Administration Talks Past Governors on State Flexibility

The President this morning endorsed proposed legislative changes to the state innovation waiver program, allowing it to begin in 2014 (when the coverage expansions under the health care law begin) rather than in 2017 as currently scheduled under the law.  The most important point about the announcement is this:  By avoiding the multiple requests by governors for IMMEDIATE relief from the Medicaid maintenance of effort requirements included in the health care law, the President’s statement IGNORES the severe fiscal problems that Medicaid presents for many states’ budgets between now and 2014.

More broadly, some have expressed concerns that the state innovation waiver program does not go far enough, and would still restrain states’ flexibility.  Section 1332(b)(1) of the statute specifies that the Secretary of Health and Human Services can grant state innovation waivers “only if…[the state] will provide coverage that is at least as comprehensive” as the coverage mandated under the essential benefits package, “will provide coverage and cost-sharing protections…that are at least as affordable” as the coverage mandated by the statute, and “will provide coverage to at least a comparable number of its residents” as the statute, all without increasing federal deficits.

While states can request waivers for flexibility, those waivers will only be granted if the overall benefits provided, and total coverage expansions, meet Washington’s standards.  As previously noted, Section 1302(b) of the statute makes clear that “the Secretary” – i.e., not states – “shall define the essential health benefits,” and shall set other standards for the required health insurance package, standards that states CANNOT avoid with a waiver.  CongressDaily’s article this afternoon regarding the standards admitted that “states must meet a high bar” to receive a waiver.  The White House’s fact sheet on the state innovation waiver says that “an increase in the number of benefit levels…could qualify” for a waiver.  What the fact sheet implicitly acknowledges – but doesn’t say outright – is that providing a simple, catastrophic policy that doesn’t meet all the Washington-mandated benefits will NOT receive a waiver.

Earlier this month, Republican governors wrote to ask that the Administration “waive the bill’s costly mandates and grant states the authority to choose benefit rules that meet the specific needs of their citizens” and “waive the provisions that discriminate against consumer-driven health plans, such as health savings accounts (HSAs).”  As we’ve previously noted, the Administration’s responses have avoided answering the governors’ request – as does today’s announcement.  The President’s endorsement of state innovation waivers does NOT address the fact that states will still be forced to comply with benefit levels and mandates set by federal bureaucrats, not by the states themselves.  Some may argue that, instead of tinkering at the margins of how states may comply with Washington-imposed mandates, the federal government should waive those mandates entirely, giving states much more flexibility to innovate without federal officials looking over their shoulders.

Medicaid News, Notes, and Nuggets

Several items of note this morning regarding Medicaid, and specifically the discussions regarding same at the National Governors Association meetings over the weekend, at which governors of both parties requested flexibility from Washington regarding the federally-imposed mandates on the Medicaid program:

  • A Wall Street Journal article noted that Washington state – headed by Democrat Gov. Christine Gregoire – “wants flexibility in the rates its [sic] pays health care providers that treat Medicaid patients, the services it offers, and its eligibility requirements.”  Unfortunately, however, Washington, DC seems disinclined to give Washington state – or other states, for that matter – the flexibility they seek.  In fact, a recent article indicated that federal officials are considering placing MORE restrictions on state Medicaid programs – specifically, new mandates related to reimbursement levels – rather than fewer burdensome orders coming from Washington.
  • While Washington bureaucrats have thus far declined to grant waivers regarding the Medicaid maintenance of effort requirements in the health care law, the Administration has already granted over 900 waivers to various private plans – including many union plans – to allow them to continue offering coverage.  It does raise the question:  Why will the Administration waive one part of the law to help unions, while not waiving other requirements when doing so could assist financially struggling states?
  • Mississippi Governor Haley Barbour, noting that his state’s high-risk pool for chronically ill individuals has 3,500 participants – compared to only 12,000 enrollees nationwide for the new federal program created under the health care law – observed that the sizable enrollment in the state-based pool compared to its federal counterpart demonstrates why states should be granted more flexibility to manage their Medicaid programs as they see fit.
  • The American Action Forum released an interesting policy brief outlining some possible solutions for states to achieve savings from their Medicaid programs.  Several of these solutions will require flexibility from Washington however, meaning that Secretary Sebelius and HHS should help governors help themselves in giving states the tools they need – and are asking for – to contain costs in their skyrocketing Medicaid programs.

The 2010 actuarial report on Medicaid’s financial condition – quietly released the week before Christmas – demonstrates the difficult task states face in trying to contain the spiraling costs of their Medicaid programs.  The report projects that spending on Medicaid will rise by 8.3 percent per year over the coming decade – a growth rate 3.2 percentage points higher than projected GDP growth, and higher than the Medicaid program’s growth over the previous 15 years (1994-2009).  Moreover, administrative costs associated with the health care law will impose an additional $12 billion burden on states – over and above the $60 billion in direct coverage costs that the Congressional Budget Office recently found the states will be forced to bear.

Medicaid already provides health care to one in five Americans, and states are struggling mightily to meet those challenges in a difficult fiscal environment.  States need more flexibility and fewer mandates from Washington to manage their programs – not federal bureaucrats forcing states to maintain, and then expand, their broken Medicaid systems to prop up Democrats’ creaky health “reform.”

Will President Obama Fulfill His Requirements on Entitlement Reform?

Even as Congress works this week to complete this year’s appropriations bills, thoughts turn to the long-term budget outlook, which under any scenario is far from rosy.  Experts generally agree that the growth of the long-term budget deficits is largely a function of entitlements like Social Security, Medicaid, and Medicare; President Obama admitted as much in an interview with the Washington Post shortly before taking office: “The real problem with our long-term deficit actually has to do with our entitlement obligations….The big problem is Medicare, which is unsustainable.”  Unfortunately, however, the President signed a health care law that extracted savings from Medicare to create a massive new $2.6 trillion entitlement, relying on double-counting and similar budgetary gimmicks rather than enacting reforms that will make the Medicare program truly sustainable.

This week, however, the President has been granted a second chance to start a conversation about true Medicare reforms that will make the program more sustainable – in fact, he is required by law to do so.  The Medicare Modernization Act included provisions requiring the Medicare trustees to determine when the Medicare program is relying too heavily on general revenues (as opposed to the Medicare payroll tax) for its funding needs, thus crowding out other important government priorities such as defense, education, etc.  A section on pages 52-55 of last August’s trustees report made such a determination of “excess general revenue Medicare funding” for the fifth straight year.  Therefore, under the procedures outlined within the MMA, the President must within 15 days of submitting his budget also propose to Congress legislation remedying the funding warning – to make the program more financially sustainable for current taxpayers and future generations alike.  This provision was codified in statute, meaning the President is required to submit a legislative proposal (which the leaders of both parties will formally introduce at his request).

President Obama has talked a lot about entitlement reform, and he has on numerous occasions criticized Republicans for not paying for the cost associated with the MMA (even though Democrats didn’t propose offsets to the bill’s new spending, then or now).  He has an opportunity to use one of the tools provided to the President and Congress in the MMA to bring the Medicare program back into balance – one which could reform an entitlement the President himself called “unsustainable.”  Will the President embrace this opportunity, or will his response to whether the country should reform its costly entitlement programs once again be the deafening silence of “NO?”

Non-Answers by Secretary Sebelius on State Flexibility

Ahead of the National Governors Association meeting this weekend, Secretary Sebelius released a letter responding to previous correspondence from Republican Governors requesting additional flexibility in implementing the health law.  Unfortunately, however, the Secretary’s response was largely a non-response, avoiding the main issues the governors raised:

Operation of Exchanges

Governors’ Request:  “Provide states with complete flexibility on operating the exchange, most importantly the freedom to decide which licensed insurers are permitted to offer their products.”

Sebelius’ Response:  “In implementing their exchanges, states have the option to allow all insurers to participate in the exchanges (the Utah model), or they can be more active purchasers in shaping available choices (the Massachusetts model).”

Translation:  While the Secretary’s letter sounds like HHS will give states some flexibility to manage their exchanges, the proof will be in the pudding – namely the specific regulations to be released delineating state exchange requirements.  More broadly though, it’s an open question whether states will receive the “complete flexibility” requested by the governors – or whether HHS bureaucrats will layer on more Washington mandates for the state-based exchanges to comply with, just as the law itself did.

Essential Health Benefits

Governors’ Request:  “Waive the bill’s costly mandates and grant states the authority to choose benefit rules that meet the specific needs of their citizens.”

Sebelius’ Response:  “All plans in the individual and small group markets – inside or outside of the exchanges – will provide essential health benefits, which, by law, will be modeled after what a typical employer currently provides today in the private sector.  But the law and how states implement it allow a diversity of plan types and benefit designs in exchanges, and states continue to have the option to require coverage of specific, additional benefits.”

Translation:  Governors’ request denied.  The Secretary’s letter talks about benefits packages being prescribed “by law,” but conveniently omits who will be doing the prescribing.  Section 1302(b)(1) of the statute couldn’t be clearer about who will decide the scope of the benefits package: “The Secretary shall define the essential health benefits” necessary to comply with the law’s individual mandate.  The other key word in the Secretary’s letter when it comes to benefit packages is “additional:” States can EXCEED the Washington-imposed benefit standards, but they cannot waive them, no matter how high premiums will rise. (The richer benefit packages will raise premiums for individual insurance by as much as 30 percent on average, according to the Congressional Budget Office.)  This “flexibility” is in reality a one-way street to higher premiums and health costs for states and families alike.

Health Savings Accounts

Governors’ Request:  “Waive the provisions that discriminate against consumer-driven health plans, such as health savings accounts (HSAs).”

Sebelius’ Response:  “The cost sharing limits required by the essential health benefits package mirror the current out-of-pocket maximum for HSAs under the Internal Revenue Code.”

Translation:  Substantively speaking, a non-answer.  First, the essential health benefits package does contain new restrictions on deductibles and cost-sharing that will prevent at least some current HSA plans from being offered.  More importantly, the law does not specify that cash contributions made to an HSA will be counted towards the minimum federal requirements under the new actuarial value standard.  Section 1302(d) of the statute states very clearly that those parameters will be defined “under regulations issued by the Secretary.”  In other words, it’s not states that will determine whether they will be able to offer HSA coverage – it’s the Secretary herself.  And the Secretary didn’t answer whether HHS will give all HSA plans a “safe harbor” during the regulatory process.

Medicaid Flexibility

Governors’ Request:  “Provide blanket discretion to individual states if they chose [sic] to move non-disabled Medicaid beneficiaries into the exchanges for their insurance coverage without the need of further HHS approval.”

Sebelius’ Response:  “The Affordable Care Act expands and simplifies Medicaid coverage and provides states with more opportunities to align Medicaid with private health insurance.  More specifically, the law permits states to restructure Medicaid coverage to look more like typical private employer coverage.”

Translation:  Again, governors’ request denied.  The Secretary’s letter talks about the law permitting states to restructure their Medicaid plans.  However, the section of the Medicaid statute referred to in the law (Section 1937(a)(1)(A) of the Social Security Act) makes very clear that states can utilize “benchmark” standards to make Medicaid more like traditional insurance “as a state plan amendment.”  In other words, states must ask Washington’s permission to change their Medicaid benefits – far from the “blanket discretion” the governors requested.  Moreover, the health care law actually imposed MORE requirements, not less, when it comes to “benchmark” coverage – Section 2001(c)(3) of the law amended Section 1937 of the Social Security Act to require that states offer all the “essential health benefits” as part of their Medicaid “benchmark” coverage in 2014.  So in addition to all the existing requirements, states must now also comply with the new benefit mandates under the law – which, as noted above, will be set by Washington bureaucrats, not the states themselves.

Objective Data

Governors’ Request:  “Commission a new and objective assessment of how many people will end up in the exchanges and on Medicaid in every state as a result of the legislation (including those “offloaded” by employers), and at what potential cost to state governments.”

Sebelius’ Response:  “The traditional source for objective information about the costs of federal legislation is the non-partisan Congressional Budget Office, which has estimated that the Affordable Care Act will extend coverage to 32 million uninsured Americans…”

Translation:  A substantive non-answer on several levels.  First, the governors asked for a state-by-state assessment of costs and coverage impacts – which CBO has not done, and traditionally does not do.  Second, the Medicare actuary recently testified that CBO’s assumptions with regard to the Medicaid expansion may be inaccurate.  Specifically, the actuary indicated that one interpretation of the statute’s new definition of modified adjusted gross income could mean that “an additional 5 million or more Social Security early retirees would be potentially eligible for Medicaid coverage” than CBO originally estimated.  That means that states could be facing unfunded mandates vastly greater than the $60 billion amount estimated by CBO.

So, for the record, that’s one answer partially agreeing with the governors’ request, and four responses that either deny or avoid discussing the gist of the issues the governors put forward.  In sum, most of the responses avoid mentioning that the states’ parameters are being sharply limited by Washington – and the arguments about state “flexibility” fall flat when a review of the law reveals that the only flexibility states really have involves imposing MORE regulations and mandates, rather than getting out from under Washington’s myriad diktats.  Not only is the Secretary’s response insufficient when it comes to the transparency of the regulatory process – and how it will impact states – but on substance, it implicitly reinforces rather than rebuts the notion that the 2700-page health care law imposes top-down, Washington-centric “solutions.”

From C-SPAN Promises to Secret Meetings: Obama’s Broken Transparency Promises

Politico has a story this morning about the secret meetings Administration officials are holding with lobbyists outside the White House gates – primarily so they can avoid the visitor disclosure requirements the Obama Administration implemented for “official” meetings on White House grounds.  Among the nuggets in the story describing Administration officials’ furtive machinations:

  • “Several of the lobbyists involved [in off-site meetings] say they believe the choice of venue is no accident.  It allows the Obama Administration to keep these lobbyist meetings shielded from public view – and out of Secret Service logs collected on visitors…and later released to the public.”
  • “At least four lobbyists…had the distinct impression they were being shunted off…so their visits wouldn’t later be made public.”
  • “There are no records of meetings at the row houses just off Lafayette Square that house the White House Conference Center and the Council on Environmental Quality, home to two of the busiest meeting spaces.  The White House can’t say who attended meetings there, or how often.  The Secret Service doesn’t log in visitors or require a background check the way it does at the main gates of the White House.”
  • “[Lobbyists] say the White House is generally happy to meet with them and their clients once or twice, but get leery when an issue requires multiple visits and begin pushing for phone calls or meetings outside the White House’s gates.  ‘Without question, I think that there’s a lot of concern about being seen meeting with the same lobbyists or particular lobbyists over and over again,’” according to one lobbyist.
  • “Another favorite off-campus meeting spot is a nearby Caribou Coffee, which, according to the New York Times, has hosted hundreds of meetings among lobbyists and White House staffers since Obama took office.”
  • “Administration officials recently asked some lobbyists and others who met with them to sign confidentiality agreements barring them from disclosing what was discussed at meetings with administration officials….[the practice] has come under fire from lobbyists and a top House Republican, who have criticized the demand that participants sign a ‘gag order’ before being allowed into meetings.”
  • “[A] veteran lobbyist said no other administration he’s worked with has so often responded to routine email queries with the same three-word response, ‘Gimme a ring.’”
  • “‘My understanding was they were holding the meeting there because it included several high-level business and trade association lobbyists,’ said a senior business lobbyist who attended [a meeting on immigration].  ‘This was an effort to not have to go through the security protocols at the White House which could lead to the visitor logs at some point being released to the public and embarrass the president.’”

Unfortunately, secret meetings with lobbyists are not the only way in which the Administration has acted in non-transparent ways.  Just last month, the Administration was forced to withdraw other controversial regulations surrounding end-of-life care, after leaked e-mails suggested that Democrats deliberately sought to enact regulatory provisions without providing the public an opportunity to comment on them.  The White House still has yet to provide a full and public accounting of who or what (secret meetings, perhaps?) was behind this highly unusual turn of events.  Worse yet, the New York Times reported earlier this month on other questionable developments regarding the rulemaking process – implying that Administration officials had already decided to require insurers to cover of contraceptive services, and were merely undertaking an outside consultation on the issue “for show.”

The ready willingness of Administration officials to avoid procedures designed to allow public scrutiny of their actions does not speak well to the its ability to operate with the “unmatched level of transparency, participation, and accountability” promised by the President.  For a President that promised to televise all health care negotiations on C-SPAN, yet another story about the ways in which government officials keep attempting to circumvent transparency measures illustrates how far the Administration needs to go to enhance public disclosure while implementing the massive, 2,700 page health care law.

Health “Reform” = New Bureaucrats Galore!

The Associated Press has a story about the implications of the new health care law on the President’s budget – specifically the number of new employees and additional funding requested by the Administration for the law’s implementation.  The story notes that the budget “has no line item for health care implementation,” and that “it may not be easy to see” all the details about where the money is being spent.  (Given the billions of dollars being spent, Deep Throat would have a field day following all this taxpayer money.)  But here’s what we do know about just some of the money being requested and spent:

  • The Internal Revenue Service requested a whopping 1,270 new bureaucrat positions to implement the law – a down payment on what could be up to 16,500 agents hired by the IRS to enforce the individual mandate and other related provisions.
  • The public affairs office at the Department of Health and Human Services requested a 315% increase in its budget; that office is “tasked with selling the health care reform law.”
  • HHS has also established a sprawling new federal bureaucracy to regulate the private insurance purchased by every American; the New York Times previously reported that this new bureaucracy leased a 70,000 square foot office in Bethesda at nearly double the going market rate – wasting millions of taxpayer dollars in the process.
  • The HHS Budget in Brief contemplates the Department adding nearly 4,700 new positions.  What’s more, EVERY HHS division will see an increase in the number of federal bureaucrats employed under the President’s proposal.
  • Medicare Administrator Berwick admitted that “all of the agencies have features of the [law] that impact their budgets,” – a tacit admission both that money is fungible, and that increases in funding will almost by definition be used to support implementation of Democrats’ unpopular 2700-page health care law.

These developments come only a few months after a Congressional Research Service report described the number of new bureaucracies created by the law as “unknowable.”  The Administration’s refusal to quantify the number of bureaucrats and resources necessary to implement the law follows in the same vein.

The lack of clear disclosure about the budgetary details of implementation is far from consistent with the President’s promise of “an unmatched level of transparency, participation, and accountability across the entire Administration.”  However, the Administration’s claims that it can’t (as opposed to won’t) disclose more information because that information can’t be quantified raises a more interesting question:  How can the federal government implement the law effectively if it doesn’t even know how many people are working on implementation?  And if it’s unknowable how many new bureaucrats will be employed and new bureaucracies created, doesn’t it also follow that it’s unknowable whether all this government, bureaucracy, and federal spending will actually work?

More Medicaid Mandates Ahead…?

Ahead of the National Governors Association conference in town this weekend, the Washington Post just published an article highlighting the ways in which the Obama Administration is looking to “help” states manage their Medicaid programs.  The article includes several examples of how HHS staff are meeting with state officials to provide planning assistance – before closing with on a potentially ominous note:

In another effort to smooth things over with states, [HHS Secretary] Sebelius also will soon provide guidance to states on Medicaid reimbursement rates for doctors and hospitals.  Several states are considering reducing Medicaid payments to providers, but there’s concern that slicing rates too deeply could cause some doctors to close their doors to Medicaid patients.  The HHS guidance is intended to help states decide which cuts go too far.

In other words, it’s possible – perhaps even likely – that on top of the mandates on states not to constrain eligibility standards, HHS will now pile on another federal mandate when it comes to reimbursement levels.  To be sure, Medicaid’s poor reimbursement levels create access problems for low-income beneficiaries in many states.  But one of the reasons why states are looking to reduce reimbursement rates in the first place is because the mandate to maintain eligibility levels prevents them from taking other actions to trim their budget deficits.  So it would appear that the Administration’s solution to a failed government mandate (i.e., the Medicaid maintenance of effort requirements) is yet another government mandate on states, this one requiring certain reimbursement levels for states’ Medicaid programs.

On a related note, last Friday the Congressional Budget Office (CBO) released a score estimating the Medicaid unfunded mandates as costing states $60 billion from 2012-2021, up from only $20 billion during the years 2010-2019.  That means state unfunded mandates will total $40 billion in 2020 and 2021 – showing the HUGE jump in state obligations once the federal matching payments for the Medicaid expansion costs are reduced in 2020.  At a time when states face myriad obstacles in maintaining their current Medicaid programs, it’s worth asking why Democrats passed a law that will only increase their burdens further – and what Washington will do when states can no longer support these crushing pressures being placed on their budgets.

Update on Health Care Law Scores

As the House was finishing its work on the continuing resolution on Friday, the Congressional Budget Office released two letters related to the health care law and its repeal.  Late Friday afternoon, CBO issued a letter to House Budget Committee Chairman Ryan regarding the health care law.  The letter indicated that – should the “Cadillac tax” on employer-sponsored plans not be implemented as scheduled in 2018, and should half of the Medicare savings provisions be repealed or otherwise not implemented – the law will increase the deficit by up to $500 billion in its second decade (meaning repeal would reduce the deficit by a similar amount).

The Congressman’s assumptions to CBO seem much more plausible than those in the law, for several reasons.  First, the “Cadillac tax” isn’t scheduled to begin until 2018 – one year after the end of any second Obama presidential term.  That of course raises the obvious question: If President Obama and Democrats really intend to implement this new 40 percent tax on the middle class, why did they wait until after the current President will be out of office for it to take effect?

Second, CBO, along with many others, has shown a great amount of skepticism that the law’s Medicare savings provisions can be implemented in full without severe access problems.  CBO’s report on the long-term budget outlook, released in June, included a section entitled “Questions About Sustainability” on page 35.  CBO noted that “increases in payment rates for many providers will be held below the rate of increase in the average cost of providers’ inputs” and “it is unclear whether the [Medicare provisions] can be sustained, and, if so, whether it will be accomplished through greater efficiencies in the delivery of care or will instead reduce access to care or diminish the quality of care.”  (CBO’s analysis echoes that of the Medicare actuary, who concluded that up to 40 percent of hospitals and related providers could become unprofitable if the provisions are sustained for a long period of time, as the law envisions.)  For these reasons, CBO released an alternative fiscal scenario assuming that the Medicare productivity adjustments to providers and the caps on Medicare spending enforced by the Independent Payment Advisory Board – two of the biggest savings provisions in the law’s “out years” – will not be implemented after 2020. (See page 39 of the June CBO report.)  So the second assumption in the Ryan letter merely echoes CBO’s own position – that the Medicare provisions cannot be implemented as written over the long term.

In short, while Democrats crow about how the health care law reduces the deficit, the letter to Congressman Ryan illustrates HOW exactly the law reduces the deficit – by placing an onerous new 40 percent tax on insurance purchased by middle-class families, and by hindering access to Medicare providers for millions of senior beneficiaries.

Also on Friday, CBO released its full “official” score of the repeal of the health care law (H.R. 2).  The broad contours of the score were widely known – CBO said the law will reduce the deficit by $210 billion over the 2012-2021 period, up from $138 billion in the 2010-2019 period (due to the shifting of the budgetary scorekeeping window).  However, there are some interesting new nuggets about the law in the score of its repeal:

  • Because the CBO estimate now includes two more years of “full implementation,” the gross cost of the coverage expansions skyrocketed by 48 percent – from $938 billion in last March’s estimate to $1.39 trillion.  Again, this $452 billion increase reflects the costs of only two more years of the coverage expansion (2020 and 2021).
  • Within the coverage expansion estimates, CBO scores the Medicaid expansion as costing $674 billion (up from $434 billion), the Exchange subsidies as costing $677 billion (up from $464 billion), and the small business tax credit as costing $40 billion (unchanged).
  • CBO estimates the Medicaid unfunded mandates as costing states $60 billion from 2012-2021, up from only $20 billion during the years 2010-2019.  That means state unfunded mandates will total $40 billion in 2020 and 2021 – showing the HUGE jump in state obligations once the federal matching payments for the Medicaid expansion costs are reduced in 2020.
  • The revenues taken in by the “Cadillac tax” on employer-sponsored plans will more than triple, from $32 billion to $111 billion.  This growth reflects the fact that the Cadillac tax isn’t scheduled to take effect until 2018 under the law.  The Cadillac tax will generate $16 billion in revenue in 2018, but $32 billion just two years later – a doubling that demonstrates how rapidly this tax on middle class families will skyrocket in future years.
  • The federal budgetary commitment to health care will rise by $464 billion during 2012-2021, up from $398 billion in 2010-2019 under the March estimate.
  • Premiums will go UP under the law, and go DOWN if it is repealed – conclusions that echo the CBO’s prior analysis of health insurance premiums from November 2009.

CBO Admits Health Care Law Will INCREASE the Deficit

Having completed its updated baseline for economic and health spending assumptions, the Congressional Budget Office this afternoon finally released its complete score of the repeal of the health care law (H.R. 2).  However, the day’s big story comes in a separate letter to House Budget Committee Chairman Paul Ryan, in which CBO admits that under assumptions CBO considers to be realistic – i.e., NOT the assumptions that Democrats forced them to assume when scoring the measure – the law will increase – that’s right, INCREASE, NOT DECREASE – budget deficits.

It’s worth providing some context here – much of which goes back to CBO’s report on the long-term budget outlook, released in June.  That report includes a section entitled “Questions About Sustainability” on page 35, which I’ve pasted below.  (Many of those same quotes were included in CBO’s initial analyses of the health care and reconciliation laws.)  CBO noted that “increases in payment rates for many providers will be held below the rate of increase in the average cost of providers’ inputs” and “it is unclear whether the [Medicare provisions] can be sustained, and, if so, whether it will be accomplished through greater efficiencies in the delivery of care or will instead reduce access to care or diminish the quality of care.”  CBO similarly called provisions in the reconciliation law slowing the growth of insurance subsidies after 2018 “difficult to sustain.”

As part of its June report, CBO released an alternative fiscal scenario that assumes three of the major savings provisions in the law will not be implemented after 2020:

  1. Productivity adjustments to providers;
  2. Reductions in the growth of insurance subsidies; and
  3. Caps on Medicare spending enforced by the Independent Payment Advisory Board.

In its introduction to the report (page 4 of the PDF), CBO noted that “the alternative fiscal scenario incorporates several changes to current law that are widely expected to occur or that would modify some provisions of law that might be difficult to sustain for a long period.”  Congressman Ryan requested that CBO score the law under these alternative assumptions – i.e., removing changes which CBO itself believes Congress will make, or will be forced to make, because several key provisions in the law cannot be sustained.  That request led to today’s conclusion, under which the law will increase the deficit.

To sum up:

  • Congress’ non-partisan budgetary scorekeeper believes that the major savings proposals in the health care law cannot – and will not – be sustained in the long-term;
  • Democrats NEVER asked CBO to score the health care law according to what CBO itself actually thinks will happen as the law is implemented –  as opposed to what Democrats FORCED CBO to assume will happen; and
  • When Chairman Ryan asked CBO to score the law according to what CBO itself – not Republicans, not Democrats, but the non-partisan CBO analysts – thinks will happen as the law is implemented, CBO found that the law will RAISE the deficit.

Speaker Pelosi famously said we had to pass the health care law bill to find out what’s in it.  Unfortunately, today’s letter from CBO exposed the problems in that strategy when it comes to unsustainable entitlements – and exposed the lie behind the Democrat claims that the Congressional Budget Office believes the law will reduce the deficit.


Questions About Sustainability

One challenge that arises in projecting federal outlays for health care over the long term is that the recent legislation either left in place or put into effect a number of procedures that may be difficult to sustain over a long period.  For example, the legislation did not alter the sustainable growth rate mechanism used for determining updates to Medicare’s payment rates for physicians; under that mechanism, those rates are scheduled to be reduced by about 21 percent in 2010 and then decline further in subsequent years. Since that mechanism was enacted in 1997, its provisions have usually been modified to avoid scheduled reductions in payment rates, and legislation was just enacted to delay cuts in those payment rates until December 2010 (a development that is not reflected in the projections). At the same time, the legislation includes provisions that will constrain payment rates for other providers of Medicare’s services. In particular, increases in payment rates for many providers will be held below the rate of increase in the average cost of providers’ inputs.

Taking all the provisions of the legislation together, CBO expects that, adjusted for inflation, Medicare spending per beneficiary will increase at an average annual rate of less than 2 percent during the next two decades—compared with a roughly 4 percent annual growth rate during the past two decades (a calculation that excludes the effect of establishing the Medicare prescription drug benefit). It is unclear whether that lower rate of growth can be sustained and, if so, whether it will be accomplished through greater efficiencies in the delivery of health care or will instead reduce access to care or diminish the quality of care (relative to the situation under prior law).

Another provision that may be difficult to sustain will slow the growth of federal subsidies for health insurance purchased through the insurance exchanges. For enrollees who receive subsidies, the amount they will have to pay depends primarily on a formula that determines what share of their income they have to contribute to enroll in a relatively low-cost plan (with the subsidy covering the difference between that contribution and the total premium for that plan). Initially, the percentages of income that enrollees must pay are indexed so that the subsidies will cover roughly the same share of the total premium over time. After 2018, however, an additional indexing factor will probably apply; if so, the shares of income that enrollees have to pay will increase more rapidly, and the shares of the premium that the subsidies cover will decline.

A Cautionary Tale on Government Controlling Costs

The Boston Globe reports this morning on the rollout by Massachusetts Governor Deval Patrick of a series of “reforms” intended to lower skyrocketing health costs within the Commonwealth.  Among the key takeaways – the legislation would give the Commonwealth “the authority to scrutinize insurers’ contracts with, and fees paid to, hospitals and doctors and consider whether those fees are appropriate before approving insurers’ requests for premium increases.”  In other words, under the proposal, government would micro-manage not just insurance companies’ practices, but the spending habits of thousands of doctors and hospitals as well.

It’s worth noting the sequence of events that led Massachusetts to this point – which provides a cautionary tale to those who believe the Patrick Administration’s latest plan will actually reduce costs:

  • In the 1990s, the Commonwealth (along with other states) enacted requirements requiring insurance companies to accept all applicants, regardless of health status.  This government regulation led many healthy Massachusetts residents to wait until they got sick to purchase insurance.  As a result, premiums skyrocketed.
  • Because the new insurance regulations quickly caused a market failure, Massachusetts legislators decided the solution to a government-imposed problem was…more government – specifically, a mandate that all residents purchase health insurance.  Unfortunately, data from multiple insurance companies show that many people are paying the tax associated with the mandate while healthy, only to obtain coverage and run up high health costs once becoming sick – placing more upward pressure on insurance premiums.  Moreover, the reforms passed in 2006 focused solely on expanding coverage, to the exclusion of cost control efforts – a further recipe for skyrocketing health expenses.
  • As costs continue to rise – and the Commonwealth is forced to hire private enforcers to police its controversial government-imposed insurance mandate – the Patrick Administration thinks the cost pressures created by the insurance regulations and mandates can be remedied by yet more government involvement, by regulating health insurers’ private contracts with doctors and hospitals.
  • And if the Patrick Administration’s proposals for new regulations don’t work, what will be the solution to them?  You guessed it – more government.  As one executive put it, if the new proposals don’t contain costs, “it’s likely we’ll see even bigger sticks coming our way,” imposed by government elites and bureaucrats.

The article admits that health costs are threatening to bankrupt the Commonwealth, and that the “reforms” of the past two decades if anything have increased, not decreased, those cost pressures.  At what point will Massachusetts learn that when it comes to containing costs, “government is not the solution to our problems – government IS the problem?”