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Despite Trump Intervention, House GOP Still Not Repealing Obamacare

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

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

What Changes Were Announced After The Meeting?

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

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

Medicaid: Block Grant vs. Per Capita Cap

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

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

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

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

Will This Be A Good Deal For Americans?

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

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

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

AHCA Leaves Much To Be Desired

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

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

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

AHCA Doesn’t Fully ‘Repeal And Replace’

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

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

This post was originally published at The Federalist.

Summary of House Republicans’ Managers Amendment

UPDATE: On March 23, the Congressional Budget Office released an updated cost estimate regarding the managers amendment. CBO viewed its coverage and premium estimates as largely unchanged from its original March 13 projections. However, the budget office did state that the managers package would reduce the bill’s estimated savings by $187 billion — increasing spending by $49 billion, and decreasing revenues by $137 billion. Of the increased spending, $41 billion would come from more generous inflation measures for some of the Medicaid per capita caps, and $8 billion would come from other changes. Of the reduced revenues, $90 billion would come from lowering the medical care deduction from 7.5 percent to 5.8 percent of income, while $48 billion would come from accelerating the repeal of Obamacare taxes compared to the base bill.

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

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

 

Original post follows:

On the evening of March 20, House Republicans released two managers amendments to the American Health Care Act—one making policy changes, and the other making “technical” corrections. The latter amendment largely consists of changes made in an attempt to avoid Senate points-of-order fatal to the reconciliation legislation.

In general, the managers amendment proposes additional spending (increasing the inflation measure for the Medicaid per capita caps) and reduced revenues (accelerating repeal of the Obamacare taxes) when compared to the base bill. However, that base bill already would increase the deficit over its first five years, according to the Congressional Budget Office.

Moreover, neither the base bill nor the managers amendment—though ostensibly an Obamacare “repeal” bill—make any attempt to undo what Paul Ryan himself called Obamacare’s “raid” on Medicare, diverting hundreds of billions of dollars from that entitlement to create new entitlements. Given this history of financial gimmickry and double-counting, not to mention our $20 trillion debt, some conservatives may therefore question the fiscal responsibility of the “sweeteners” being included in the managers package.

Summary of both amendments follows:

Policy Changes

Medicaid Expansion:           Ends the enhanced (i.e., 90-95%) federal Medicaid match for all states that have not expanded their Medicaid programs as of March 1, 2017. Any state that has not expanded Medicaid to able-bodied adults after that date could do so—however, that state would only receive the traditional (50-83%) federal match for their expansion population. However, the amendment prohibits any state from expanding to able-bodied adults with incomes over 133% of the federal poverty level (FPL) effective December 31, 2017.

With respect to those states that have expanded, continues the enhanced match through December 31, 2019, with states receiving the enhanced match for all beneficiaries enrolled as of that date as long as those beneficiaries remain continuously enrolled in Medicaid. Some conservatives may be concerned that this change, while helpful, does not eliminate the perverse incentive that current expansion states have to sign up as many beneficiaries as possible over the next nearly three years, to receive the higher federal match rate.

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 5 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.

Medicaid Per Capita Caps:              Increases the inflation measure for Medicaid per capita caps for elderly, blind, and disabled beneficiaries from CPI-medical to CPI-medical plus one percentage point. The inflation measure for all other enrollees (e.g., children, expansion enrollees, etc.) would remain at CPI-medical.

Medicaid “New York Fix:”               Reduces the federal Medicaid match for states that require their political subdivisions to contribute to the costs of the state Medicaid program. Per various press reports, this provision was inserted at the behest of certain upstate New York congressmen, who take issue with the state’s current policy of requiring some counties to contribute towards the state’s share of Medicaid spending. Some conservatives may be concerned that this provision represents a parochial earmark, and question its inclusion in the bill.

Medicaid Block Grant:        Provides states with the option to select a block grant for their Medicaid program, which shall run over a 10-year period. Block grants would apply to adults and children ONLY; they would not apply with respect to the elderly, blind, and disabled population, or to the Obamacare expansion population (i.e., able-bodied adults).

Requires states to apply for a block grant, listing the ways in which they shall deliver care, which must include 1) hospital care; 2) surgical care and treatment; 3) medical care and treatment; 4) obstetrical and prenatal care and treatment; 5) prescription drugs, medicines, and prosthetics; 6) other medical supplies; and 7) health care for children. The application will be deemed approved within 30 days unless it is incomplete or not actuarially sound.

Bases the first year of the block grant based on a state’s federal Medicaid match rate, its enrollment in the prior year, and per beneficiary spending. Increases the block grant every year with CPI inflation, but does not adjust based on growing (or decreasing) enrollment. Permits states to roll over block grant funds from year to year.

Some conservatives, noting the less generous inflation measure for block grants compared to per capita caps (CPI inflation for the former, CPI-medical inflation for the latter), and the limits on the beneficiary populations covered by the block grant under the amendment, may question whether any states will embrace the block grant proposal as currently constructed.

Implementation Fund:        Creates a $1 billion fund within the Department of Health and Human Services to implement the Medicaid reforms, the Stability Fund, the modifications to Obamacare’s subsidy regime (for 2018 and 2019), and the new subsidy regime (for 2020 and following years). Some conservatives may be concerned that this money represents a “slush fund” created outside the regular appropriations process at the disposal of the executive branch.

Repeal of Obamacare Tax Increases:             Accelerates repeal of Obamacare’s tax increases from January 2018 to January 2017, including:

  • “Cadillac tax” on high-cost health plans—not repealed fully, but will not go into effect until 2026, one year later than in the base bill;
  • Restrictions on use of Health Savings Accounts and Flexible Spending Arrangements to pay for over-the-counter medications;
  • Increased penalties on non-health care uses of Health Savings Account dollars;
  • Limits on Flexible Spending Arrangement contributions;
  • Medical device tax;
  • Elimination of deduction for employers who receive a subsidy from Medicare for offering retiree prescription drug coverage;
  • Limitation on medical expenses as an itemized deduction—this provision actually reduces the limitation below prior law (Obamacare raised the threshold from expenses in excess of 7.5% of adjusted gross income to 10%, whereas the amendment lowers that threshold to 5.8%);
  • Medicare tax on “high-income” individuals;
  • Tax on pharmaceuticals;
  • Health insurer tax;
  • Tax on tanning services;
  • Limitation on deductibility of salaries to insurance industry executives; and
  • Net investment tax.

“Technical” Changes

Retroactive Eligibility:       Strikes Section 114(c), which required Medicaid applicants to provide verification of citizenship or immigration status prior to becoming presumptively eligible for benefits during the application process. The section was likely stricken for procedural reasons to avoid potentially fatal points-of-order, for imposing new programmatic requirements outside the scope of the Finance Committee’s jurisdiction and/or related to Title II of the Social Security Act.

Safety Net Funding:              Makes changes to the new pool of safety net funding for non-expansion states, tying funding to fiscal years instead of calendar years 2018 through 2022.

Medicaid Per Capita Cap:   Makes changes to cap formula, to clarify that all non-Disproportionate Share Hospital (DSH) supplemental payments are accounted for and attributable to beneficiaries for purposes of calculating the per capita cap amounts.

Stability Fund:          Makes technical changes to calculating relative uninsured rates under formula for allocating Patient and State Stability Fund grant amounts.

Continuous Coverage:         Strikes language requiring 30 percent surcharge for lack of continuous coverage in the small group market, leaving the provision to apply to the individual market only. With respect to the small group market, prior law HIPAA continuation coverage provisions would still apply.

Re-Write of Tax Credit:      Re-writes the new tax credit entitlement as part of Section 36B of the Internal Revenue Code—the portion currently being used for Obamacare’s premium subsidies. In effect, the bill replaces the existing premium subsidies (i.e., Obamacare’s refundable tax credits) with the new subsidies (i.e., House Republicans’ refundable tax credits), effective January 1, 2020.

The amendment was likely added for procedural reasons, attempting to “bootstrap” on to the eligibility verification regime already in place under Obamacare. Creating a new verification regime could 1) exceed the Senate Finance Committee’s jurisdiction and 2) require new programmatic authority relating to Title II of the Social Security Act—both of which would create a point-of-order fatal to the entire bill in the Senate.

In addition, with respect to the “firewall”—that is, the individuals who do NOT qualify for the credit based on other forms of health coverage—the amendment utilizes a definition of health insurance coverage present in the Internal Revenue Code. By using a definition of health coverage included within the Senate Finance Committee’s jurisdiction, the amendment attempts to avoid exceeding the Finance Committee’s remit, which would subject the bill to a potentially fatal point of order in the Senate.

However, in so doing, this ostensibly “technical” change restricts veterans’ access to the tax credit. The prior language in the bill as introduced (pages 97-98) allowed veterans eligible for, but not enrolled in, coverage through the Veterans Administration to receive the credit. The revised language states only that individuals “eligible for” other forms of coverage—including Medicaid, Medicare, SCHIP, and Veterans Administration coverage—may not qualify for the credit. Thus, with respect to veterans’ coverage in particular, the managers package is more restrictive than the bill as introduced, as veterans eligible for but not enrolled in VA coverage cannot qualify for credits.

Finally, the amendment removes language allowing leftover credit funds to be deposited into individuals’ health savings accounts—because language in the base bill permitting such a move raised concerns among some conservatives that those taxpayer dollars could be used to fund abortions in enrollees’ HSAs.

Reforming Medicaid, Beginning on Day One

A recent article listing five ways in which Health and Human Services Secretary-designee Tom Price could reform health care surprisingly excluded solutions for our nation’s largest taxpayer-funded health care program—Medicaid. That’s right: While Medicare spends more federal dollars, state and federal taxpayers spend more on Medicaid overall. With federal program spending scheduled to top $400 billion next fiscal year, and Medicaid consuming a large and growing share of state budgets, Dr. Price should waste no time making critically important reforms.

Ultimately, conservatives should work to convert Medicaid into either a block grant or per capita cap, where states would receive fixed payments from the federal government in exchange for additional flexibility to manage their programs as they see fit. While Congress must approve the legislative changes necessary to create a block grant or per capita cap, Dr. Price and Centers for Medicare and Medicaid Services Administrator-designee Seema Verma—who has a great deal of experience managing state Medicaid programs—can take steps, beginning on Day One, to give states more flexibility and freedom to experiment.

The prime place for Price and Verma to start lies in Medicaid’s “1115 waivers,” so named for the section of the Social Security Act (Section 1115) that created them. Under the 1115 process, HHS can 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.

Unfortunately, such waiver authority is only as effective as the Administration that chooses to exercise it—or not, as has been the case for much of the last eight years. One section of Obamacare actually increased the bureaucracy associated with 1115 waivers, requiring states to undertake a lengthy process, including a series of hearings, before applying for a waiver (because Obamacare itself was written in such a transparent manner). Subsequent legislative changes have sought to streamline the process for states requesting extensions of waivers already granted.

However, Dr. Price and Ms. Verma can go further in allowing states to reform Medicaid. They can, and should, upon taking office immediately propose a template waiver application for states to utilize. They can also publicly indicate their intent to approve blanket waivers—that is, waiver applications meeting a series of policy parameters will be automatically approved. While Congress should ultimately codify state flexibility into law—so no future Administration can deny states the ability to implement needed reforms—the new Administration can put it into practice while waiting for Congress to act.

As to the types of waivers the Trump Administration should look favorably upon, House Republicans’ “Better Way” proposal and a report issued by Republican governors in 2011 provide two good sources of ideas:

Work Requirements: Despite repeated requests, the Obama Administration has steadfastly refused to allow states to impose a requirement that able-bodied Medicaid beneficiaries either work, look for work, or prepare for work through enrollment in job-training programs. Because voluntary job-referral programs have led to impressive success stories, states should have the ability to impose work requirements for Medicaid recipients.

Cost-Sharing and Benefit Design: Whether through enforceable yet reasonable premiums, modest co-payments, Health Savings Account-like mechanisms, or a combination of all three, states should have greater freedom to utilize consumer-directed health care options for beneficiaries. These innovations would not only turn Medicaid into a product more closely resembling other forms of health insurance, they can also help reduce costs—thus saving taxpayers money.

Premium Assistance and Wellness Incentives: Current regulatory requirements for premium assistance—in which Medicaid pays part of the cost associated with an eligible individual’s employer-based insurance—have proven ineffective and unduly burdensome. States should have more flexibility to use Medicaid dollars to subsidize employer coverage, without providing additional wrap-around benefits. Likewise, states should have the ability to offer incentives for wellness and healthy behaviors in their Medicaid programs, just as successful employers like Safeway have done.

Payment Reforms and Managed Care: With health care moving away from a fee-for-service model, in which doctors and hospitals get paid for each service performed, states should have the ability to innovate. Some may wish to implement 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). Others may benefit from a waiver of the current requirement that Medicaid beneficiaries have the choice of at least two managed care plans—a requirement that may not be feasible in heavily rural areas and states.

Program Integrity: With fraud endemic in federal health care programs, states should receive flexibility to track down on scofflaws—for instance, the ability to hire contingency fee-based contractors, and more scrupulously verify beneficiary eligibility and identity. By monitoring suspicious behavior patterns through the use of “big data,” these efforts could save both Washington and the states billions.

Reforming a program that will cost state and federal taxpayers an estimated $607.2 billion this fiscal year will not be easy, and will not happen overnight. But the sprawling program’s vast size and scope also demonstrate why the new Administration should start its work immediately. While Congress can and should fundamentally reform Medicaid, HHS can use blanket 1115 waivers to allow states to experiment as soon as they can. In this way, the “laboratories of democracy” can drive the innovation needed to bring Medicaid into the 21st century, lowering health costs and saving taxpayers money.