease in the actuarial value (i.e., the average percentage of health expenses covered by insurance) of plans.

CBO believes that “few low-income people would purchase coverage” despite subsidies provided under the bill, because in its estimation, deductibles for low-premium plans would be prohibitively expensive for low-income individuals—and premiums for low-deductible plans would also be prohibitively expensive. In general, CBO believes out-of-pocket expenses would rise for most individuals purchasing coverage on the individual market.

Changes in Insurance Coverage:               CBO believes that under the bill, the number of uninsured would rise by 15 million in 2018, and 22 million in 2026. Moreover, “the increase [in the uninsured] would be disproportionately larger among older people with lower income—particularly people between 50 and 64 years old” with income under twice the poverty level. With respect to Medicaid, 15 million fewer people would have coverage than under current law; however, about five million of those individuals “would be among people who CBO projects would, under current law, become eligible in the future as additional states adopted” Medicaid expansion.

CBO believes that the individual insurance market would decline by 7 million in 2018, 9 million in 2020, and 7 million in 2026. The estimate notes CBO’s belief that “a small fraction of the population” will reside in areas where no insurers would participate. A reduction in subsidies would 1) make insurers’ fixed costs a higher percentage of revenues, discouraging them from participating, and 2) reduce the overall percentage of subsidized enrollees—giving some markets a disproportionate number of unsubsidized enrollees with higher health costs. However, in these cases, CBO believes that states could take steps to restore the markets within a few years, whether by obtaining waivers and/or “stability fund” dollars.

CBO believes that effectively repealing the individual mandate would, all things equal, increase premiums in the individual market; lead some employers not to offer employer-based coverage; and discourage individuals from enrolling in Medicaid. However, CBO “do[es] not expect that, with the [mandate] penalty eliminated under this legislation, people enrolled in Medicaid would disenroll.”

Waivers:         With respect to the state waivers for insurance regulations—including essential health benefits and other Obamacare requirements—CBO believes that “about half the population would be in states receiving substantial pass-through funding” under the Obamacare Section 1332 waiver provision, which the bill would revamp. States could receive pass-through funding to reflect savings to the federal government from lower spending on insurance subsidies from the waivers. Those pass-through funds could be used to lower premiums or cost-sharing for individuals.

While CBO believes that many states would apply for waivers with respect to insurance regulations or other requirements, few would “make significant changes” to the subsidy regime, to avoid administering said regime themselves—leaving this task to the Internal Revenue Service instead. However, CBO believes that about one-fifth of the total subsidy dollars available will be provided through the waiver pass-through, rather than directly to individuals.

CBO believes that, particularly in the first few years of the waiver regime, these waivers would actually increase the budget deficit—despite a requirement in the legislation that they not do so. CBO believes that states with waivers currently pending—who can choose whether their waiver would apply under the current regime or the “new” one created by the bill—would use this arbitrage opportunity to pick the more advantageous position for their state. Likewise, the agency notes that states would use overly optimistic data estimates when defining “budget-neutrality”—and that in the first few years of the bill, “the Administration would not have enough data about experience under this legislation to fully adjust [sic] for that incentive.”

In its analysis, CBO concludes that “the additional waivers would have little effect on the number of people insured, on net, by 2026.” Most waivers would be used to narrow the essential health benefits, lowering premiums and giving savings to states as pass-through funds. While lower premiums would increase individual market coverage, it would in CBO’s estimate encourage some employers to drop coverage. Moreover, “people eligible for subsidies in the non-group market would receive little benefit from the lower premiums, and many would therefore decline to purchase a plan providing fewer benefits.” A small fraction of individuals might live in states that “substantially reduce the number of people insured,” either by re-directing subsidy assistance to those who would have purchased coverage even without a subsidy, or by taking pass-through funds and re-directing them for purposes other than health insurance coverage.

CBO believes that, in cases where states use waivers to narrow essential health benefits, “insurance covering certain services [could] become more expensive—in some cases, extremely expensive.” While states could use pass-through funding to subsidize coverage of these services, CBO “anticipate[s] that the funding available to help provide coverage for those high-cost services would be insufficient.”

Other Regulatory Changes:            CBO notes the two “stability funds”—the one short-term fund for insurers, and the second longer-term fund for states—and believes that about three-quarters of the $62 billion provided to states from 2019 through 2026 would go to arrangements with insurers to reduce premiums in the individual market—whether reinsurance, direct subsidies, or some other means.

CBO believes the six-month waiting period added to the legislation would “slightly increase the number of people with insurance, on net, throughout the 2018-2026 period—but not in 2019, when the incentives to obtain coverage would be weak because premiums would be relatively high.”

The changes in age-rating rules—allowing states to charge older applicants five times as much as younger ones, unless a state chooses another ratio—“would tend to reduce premiums for younger people and increase premiums for older people, resulting in a slight increase in insurance coverage, on net—mainly among people not eligible for subsidies,” as the subsidies would insulate most recipients from the effects of the age rating changes. However, net premiums for older individuals not eligible for subsidies would rise significantly.

CBO believes that about half the population will reside in states that will reduce or eliminate current medical loss ratio requirements. “In those states, in areas with little competition among insurers, the provision would cause insurers to raise premiums and would increase federal costs for subsidies,” CBO expects. However, this provision “would have little effect on the number of people coverage by health insurance.”

Insurance Subsidies:           In general, average subsidies under the bill “would be significantly lower than the average subsidy under current law,” despite some exceptions. For instance, while net premiums would be roughly equal for a 40-year-old with income of 175 percent of poverty, “the average share of the cost of medical services paid by the insurance purchased by that person would fall—from 87 percent to 58 percent,” thereby raising deductibles and out-of-pocket expenses. The changes “would contribute significantly to a reduction in the number of lower-income people” obtaining coverage under the bill when compared to current law.

CBO believes that the high cost of premiums and/or deductibles under the bill would discourage many low-income individuals eligible for Medicaid under current law, and who would instead be eligible for subsidies under the bill, from enrolling. “Some people with assets to protect or who expect to have high use of health care would” enroll, but many would not.

CBO also notes that “it is difficult to design plans” that might be “more attractive to people with low income” because of the mandated benefit requirements under Obamacare. For instance, it would be difficult to design plans that provide prescription drugs with low co-payments, or services below the plan’s high deductible, while meeting the 58 percent actuarial value benchmark in the bill. However, waivers could lessen these constraints somewhat, potentially yielding more attractive benefit designs.

While the bill eliminates eligibility for subsidies for individuals making between 351-400 percent of poverty, CBO believes that net premiums for individual (but not necessarily for family) coverage would be relatively similar under both current law and the bill. With respect to age, CBO believes that the addition of age as a factor in calculating subsidies, coupled with the changes to age rating in the bill, would mean that a larger share of individual market enrollees will be younger than under current law.

Medicaid Per Capita Caps and Block Grants:                         CBO believes that, in the short term (2017 through 2024), per capita caps would reduce outlays for non-disabled children and non-disabled adults, because spending would grow faster (4.9 percent) than the medical inflation index prescribe in the law (3.7 percent). However, spending on disabled adults or seniors would grow much more slowly (3.3 percent) than medical inflation plus one percent (4.7 percent). “In 2025 and beyond, the differences between spending growth for Medicaid under current law and the growth rate of the per capita caps for all groups would be substantial,” as CBO projects general inflation will average 2.4 percent.

With respect to the block grant option, CBO believes it “would be attractive to a few states that expect to decline in population (and not in most states experiencing population growth, as it would further constrain federal reimbursement).” Therefore, CBO considers the block grant to have little effect on Medicaid enrollment.

In CBO’s opinion, “states would not have substantial additional flexibility under the per capita caps. Under the block grant option, states would have additional flexibility to make changes to their Medicaid program—such as altering cost sharing and, to a limited degree, benefits.” In the absence of flexibility, CBO believes states facing the per capita caps would reduce provider reimbursements, eliminate optional services, restrict enrollment through work requirements, and/or deliver more efficient care. Specifically, “because caps on federal Medicaid spending would shift a greater share of the cost of Medicaid to state over time,” states would use work requirements to “reduce enrollment and the associated costs.”

Over the longer term, “CBO projects that the growth rate of Medicaid under current law would exceed the growth rate of the per capita caps for all groups covered by the caps starting in 2025.” As a result, CBO believes Medicaid enrollment would continue to decline after 2026 relative to current law.

Medicaid Expansion:           Currently, about half of the population resides in the 31 states (plus the District of Columbia) that have expanded Medicaid. CBO believes that, under current law, that percentage will rise to 80 percent of the newly eligible population by 2026. Under the bill, CBO believes that no additional states will expand Medicaid—resulting in coverage “losses” compared to current law, albeit without individuals actually losing coverage. Moreover, as the enhanced federal matching rate for the Medicaid expansion declines under the bill CBO believes the share of the newly eligible population in states that continue their Medicaid expansion will decline to 30 percent in 2026.

Top Ten Ways Senate Obamacare Bill Is #FakeRepeal

1.     Retains Obamacare Insurance Subsides.  The bill modifies, but does not repeal, Obamacare’s system of insurance subsidies—an expansion of the welfare state, administered through the tax code.

2.     Retains Obamacare Medicaid Expansion.           The bill as written would never repeal Obamacare’s massive expansion of Medicaid to able-bodied adults, while it would not fully eliminate the enhanced match states currently receive to cover those adults until 2024—nearly seven years from now.

3.     Expands Obamacare Insurance Subsidies.             Rather than repealing all of the law “root and branch,” as Sen. McConnell claimed was his goal, the bill instead expands eligibility for Obamacare’s subsidy regime. Some conservatives may question the need to “fix” Obamacare, when the legislation should repeal Obamacare.

4.     Retains ALL Obamacare Regulations.         While modifying some and allowing states to waive others, the bill does not repeal any of Obamacare’s onerous insurance regulations—the prime drivers of the premium spikes that have seen rates more than double since Obamacare went into effect.

5.     Retains Obamacare’s Undermining of State Sovereignty.   Because the bill keeps in place the federal mandates associated with Obamacare, states must ask permission to opt-out of just some parts of Obamacare, which remains the default standard. This turning of federalism on its head will allow Democratic Governors—and/or a future Democratic Administration—to reinstitute Obamacare mandates quickly and easily.

6.     Appropriates Obamacare Cost-Sharing Reductions.    Unlike Obamacare itself, the bill actually spends federal tax dollars on cost-sharing reductions authorized, but not appropriated, under the law. While conservatives might support a temporary appropriation to ensure a stable transition as Obamacare is fully repealed, the bill does the former—but certainly not the latter.

7.     Extends and Expands Obamacare’s Corporate Welfare Bailouts.    The bill includes not one, but two, separate “stability funds” designed to make slush fund payments to insurance companies. Between now and 2021, the bill would spend at least $65 billion on such payments—over and above the cost-sharing reduction subsidies listed above.

8.     Includes Obamacare’s Work Disincentives.    The Congressional Budget Office previously estimated that the subsidy “cliffs” included in Obamacare would discourage work—because individuals could lose thousands of dollars in subsidies by gaining one additional dollar of income—and that the law would reduce the labor supply by the equivalent of over two million jobs. The Senate bill retains those subsidy “cliffs.”

9.     Continues Obamacare Pattern of Giving Too Much Authority to Federal Bureaucrats.      The bill gives near-blanket authority to the Administration on several fronts—from creating the “stability funds” to giving Medicaid incentives to states—that would allow federal bureaucrats to abuse this excessive grant of power.

10.  Obamacare Architect Admits It’s Not Repeal.  Speaking on CNN Thursday, famed Obamacare architect Jonathan Gruber said that “this is no longer an Obamacare repeal bill—that’s good.” He continued: “If you look at what’s criticized [about] Obamacare, it was subsidies, it was regulations…this law wouldn’t really change those…It really [doesn’t] change very much.” Those admissions come from an individual who received hundreds of thousands of dollars from the Obama Administration to consult on Obamacare.

A PDF version of this document can be found on the Texas Public Policy Foundation website.

AARP’s Own “Age Tax”

Over the past few weeks, AARP—an organization that purportedly advocates on behalf of seniors—has been running advertisements claiming that the House health-care bill would impose an “age tax” on seniors by allowing for greater variation in premiums. It knows of which it speaks: AARP has literally made billions of dollars by imposing its own “tax” on seniors buying health insurance policies, not to mention denying care to individuals with disabilities.

While the public may think of AARP as a membership organization that advocates for liberal causes or gives seniors discounts at restaurants and hotels, most of its money comes from selling the AARP name. In 2015, the organization received nearly three times as much revenue from “royalty fees” than it did from member dues. Most of those royalty fees come from selling insurance products issued by UnitedHealthGroup.

Only We Can Profit On the Elderly

As documented on its tax returns and in congressional oversight reports, AARP royalty fees from UnitedHealthGroup come largely from the sale of Medigap supplemental insurance plans. As the House Ways and Means Committee noted in 2011, while AARP receives a flat-sum licensing fee for branding its Medicare Advantage plans, the organization has a much sweeter deal with respect to Medigap: “State insurance rate filings show that, in 2010, AARP retained 4.95% of seniors’ premiums for every Medigap policy sold under its name. Therefore, the more seniors enroll in the AARP-branded Medigap plan, the more money AARP receives from United.”

So in the sale of Medigap plans, AARP imposes—you guessed it!—a 4.95 percent age tax on seniors. AARP not only makes more money the more people enroll in its Medigap plans, it makes more money if individuals buy more expensive insurance.

Even worse, AARP refused good governance practices that would disclose the existence of that tax to seniors at the time they apply for Medigap insurance. While working for Sen. Jim DeMint in 2012, I helped write a letter to AARP that referenced the National Association of Insurance Commissioners’ Producer Model Licensing Act.

Specifically, Section 18 of that act recommends that states require explicit disclosure to consumers of percentage-based compensation arrangements at the time of sale, due to the potential for abuse. DeMint’s letter asked AARP to “outline the steps [it] has taken to ensure that your Medigap percentage-based compensation model is in full compliance with the letter and spirit of” those requirements. AARP never gave a substantive reply to this congressional oversight request.

Don’t Screw With Obamacare, It’s Making Us Billions

AARP’s silence might stem from the fact that its hidden taxes have made the organization billions. Between 2010—the year Obamacare was signed into law—and 2015, the most recent year for which financial information is available, AARP received $2.96 billion in “royalty fees” from UnitedHealthGroup. During that same period, AARP made an additional $195.6 million in investment income from its grantor trust.

Essentially, AARP makes money off other people’s money—perhaps receiving insurance premium payments on the 1st of the month, transferring them to UnitedHealth or its other insurance affiliates on the 15th of the month, and pocketing the interest accrued over the intervening two weeks. That’s nearly $3.2 billion in profit over six years, just from selling insurance plans. AARP received much of that $3.2 billion in part because Medigap coverage received multiple exemptions in Obamacare. The law exempted Medigap plans from the health insurer tax, and medical loss ratio requirements.

Most importantly, Medigap plans are exempt from the law’s myriad insurance regulations, including Obamacare’s pre-existing condition exclusions—which means AARP can continue its prior practice of imposing waiting periods on Medigap applicants. You read that right: Not only did Obamacare not end the denial of care for pre-existing conditions, the law allowed AARP to continue to deny care for individuals with disabilities, as insurers can and do reject Medigap applications when individuals qualify for Medicare early due to a disability.

The Obama administration helped AARP in other important ways. Regulators at the Department of Health and Human Services (HHS) exempted Medigap policies from insurance rate review of “excessive” premium increases, an exemption that particularly benefited AARP. Because the organization imposes its 4.95 percent “age tax” on individuals applying for coverage, AARP has a clear financial incentive to raise premiums, sell seniors more insurance than they require, and sell seniors policies that they don’t need. Yet rather than addressing these inherent conflicts, HHS decided to look the other way and allow AARP to continue its shady practices.

The Cronyism Stinks to High Heaven

Obama administration officials not only did not scrutinize AARP’s insurance abuses, they praised the organization as a model corporate citizen. Then-HHS Secretary Kathleen Sebelius, when speaking to its 2010 convention, called AARP the “gold standard” in providing seniors with “accurate information”—even though the organization declined requests to disclose the conflicts arising from its percentage-based Medigap “royalties.” However, Sebelius’ tone is perhaps not surprising from an administration whose officials plotted with AARP executives to enact Obamacare over AARP members’ strong objections.

AARP will claim in its defense that it’s not an insurance company, which is true. Insurance companies must risk capital to pay claims, and face losses if claims exceed premiums charged. By contrast, AARP need never risk one dime. It can just sit back, license its brand, and watch the profits roll in. Its $561.9 million received from UnitedHealthGroup in 2015 exceeded the profits of many large insurers that year, including multi-billion dollar carriers like Centene, Health Net, and Molina Healthcare.

But if the AARP now suddenly cares about “taxing” the aged so much, Washington should grant them their wish. The Trump administration and Congress should investigate and crack down on AARP’s insurance shenanigans. Congress should subpoena Sebelius and Sylvia Mathews Burwell, her successor, and ask why each turned a blind eye to its sordid business practices. HHS should write to state insurance commissioners, and ask them to enforce existing best practices that require greater disclosure from entities (like AARP) operating on a percentage-based commission.

And both Congress and the administration should ask why, if AARP cares about its members as much as it claims, the organization somehow “forgot” to lobby for Medigap reforms—not just prior to Obamacare’s passage, but now. AARP’s fourth quarter lobbying report showed that the organization contacted Congress on 77 separate bills, including issues as minor as the cost of lifetime National Parks passes, yet failed to discuss Medigap reform at all.

Given that AARP made more than $3 billion in profits from the status quo—denying care to individuals with pre-existing conditions, and earning more money by generating more, and higher, premiums—its silence makes sense on one level. But if AARP really wants to make insurance markets fair, and stop “taxing” the aged, all it has to do is look in the mirror.

This post was originally published at The Federalist.