Legislative Bulletin: H.R. 4848, Mental Health Parity Extension

Order of Business:  The bill is scheduled to be considered on Wednesday, February 6, 2008, under a motion to suspend the rules and pass the bill.

Summary:   H.R. 4848 would extend through December 31, 2008 certain provisions relating to mental health parity coverage that previously expired on December 31, 2007.

Specifically, the bill would reinstitute federal mandates first included in the Mental Health Parity Act of 1996, and extended in subsequent legislation, requiring that annual and lifetime limits on coverage for mental health treatments equal similar limits for physical illnesses.  Group health plans failing to meet the requirements of the Mental Health Parity Act would be subject to an excise tax; however, employers with fewer than 50 employees would be exempt from the federal requirements.

H.R. 4848 would also include Medicare provider payments in the Federal Payment Levy System, which imposes a 15% levy on contractors to recover outstanding federal tax debt.  A 2004 Government Accountability Office study determined that 21,000 Medicare providers owed more than $1.3 billion in back taxes, in part because payments under Medicare Parts A and B are currently exempt from participation in the Federal Payment Levy System.  H.R. 4848 would extend the Federal Payment Levy system to Medicare Part A and B claims over a three-year period ending on September 30, 2011.

Finally, H.R. 4848 would deposit additional savings in the Physician Assistance and Quality Initiative Fund, which is used by the Centers for Medicare and Medicaid Services (CMS) to finance physician payment and quality improvement initiatives.

Possible Conservative Concerns:  Some conservatives may be concerned that the bill would raise the cost of health insurance by re-imposing a lapsed federal mandate on individual and group health plans.  Some conservatives may also be concerned that the bill could lead to further action on full mental health parity legislation (H.R. 1424; S. 558) being considered in the 110th Congress, further inflating health insurance premiums nationwide.

Committee Action:  H.R. 4848 was introduced on December 19, 2007 and was referred to the House Committee on Energy and Commerce, and in addition to the Committees on Ways and Means and Education and Labor, where no further action was taken.

Cost to Taxpayers:  However, H.R. 4848 would reduce federal revenues by $25 million over ten years by increasing the cost of health insurance, thus leading employees with group coverage to exclude more of their income from federal income and payroll taxes.  The bill would offset that foregone revenue through the extension of Part A and B Medicare payments to the Federal Payment Levy System as described above, saving a total of $374 million over ten years.  The bill diverts the additional revenue generated in excess of the foregone income and payroll taxes ($349 million over ten years) to the Physician Assistance and Quality Improvement Fund.

Does the Bill Expand the Size and Scope of the Federal Government?  No.

Does the Bill Contain Any New State-Government, Local-Government, or Private-Sector Mandates?  Yes, the bill reinstitutes federal mandates on individual and group health insurance plans regarding the design of their benefit plans.

Does the Bill Comply with House Rules Regarding Earmarks/Limited Tax Benefits/Limited Tariff Benefits?:  A Committee report designating compliance with clause 9 of rule XXI is unavailable.

Constitutional Authority:  A Committee report citing Constitutional authority is unavailable.

Health Care Proposals in Fiscal Year 2009 Budget

Summary:  In submitting his Fiscal Year 2009 Budget request to Congress, President Bush proposed a number of health-related changes that would achieve budgetary savings to both mandatory and discretionary spending.  As part of this package, the Administration has proposed a package that would reduce the growth of Medicare spending from 7.2% to 5.0% to meet requirements under the Medicare Modernization Act.

Mandatory Spending—Medicaid/SCHIP:

The budget proposal includes $1.8 billion in Medicaid savings in Fiscal Year 2009 and $17.4 billion over the next five years.  Budgetary savings would be achieved by realigning reimbursement rates for family planning services at the statutory Federal Medical Assistance Percentage (FMAP) rate ($3.3 billion in savings over five years), and by aligning reimbursement rates for all administrative services and case management at 50% (total $6.6 billion in savings over the five-year window).  Additional savings over the next five years would be achieved through adjustments to pharmacy reimbursements ($1.1 billion), asset verification ($1.2 billion), and cost allocation ($1.77 billion).

The budget proposes an additional $2.2 billion in SCHIP spending for Fiscal Year 2009, and $19.7 billion over the five year period.  The budget includes outreach grants of $50 million in 2009, and $100 million annually in subsequent years, for state and local governments as well as community-based organizations to engage in activities designed to increase enrollment of eligible children.  Lastly, the budget proposes to simplify SCHIP eligibility by clarifying the definition of income, eliminating the “income disregard” system that has been a source of concern among many conservatives.

Mandatory Spending—Medicare:

The budget includes several proposals to reduce the overall growth in Medicare spending.  Overall, Medicare funding would fall $178 billion below the baseline over the next five years.  These proposals would not constitute overall “cuts” to the Medicare program, but would instead reduce its growth from 7.2% to 5.0%.  Highlights of the budget submission include the following:

Provider Adjustments: The Administration proposal would freeze payment rates for hospitals, skilled nursing facilities, long-term care and outpatient hospitals, ambulatory surgical centers, inpatient rehabilitation facilities, and home health providers through Fiscal Year 2011, and provide a –0.65% annual market basket update thereafter, saving $112.93 billion over five years.  The savings derived from flat-level payments would not mean that providers would not continue to receive increased reimbursements from the federal government, as the level, number, and intensity of services provided would still continue to grow.

Disproportionate Share Hospital (DSH) Payments: Medicare DSH payments, which compensate hospitals that serve large numbers of low-income individuals, would be reduced by 30% over two years, saving $20.7 billion over five years.  This modest reduction in payments to hospitals would recognize the significantly enhanced benefits provided to seniors, particularly those with low incomes, as part of the Medicare Modernization Act.

Medical Education: The budget would eliminate duplicate Indirect Medical Education (IME) payments made to hospitals on behalf of Medicare Advantage beneficiaries, and would reduce the IME add-on by 60% over the next three years, saving a total of $21.75 billion over five years.

Means Testing:  The budget proposes to end annual indexing of income-related Part B premiums and establish an income-related Part D premium consistent with the Part B “means testing” included in Title VIII of the Medicare Modernization Act.  The proposals would achieve total savings of $5.75 billion over five years.  The RSC has previously included similar proposals in its budget documents as one way to constrain costs and ensure consistency between a Part B benefit that is currently means-tested and a Part D benefit that is not.

Other Savings:  Additional savings over the five year budget window would come from a reduction in the rental period for oxygen equipment ($3 billion), extending Medicare Secondary Payor for the End-Stage Renal Disease (ESRD) program from 30 to 60 months ($1.1 billion), eliminating bad debt payments over four years ($8.5 billion), and other regulatory and administrative actions ($4.7 billion).

Medicare Funding Trigger

Concurrent with the budget submission, the Medicare Modernization Act (MMA) requires the President to submit to Congress within 15 days a proposal to remedy the Medicare “excess general revenue Medicare funding” warning announced by the Medicare trustees last spring.  In addition to the savings package described above, the opportunity afforded by the trigger could be used to advance more comprehensive proposals, which could include:

Premium Support: This model would convert Medicare into a system similar to the Federal Employees Benefit Health Plan (FEHBP), in which beneficiaries would receive a defined contribution from Medicare to purchase a health plan of their choosing.  Previously incorporated into alternative RSC budget proposals, a premium support plan would provide a level playing field between traditional Medicare and private insurance plans, providing comprehensive reform, while confining the growth of Medicare spending to the annual statutory raise in the defined contribution limit, thus ensuring long-term fiscal stability.

Restructure Cost-Sharing Requirements:  This concept would restructure the existing system of deductibles, co-payments, and shared costs, which currently can vary based on the type of service provided.  Additionally, Medicare currently lacks a catastrophic cap on beneficiary cost-sharing, leading some seniors to purchase Medigap policies that insulate beneficiaries from deductibles and co-payments and therefore provide little incentive to contain health spending.  Reforms in this area would rationalize the current system, generating budgetary savings and reducing the growth of health spending.

Increase Medicare Part B Premium:  The RSC has previously proposed increasing the Part B premium from 25% to 50% of total Medicare Part B costs, consistent with the original goal of the program.  This concept would not impact low-income seniors, as Medicaid pays Medicare premiums for individuals with incomes under 120% of the federal poverty level.

Medical Liability Reform: This proposal would help bring down health spending both within and outside Medicare by helping to eliminate frivolous lawsuits and providing reasonable levels of compensation to victims of medical malpractice.  In 2003, the Congressional Budget Office scored a liability reform bill (H.R. 5) as lowering Medicare spending by $11.2 billion over a ten-year period.

Bipartisan Commission:  This proposal would provide an expedited mechanism requiring Congress to hold an up-or-down vote on the recommendations of a bipartisan commission examining ways to reform Medicare and other federal entitlements.

Value-based Purchasing:  This concept, also known as “pay-for-performance,” would seek to adjust physician and provider reimbursement levels to reflect successful patient outcomes on a risk-adjusted basis.  While advocates believe pay-for-performance can yet achieve the significant budgetary savings not present in existing Congressional Budget Office models, some conservatives may be concerned that this methodology would deepen the government’s role in health care by altering the fundamental doctor-patient relationship.

Sequestration Mechanism: This proposal would cap the growth of overall Medicare spending levels, and provide adjustments in benefit structures in the event that spending exceeded statutory levels.  The budget submission to Congress did include the proposal that physician payments be reduced 0.4% for every year in which general tax revenues cover more than 45% of Medicare costs—the level at which the Medicare Modernization Act required that a funding warning be issued, and action taken by Congress.  The Administration proposal is designed to provide Congress with an impetus to embrace comprehensive entitlement reform by requiring across-the-board cuts absent pre-emptive legislative action.

Discretionary Proposals:  Overall, the President’s proposed discretionary budget for the Department of Health and Human Services (HHS) is $68.5 billion, $1.7 billion less than last year.  Preliminary highlights of funding levels on health programs include the following:

Centers for Disease Control (CDC): The proposal reduces overall spending by $412 million from current year levels.  Significant reductions within the CDC account include a proposed $111 million reduction for the Occupational Safety and Health Administration (OSHA), and an $83 million reduction in the World Trade Center screening and treatment program.

Earmarks: The budget proposes $451 million in savings by eliminating earmarked projects from the HHS budget.

Food and Drug Administration (FDA): The budget provides a $130 million increase for FDA over Fiscal Year 2008 levels.  More than half ($68 million) of the proposed increase comes from additional resources for drug and biologic safety programs, with an additional $33 million increase in the food safety budget.

Health Resources and Services Administration (HRSA): A total of nearly $1 billion in reductions in the HRSA account comes from several proposed sources—grants to train nurses and health professionals (reduced by $240 million); training doctors at children’s hospitals (eliminated, saving $302 million); rural health programs (reduced by $150 million); and public health buildings and projects (eliminated, saving $304 million).  Reductions in the rural health and health training accounts have previously been proposed in previous RSC budget documents.  Since that time, reconciliation legislation passed last September (P.L. 110-84) provided student loan forgiveness to public health workers, raising additional questions about the duplicative nature of the HRSA-funded grant programs.

National Institutes of Health (NIH): The National Institutes of Health would receive flat-level funding from Fiscal Year 2008, $29.5 billion in total, after years of substantial increases.  Funding for most institutes within NIH would likewise remain at constant levels for the upcoming Fiscal Year.

Conclusion: The Administration’s Fiscal Year 2009 budget includes several reasonable proposals to slow the growth of health spending and thereby help return federal entitlements to a more sustainable trajectory.  Such measures are needed urgently, as Medicare faces $34.1 trillion in unfunded liabilities over the next 75 years, according to the Government Accountability Office.  The need for immediate action is great: the first Baby Boomer becomes eligible for Medicare in 2011, and every year that Congress does not address unfunded entitlement obligations, their size grows an additional $2 trillion, according to Comptroller General David Walker.  Some conservatives may believe that these measures proposed by the Administration to constrain reimbursements to providers, while helpful, can constitute the starting point for a comprehensive discussion about entitlement reform.

Question and Answer: SCHIP Legislation

The House will soon be faced with a vote to override the President’s veto on H.R. 3963, the Children’s Health Insurance Program Reauthorization Act of 2007, legislation which would reauthorize and expand the State Children’s Health Insurance Program (SCHIP), with several tax increases designed to partially offset the bill’s costs.

Does H.R. 3963 increase the scope of the SCHIP program?

Yes.  Under current law, states can cover families earning up to 200% of the Federal Poverty Level (FPL) or $41,300 for a family of four in 2007 or those at 50% above Medicaid eligibility.  As of 2010, H.R. 3963 increases the eligibility limit to 300% of FPL or $61,950 for a family of four while continuing the current authority for states to define and disregard (i.e. ignore) income.  As a result, H.R. 3963 places no practical limit on SCHIP eligibility since states can always manipulate the definition of income to expand coverage.  In addition, Section 116(g) of the bill overturns CMS’s current policy of requiring states to ensure that 95% of the eligible children in their state below 250% of FPL are enrolled before expanding coverage to higher incomes.

Does H.R. 3963’s increased spending violate the spirit of PAYGO?

Yes.  H.R. 3963 provides $35.4 billion over five years and $71.5 billion over ten years in new mandatory spending.  This new spending is only partially offset by tax increases on cigarettes of 61 cents to $1 per pack, and a cigar tax up to $3 per cigar, supposedly (see below) generating $35.5 billion over five years and $71.7 billion over ten years.  However, this CBO score overlooks a major gimmick which the bill employs to lower its costs.  The bill dramatically lowers the SCHIP funding in the fifth year by 80%, from $13.75 billion in the first six months to $1.75 billion.  In all likelihood, such a reduction will never take effect, which would make this an effort to generate unrealistic savings in order to artificially comply with PAYGO rules.

Does H.R. 3963 raise taxes?

Yes.  H.R. 3963 increases the cigarette tax by 61 cents to $1 per pack, and the cigar tax up to $3 per cigar.  Some conservatives may be concerned that the bill increases taxes on low-income individuals in order to pay for the expansion of SCHIP, which is designed to assist low-income families.  In addition, this revenue source is constantly declining as fewer and fewer individuals begin to smoke, since placing a tax on cigarettes will likely deter sales, leading some to question the efficacy of the offset.  According a study by the Heritage Foundation, “To produce the revenues that Congress needs to fund SCHIP expansion through such a tax would require 22.4 million new smokers by 2017.”

Will H.R. 3963 decrease private insurance participation in the market?

Yes.  Expanding SCHIP will generate a substantial shift away from the private health insurance market, by encouraging more and more children to obtain health care coverage from the federal government.  According to CBO, under H.R. 3963, two million children will shift from receiving private health insurance to government health insurance.  This means that they may get worse health care service and become increasingly dependent on the federal government.  In addition, as H.R. 3963 begins to reduce SCHIP funding in 2012, some note that states may shift these children who would be newly eligible for a government program into Medicaid.

Would H.R. 3963 bar illegal immigrants from receiving benefits?

No.  While H.R. 3963 states that “nothing in this Act allows Federal payment for individuals who are not legal residents,” the bill actually weakens existing law by removing the documentation requests under the Deficit Reduction Act (DRA), specifically the burden that citizens and nationals provide documentation proving their citizenship in order to be covered under Medicaid and SCHIP.  Instead, the bill would require that a name and Social Security number be provided as documentation of legal status to acquire coverage and that those names and Social Security numbers be submitted to the Secretary to be checked for validity.    It is unclear what substantive changes were made to the original bill the President vetoed (HR 976) beyond the cosmetic with regard to citizenship certification.  Some conservatives may remain concerned that a Social Security number and name are not sufficient for proof of citizenship.  For instance, according to a recent letter from Social Security Administration Commissioner Michael Astrue, a Social Security number would not keep someone from fraudulently receiving coverage under Medicaid or SCHIP (if they claimed they were someone they were not).

Does H.R. 3963 contain earmarks?

Yes.  H.R. 3963 contains at least three authorizing earmarks.  First, the bill disregards “extraordinary employer pensions” as income.  According to CMS, only one state would fall into this category—Michigan, due to the presence of many auto manufacturers.  In addition, the bill sets the disproportionate share hospital (DSH) allotments for Tennessee at $30 million a year beginning in FY 2008, and sets the DSH allotment increases for Hawaii beginning in FY 2009 and thereafter as the allotments for low DSH states.

Would H.R. 3963 encourage additional SCHIP spending?

Yes.  H.R. 3963 shortens from three to two years the amount of time a state has to spend its annual SCHIP allotment.  Under current law, states are given three years to spend each year’s original allotment, and at the end of the three-year period, any unused funds are redistributed to states that have exhausted their allotment or created a “shortfall,” i.e. commitments beyond the funding available.  In addition, the bill establishes a process through which any unspent funds would be redistributed to any states with a shortfall.  Some conservatives may be concerned that this process provides incentives both for states to spend their allotment quickly and to extend their programs beyond their regular allotments into shortfall, so as to be relieved by the unspent funds of other states.

Do conservatives support the SCHIP program?

Most conservatives support enrollment and funding of the SCHIP program for the populations for whom the SCHIP program was created.  That is why in December the House passed, by a 411—3 vote, legislation reauthorizing and extending the SCHIP program through March 2009.  That legislation included an additional $800 million in funding for states to ensure that all currently eligible children will continue to have access to state-based SCHIP coverage.

Legislative Bulletin: H.R. 3963, Children’s Health Insurnace Program Reauthorization Act

Order of Business:  Today the House will consider the President’s second veto of SCHIP legislation, H.R. 3963.  This bill passed the House by a vote of 265-142 on October 25, 2007, and was vetoed by President Bush on December 12, 2007.  On December 12, 2007, the House by a 211-180 vote postponed consideration of the President’s veto until today.

An earlier version of SCHIP legislation, H.R. 976, was vetoed by President Bush on October 3, 2007.  This bill was originally passed in the House by a vote of 265-159 on September 25, 2007.  On October 18, 2007, the House sustained the President’s veto of H.R. 976 by a vote of 273–156 (needing 2/3 to override a veto).

On December 19, 2007, the House passed by a 411—3 margin S. 2499, which was signed into law by President Bush on December 29, 2007.  This legislation reauthorized the SCHIP program through March 2009, and included $800 million in additional funding to ensure that all states would have sufficient funds to cover existing populations through the 18 months of the authorization.

Summary:  H.R. 3963 reauthorizes and significantly expands the State Children’s Health Insurance Program (SCHIP), while increasing cigarette taxes to supposedly offset the bill’s costs.  The legislation follows closely the recently-vetoed version of SCHIP reauthorization.  Highlights of the revised legislation are as follows:

Cost:  H.R. 3963 provides $35.4 billion over five years and $71.5 billion over ten years in new mandatory spending—this spending is on top of the $25 billion over five years that would result from a straight extension of the program.

The new spending is partially offset by increasing taxes on tobacco products (see below).  However, this CBO score overlooks a major gimmick which the bill employs to lower its costs.  The bill dramatically lowers the SCHIP funding in the fifth year by 84%, from $13.75 billion in the first six months to $1.15 billion.  In all likelihood, such a reduction would not actually take effect, which would make this a gimmick to generate unrealistic savings in order to comply with PAYGO rules.  To that end, H.R. 976 is technically compliant with PAYGO.

Block Grant:  Under current law, a federal block grant is awarded to states, and from the total annual appropriation, every state is allotted a portion for the year according to a statutory formula.  The bill extends the SCHIP block grants from FY 2008-12.  In addition, the bill also creates a new Child Enrollment Contingency Fund capped at 20% of the total annual appropriation, for states that exhaust their allotment by expanding coverage, and Performance Bonus Payments comprised of a $3 million lump sum in FY 2008 plus unspent SCHIP funds in future years.

Expansion to Higher Incomes:  Under current law, states can cover families earning up to 200% of the Federal Poverty Level (FPL) or $41,300 for a family of four in 2007 or those at 50% above Medicaid eligibility.  However, states have been able to “disregard” income with regard to eligibility for the program, meaning they can purposefully ignore various types of income in an effort to expand eligibility.  For instance, New Jersey covers up to 350% of FPL by disregarding any income from 200-350%, allowing them to cover beyond 200% with the enhanced federal matching funds that SCHIP provides.

H.R. 3963 increases the eligibility limit to 300% of FPL or $61,950 for a family of four but also continues the current authority for states to define and disregard income.  States which extend coverage beyond 300% of FPL would receive the lower Medicaid match rate.  The bill limits states from expanding their programs above 300% of FPL through an income disregard whereby they block “income that is not determined by type or expense or type of income.”  However, a state could get around this restriction in a host of ways by disregarding specific types of income, such as income paid for rent or transportation or food.  Practically speaking, H.R. 3963 still places no limit on SCHIP eligibility since states can still manipulate the definition of income to expand coverage, and CMS is limited in its ability to reject such determinations. [New Jersey would be grandfathered from this limitation until 2010, but they would then have to ensure that they are in the top ten of states with the highest coverage rate for low-income children.]

Furthermore, Section 116 overturns CMS’ current policy of requiring states to ensure that 95% of the eligible children in their state below 250% of FPL are enrolled before expanding coverage to higher incomes.  As a result, some conservatives may be concerned that this does not adequately ensure that SCHIP funding targets truly low-income children.

Unlike past legislation, the bill would not grandfather New York’s proposed plan (seeking to cover 400% of FPL or $82,600 for a family of four).  However, New York could merely use specific income disregards to effectively cover up to 400% of FPL.  Some conservatives may be concerned that a family with an income of $82,600 will still potentially be eligible for SCHIP funding after this bill is enacted.

Childless Adults:  The earlier bill phased adults off of the program within two years.  H.R. 3963 would remove childless adults from the program (all would be off by 2009), while allowing parents of eligible SCHIP kids to continue receiving healthcare under SCHIP.  According to CBO estimates, there will still be approximately 700,000 (roughly 10% of total SCHIP enrollees) adults (parents of eligible kids and pregnant women) enrolled in SCHIP by 2012.

H.R. 3963 states that no new waivers for non-pregnant childless adults will be granted to states, and any currently existing waivers will be extended through FY 2008 (terminating such waivers at the end of FY 2008).  H.R. 3963 states that any current state waiver for non-pregnant childless adults which expires before January 1, 2009 may be extended until December 31, 2008 to retain all currently covered non-pregnant childless adults on the program until the end of FY 2008.  The bill extends enhanced FMAP to apply to such waivers through December 31, 2008.

H.R. 3963 grants states the opportunity to apply for a Medicaid waiver for non-pregnant childless adults by September 30, 2008, for those whose SCHIP coverage will end December 31, 2008, and requires that the Secretary approve such waivers within 90 days or the application is automatically deemed approved.

Parents:  The bill provides a two year transition period and automatic extension at the state’s discretion through FY 2009 for the currently covered parents of SCHIP eligible/covered kids, and states that no new waivers be granted or renewed to states to cover the parents of SCHIP kids if such waivers do not currently exist.  Similar to what would be done with non-pregnant childless adults, H.R. 3963 states that any current state waiver for parents of SCHIP kids which expires before October 1, 2009 may be extended until September 30, 2009 to retain all currently covered parents on the program until the end of FY 2009.  The bill states that the enhanced FMAP shall apply to these expenditures under an existing waiver for parents of eligible SCHIP kids during FY 2008 and 2009.

H.R. 3963 requires that any state which provides coverage under a currently existing waiver for a parent of an SCHIP child may continue to provide such coverage through FY 2010, 2011, or 2012, but such coverage must be paid for by a block grant funded from the state allotment.  If the state makes the decision to continue the coverage of parents through 2012, the Secretary may set aside for the state for each fiscal year an amount equivalent to the federal share of 110% of the state’s projected expenditures under currently existing waivers.  The Secretary will then pay out such funds quarterly to the state.  States that enhanced FMAP only applies in fiscal year 2010 for states with “significant child outreach or that achieve child coverage benchmarks.”

In addition, H.R. 3963 retains the statement from H.R. 976 that states there shall be no increase in income eligibility level for covered parents (i.e. no expenditures for providing child health assistance or health benefits coverage to a parent of a “targeted low-income child” whose family income exceeds the income eligibility level applied under the applicable existing waiver).

Private Insurance Crowd-Out:  According to CBO, under H.R. 3963, 2 million children will still shift from receiving private health insurance to government health insurance.  This means that they may get worse health care service and become increasingly dependent on the federal government.  In addition, as H.R. 3963 begins to reduce SCHIP funding in 2012 (if such a reduction is actually intended, see above), some have noted that states may shift these children made newly eligible for a government program into Medicaid.  This phenomenon takes place despite a provision in H.R. 3963 to offer a premium assistance subsidy under SCHIP for employer-sponsored coverage.  A qualifying employer-sponsored plan would have to contribute at least 40 percent of the cost of any premium toward coverage.  The bill includes new language requiring the Secretary, in consultation with the states, to measure crowd-out and to develop best practices designed to limit it.  States would then be required to limit SCHIP crowd-out and incorporate those best practices.  However, many conservatives are likely to be concerned that this language is not enough of protection when CBO maintains that two million will lose their health insurance under this bill.

Legal Immigrants and Citizenship Certification:  H.R. 3963 states that “nothing in this Act allows Federal payment for individuals who are not legal residents.”  However, the bill weakens existing law by removing the documentation requests under the Deficit Reduction Act (DRA), specifically the burden that citizens and nationals provide documentation proving their citizenship in order to be covered under Medicaid and SCHIP.  Instead, the bill would require that a name and Social Security number be provided as documentation of legal status to acquire coverage and that those names and Social Security numbers be submitted to the Secretary to be checked for validity.  If a state is notified that a name and Social Security number do not match, the state must contact the individual and request that within 90 days the individual present satisfactory documentation to prove legal status.  During this time, coverage for the individual continues.  If the individual does not provide documentation within 90 days, he is “disenrolled” from the program but maintains coverage for another 30 days (after the 90 days given to come up with proper documentation), giving the individual up to four months of coverage on a false identity.

It is unclear what substantive changes were made to the vetoed bill beyond the cosmetic, with regard to citizenship certification.  Some conservatives may be concerned that a Social Security number and name are not enough for a proof of citizenship and that more documents should be required to determine eligibility.  For instance, according to a recent letter from Social Security Administration Commissioner Michael Astrue, a Social Security number would not keep someone from fraudulently receiving coverage under Medicaid or SCHIP (if they claimed they were someone they were not).  Thus, this bill may allow illegal aliens the opportunity to enroll falsely in Medicaid or SCHIP and retain coverage for an undetermined amount of time before they are disenrolled for lack of proper identification.

Tax Increase:  H.R. 3963 increases the cigarette tax by 61 cents to $1 per pack, and the cigar tax up to $3 per cigar, supposedly generating $35.5 billion over five years and $71.1 billion over ten years.  It is important to note that this is a substantial tax increase on low-income individuals in order to pay for an expansion of SCHIP to higher income levels, which it was not initially designed for.  In addition, this revenue source is constantly declining as fewer and fewer individuals smoke, and since placing a tax on cigarettes will likely deter sales, some have questioned the efficacy of the offset.  According to a study by the Heritage Foundation, “To produce the revenues that Congress needs to fund SCHIP expansion through such a tax would require 22.4 million new smokers by 2017.”  The bill also changes the timing for some corporate estimate tax payments.

Encourages Spending:  H.R. 3963 shortens from three to two years the amount of time a state has to spend its annual SCHIP allotment.  Under current law, states are given three years to spend each year’s original allotment, and at the end of the three-year period, any unused funds are redistributed to states that have exhausted their allotment or created a “shortfall,” i.e. making commitments beyond the funding it has available.  In addition, the bill establishes a process through which any unspent funds would be redistributed to any states with a shortfall.  Some conservatives may be concerned that this process provides incentives both for states to spend their allotment quickly and to extend their programs beyond their regular allotments into shortfall, so as to be relieved by the unspent funds of other states or the new Contingency Fund.

Other Provisions:

  • Disregarding of Pension Contributions as Income.  The bill disregards “extraordinary employer pensions” as income.  According to CMS, only one state would fall into this category—Michigan, due to the auto manufacturers.  Some conservatives may view this as an authorizing earmark.
  •  Name Change.  H.R. 3963 renames the program the “Children’s Health Insurance Program.”
     
  • Medicaid Disproportionate Share Hospital (DSH) Allotment for TN and HI.  The bill sets the DSH allotments for Tennessee at $30 million a year beginning in FY 2008, and sets the DSH allotment increases for Hawaii, beginning in FY 2009 and thereafter, as the allotments for low DSH states.  Some conservatives may view these provisions as authorizing earmarks.
  • Premium Assistance and Health Savings Accounts.  The bill streamlines procedures for states to provide premium assistance subsidies for children eligible to enroll in employer-sponsored coverage, rather than placing such children in a state-sponsored SCHIP program.  However, all high-deductible health insurance plans and Health Savings Accounts (HSAs) would be ineligible for premium assistance, even if employers and/or states chose to make cash contributions to the HSA up to the full amount of the plan’s high deductible.  Some conservatives may be concerned that these restrictions would undermine the recent growth of HSAs and consumer-driven health care plans.

Does the Bill Expand the Size and Scope of the Federal Government?:  Yes, the bill would expand the SCHIP program by $35 billion over five years and loosen the program’s eligibility requirements.

Does the Bill Contain Any New State-Government, Local-Government, or Private-Sector Mandates?:  A detailed CBO cost estimate with such information is not available.

Medicare Funding Warning

Background:  Enactment of a prescription drug benefit as part of Medicare proved controversial to certain segments of the conservative community.  While President Bush and a Republican Congress campaigned in 2000 and 2002 on a promise to extend prescription drug coverage to American seniors, some conservatives retained concerns about a significant expansion of government-financed entitlement spending, even though the benefit itself would be delivered through the private sector.  While conservatives generally admired proposals such as Health Savings Accounts (HSAs) and other similar innovations designed to control the growth of health care spending, the size of the prescription drug benefit ultimately enacted—$400 billion in spending over ten years, and nearly $8 trillion in unfunded liabilities over 75 years—prompted calls for more comprehensive reforms to Medicare than those included in the Medicare Modernization Act (MMA).

At the behest of the Republican Study Committee, the funding warning mechanism was included as one device to help alleviate conservatives’ concerns about Medicare’s long-term solvency and ensure that Medicare’s claims on general budgetary revenues would not overwhelm either other federal budgetary priorities or the national debt.  By providing “fast-track” procedures for considering bills to improve the program’s solvency, the Medicare trigger also provides conservatives with another opportunity to examine more fundamental reforms to the way seniors’ health care is financed and delivered.

Funding Warning Defined:  Section 801 of the Medicare Modernization Act provides that a funding warning will be issued if two consecutive annual reports by the Medicare trustees determine that general revenue Medicare spending—that is, Medicare spending not financed by payroll taxes, or by beneficiary premiums and co-payments—will exceed 45% of total Medicare outlays for the current fiscal year, or any of the following six fiscal years.  The April 2006 trustees report noted that Medicare outlays minus dedicated revenues were expected to exceed 45% of total outlays in 2012, and the April 2007 report concluded that Medicare outlays minus dedicated revenues are expected to exceed 45% of total outlays in 2013.  Thus, two consecutive trustees reports have indicated that Medicare will be deriving excess revenues from the general fund within the next seven years—triggering the expedited procedures provided as part of MMA.

Democrats have argued that the 45% measure for excess general revenue Medicare spending is “an artificial and misleading measure of Medicare’s fiscal health,” and Section 902 of the Children’s Health and Medicare Protection Act (H.R. 3162)—considered and passed by the House in July—would have repealed the excess funding warning mechanism entirely.[1]  However, the Medicare trustees report indicates that the percentage of Medicare spending taken from general revenues—which to date has never exceeded 45%—“is projected to continue growing throughout the 75-year period, reaching 63% of total outlays in 2031 and 73% in 2081.”[2]  With trustees noting that the Medicare trust funds require an additional $40.9 trillion in funding over the next 75 years to meet current obligations, most conservatives would argue that repealing the trigger provisions—which all Republicans on the House Ways and Means Committee opposed in mark-up last year—would not represent sound fiscal policy.[3]

Expedited Procedures:  Sections 802 through 804 of MMA describe the expedited procedures by which the President and Congress will address the Medicare funding warning triggered by the April 2007 trustees report.  The process outlined in the statute includes the following steps:

  • Within 15 days of submitting his next budget to Congress, the President will also propose legislation to respond to the warning.  As the President’s Fiscal Year 2009 budget is expected to be released on February 4, 2008, the Medicare legislation should be received by the end of February.
  • Party leaders in both the House and Senate will introduce the President’s legislation within three legislative days of its submission, and the legislation shall be referred to the relevant Committees (Ways and Means and Energy and Commerce in the House, Finance in the Senate).
  • Committees in both the House and Senate shall report Medicare funding legislation to the floor of each chamber by June 30; if they do not, the relevant Committees may be discharged from consideration under special procedures.
  • In the House, one-fifth of the membership (87 Members) can move to discharge the President’s Medicare funding legislation, or any other legislation that remedies the Medicare funding warning, after July 30.  In the event that the motion to discharge is successful, the Medicare funding legislation shall be considered by the full House within three legislative days under procedures established in statute.
  • In the Senate, any Senator may move to discharge Medicare funding legislation after June 30, and such a motion will be considered under strict time limits precluding a filibuster.

In general, these special procedures seek to ensure that Members in both chambers have the opportunity for an up-or-down vote on whether or not Congress should consider legislation to remedy Medicare’s funding deficiencies.

Conclusion: The Medicare funding warning issued by the trustees last year provides an opportunity to re-assess the program’s structure and finance.  While competition among drug companies has ensured that expenditures for the MMA’s prescription drug benefit remain below the bill’s original estimates, introduction of pharmaceutical coverage has dramatically increased the overall growth of health care costs within the Medicare program, leading to the trustees’ funding warning.  The confluence of these two events should prompt Congress to consider the ways in which competition could be used to reduce the growth of overall Medicare costs, similar to the way in which the market for pharmaceutical coverage reduced the estimated cost of the Part D prescription drug benefit.

It remains to be seen whether the Administration will propose legislation that would constitute fundamental reform—either a mechanism to adjust benefits automatically in the case of funding shortfalls, or to inject greater competition into Medicare through a premium support program that would level the playing field between traditional Medicare and private insurance coverage.  Regardless, the Medicare funding warning being triggered this year affords Congress an opportunity to re-think and re-consider some of the drawbacks of the original MMA and put forth constructive alternatives to ensure Medicare’s long-term fiscal stability.

[1] House Report 110-284, p. 249.

[2] “2007 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplemental Medical Insurance Trust Funds,” available at http://www.cms.hhs.gov/ReportsTrustFunds/downloads/tr2007.pdf (accessed January 20, 2008), p. 37.

[3] Ibid., pp. 190-91; House Report 110-284, p 278.

Medicaid Funding Issues

Background:  The Medicaid program, enacted in 1965, serves as a federal-state partnership providing entitlement health care coverage to certain low-income and disabled populations.  Federal funding for the program is provided on a matching basis, according to a Federal Medical Assistance Percentage (FMAP) formula established in statute.  The FMAP formula is based on a three-year rolling average that compares a state’s per-capita income to national-per capita income—a formula designed to provide increased federal assistance to poorer states.  For Fiscal Year 2008, 18 states have a match rate of 50% (the statutory minimum), while seven states have match rates at or above 70%.[1]

Concerns about the FMAP Formula: For several years, health policy experts have criticized the current Medicaid FMAP formula as not meeting its original intent, creating distortionary effects on funding levels between states by providing wealthier states with a strong incentive to increase entitlement spending using federal dollars.  An independent analysis of data provided by the Centers for Medicare and Medicaid Services (CMS) indicates that states with higher concentrations of poverty actually have lower per-capita Medicaid spending—exactly the opposite result of FMAP’s intended goal.[2]  For instance, Vermont spent $7,508 per capita on Medicaid during 2005—the highest amount nationwide—yet its 2005 poverty level of 10.4% ranks 11th–lowest overall and nearly 30% lower than the national average of 13.3%.[3]

The prime reason for the disparity between states’ per-capita Medicaid spending and relative poverty levels—a disparity which the FMAP formula was intended to remedy—lies in the perverse incentives the Medicaid match provides to states, particularly wealthier states that can more easily finance coverage expansions, to increase entitlement spending.  Because the federal match rate cannot fall below the 50% statutory minimum, states have a diminished incentive to bring their Medicaid programs in line by controlling costs.  A state receiving the minimum 50% match would need to cut overall Medicaid expenditures by $2 million to achieve $1 million in budgetary savings, while a state with a 70% FMAP match would need to cut overall Medicaid expenditures by $3,333,333 in order to achieve the same $1 million in net state savings.  Thus the FMAP formula, by ensuring that federal expenditures will always meet or exceed state outlays, encourages states to increase their Medicaid entitlement spending during strong economic times and discourages states from enacting Medicaid reductions during times of fiscal austerity.

Legislative History:  Congress has previously supported a temporary increase in the FMAP funding formula.  Title IV of the Jobs and Growth Tax Relief and Reconciliation Act (P.L. 108-27) included $10 billion to fund an enhanced FMAP match for 15 months, along with an additional $10 billion dedicated to “temporary state fiscal relief.”  The Title IV provisions included a 2.95% increase in FMAP rates for the last two quarters of 2003 and the first three quarters of 2004.  These provisions expired October 1, 2004 and were not renewed.

In general, House conservatives opposed this increase in Medicaid social welfare spending, but supported the underlying bill for the $350 billion in tax relief it contained, including reductions to dividend and capital gains rates which stimulated economic growth.  The FMAP provisions were added in the Senate, and maintained in conference at the behest of several Senators who, according to news reports, insisted on its inclusion to vote for the larger package, which passed the Senate on the basis of Vice President Cheney’s tie-breaking vote.

Recent State Actions:  While some states have claimed that their looming budgetary difficulties have been caused by revenue losses related to recent economic uncertainty, unwise fiscal policies in many instances bear more responsibility.  According to a November 2007 study by the non-partisan Kaiser Family Foundation, 31 states have announced Medicaid eligibility expansions during 2008, and 13 states plan benefit package expansions during this year.  By contrast, only four states have proposed Medicaid eligibility reductions this year, and no state has proposed reducing benefits.  In addition, the report notes that “few states have taken advantage of the flexibility to change benefits or impose cost sharing” as a result of provisions included in the Deficit Reduction Act of 2005 (P.L. 109-171), demonstrating states’ continued focus on expanding entitlement programs rather than utilizing flexibility provided by Congress to construct new benefit packages that could reduce health costs.[4]

The state Medicaid expansions proposed for the current fiscal year follow on the heels of additional expansions implemented during the last few years of economic growth, and further illustrate the distortionary effects of the FMAP formula.  The promise of a generous federal match of at least 1:1 encourages states to expand their Medicaid populations and benefits beyond prudent limits, and slowing growth in state revenues has prompted calls for the federal government to assume yet more responsibility for states’ poor planning decisions.

Conservative Concerns: Some conservatives may be troubled by talk of another attempt to increase the Medicaid FMAP formula – which some might call a “bailout” for states which over-extended entitlement promises over the last few years.  The temporary FMAP increase enacted in 2003 over conservatives’ concerns was designed to be just that: a one-time series of relief payments to states that over-extended their budgets during the late 1990s.  A second “temporary” increase would only provide additional incentive for states to expand their Medicaid entitlement spending, knowing that the federal government will provide additional funding to make up their own budgetary shortfalls.

Including an FMAP enhancement as part of a “stimulus” package would not result in any actual economic stimulus.  A higher match rate would only substitute federal dollars for state funding, providing no net economic benefit in either the short term or the long term.  The only true effects would be long term, and potentially quite costly—increased entitlement spending at both the federal and state levels.

However, the discussion of Medicaid funding levels does provide conservatives with an opportunity to raise the important issue of entitlement reform.  Rather than providing additional federal funds to states under the current FMAP formula, a more productive solution would entail comprehensive reform of the Medicaid funding mechanism.  One possible solution would see Medicaid converted into a block grant program, allowing for predictable payments to states and enabling Congress to engage in a more rational attempt to control health care costs while setting clear national fiscal priorities.  At a minimum, the existing FMAP formula needs a significant overhaul that would eliminate incentives for states to overspend by ensuring that federal Medicaid resources are directed to targeted low-income and disabled populations, not additional expansions of government-funded health care to other populations.

[1] Fiscal Year 2008 FMAP Table, available at http://aspe.hhs.gov/health/fmap08.htm (accessed January 18, 2008).

[2] Robert Helms, “The Medicaid Commission Report: A Dissent,” (Health Policy Outlook #2, American Enterprise Institute, Washington, DC, January 2007), available at http://www.aei.org/publications/filter.all,pubID.25434/pub_detail.asp (accessed January 18, 2008).

[3] Ibid.; U.S. Census Bureau Small Area Income and Poverty Estimates, available at http://www.census.gov/cgi-bin/saipe/national.cgi?year=2005&ascii=  (accessed January 18, 2008).

[4] Kaiser Family Foundation, “State Fiscal Conditions and Medicaid,” (research report 7850-02, November 2007), available at http://kff.org/medicaid/upload/7580-02.pdf (accessed January 18, 2008).

Legislative Bulletin: S. 2499, Medicare, Medicaid, and SCHIP Extension Act

Order of Business:  The bill is scheduled to be considered under suspension of the rules on Wednesday, December 19, 2007.  The Senate introduced and passed the bill on Tuesday, December 18, by unanimous consent.

 

Summary:  S. 2499 eliminates for six months a reduction in Medicare physician payments scheduled to take effect on December 31, 2007, providing a 0.5% increase through June 30, 2008.  S. 2499 also extends the State Children’s Health Insurance Program through March 31, 2009, and provides additional funding to cover currently eligible children, without expanding or extending eligibility definitions beyond current cohorts.

Medicare:  S. 2499 contains many provisions that alter Medicare, Medicaid, and SCHIP law as follows:

Update for Medicare Physician Services.            S. 2499 would provide a 0.5% update to the conversion factor for physician reimbursements for the six months ending June 30, 2008, at a cost of $6.4 billion over ten years.  In November, the Centers for Medicare and Medicaid Services (CMS) announced that the annual update to the conversion factor for 2008 would be negative 10.1%, as spending on physicians’ services and other Part B services has been growing at a much faster rate than target spending.  Providing a 0.5% update to the conversion factor would ensure that the -10.1% update does not go into effect.  CBO estimates that this provision will cost $6 billion over ten years.  To learn more on the background of this provision and details of the conversion factor and Sustainable Growth Rate (SGR), please read the section below entitled “Additional Background.”

Bonus and Quality Reporting.  The bill extends a physician quality reporting system, as well as 5% bonus payments to physicians practicing in physician shortage areas through June 30, 2008. In recent years there has been a large government push to require pay for performance standards tied to physicians’ Medicare reimbursement payments in order to control spiraling medical costs.  This would require physicians to report on minute aspects of the doctor-patient interaction so the government could review and measure quality of care to set reimbursement levels.  This issue is controversial, as there has been no discussion on who sets the “quality standards” and who would define what quality looks like under such a system.  Opponents of quality reporting provisions would argue that quality of care can only be determined by patients and physicians.

Extension for Other Provider Payments.  In addition to the adjustment to the SGR conversion factor, S. 2499 would extend provisions related to physician pathology services (no net cost), clinical laboratory tests in rural areas (no net cost), and therapy caps (net cost of $200 million) through June 30, 2008.  The legislation also adjusts the reimbursement rate for diabetes laboratory tests approved for home use (net cost of $700 million) and brachytherapy (no net cost) services beginning April 1, 2008.

Medicare Advantage Enrollment.  The bill would extend the authority for certain existing Medicare Advantage plans to count as “special needs plans” – those plans serving institutionalized patients, or beneficiaries with severe or disabling chronic diseases – and target enrollment to specialized populations through December 31, 2009.  However, the bill would also preclude the Secretary from designating any new such plans, and would prohibit beneficiaries from enrolling in any expanded service areas by existing plans through December 2009.  CBO scores this provision as costing $1.4 billion over ten years.

Reduction in Medicare Stabilization Fund.  S. 2499 would remove the remaining $1.5 billion from the Medicare stabilization fund for regional provider organizations in 2012.  It is important to note that unlike numerous Democrat Medicare and SCHIP bills, this legislation does not cut payments to Medicare Advantage plans, which has provoked past veto threats, because doing so would discourage many private plans from participating in the program, perhaps eliminating the private Medicare option in many areas and for many individuals.

Medicare Secondary Payer.  The bill includes additional requirements on group insurance plans and liability insurers to the Secretary to determine that the beneficiary is entitled to benefits under the Medicare Secondary Payer program.  CBO scores this provision as saving $1.1 billion over ten years.

Average Sales Price Computation.  S. 2499 would establish a volume-weighted average sales price for prescription drugs based on average sales volume.  CBO scores this provision as saving $2.6 billion over ten years.

Long-Term Care Provisions.  The bill would freeze the market-basket reimbursement rate for long-term care (LTC) facilities for the last quarter of 2008, saving $1.2 billion over ten years.  Additionally, S. 2499 would establish new review requirements on long-term care facilities to ensure patients are receiving appropriate levels of care, and impose a limited moratorium on the development of additional long-term care facilities.  Some conservatives may be concerned that these provisions, by preventing the development of additional long-term care facilities, represent an unnecessary government intervention in the LTC market.

Reduction in Inpatient Rehabilitation Services.  The legislation reduces the market basket update factor for inpatient rehabilitation facilities (IRFs) at 0% from April 1, 2008 through Fiscal Year 2009, saving $4 billion over ten years.

Medicare Payment Advisory Commission.  S. 2499 would change the status of the Medicare Payment Advisory Commission (MedPAC) – an agency that submits reports and recommendations to Congress regarding payment policy, access to care, quality of care, and related issues affecting Medicare – from that of an independent agency to an agency of Congress.

Medicaid and SCHIP:

Extension of Qualifying Individual Program.  The bill would extend the qualified individual (QI) program, which provides assistance through Medicaid for low-income seniors in paying their Medicare premiums, through June 30, 2008, at a cost of $200 million over ten years.

TMA and Title V Extension.  S. 2499 would extend for six months (until June 30, 2008), both the authorization for Title V programs (abstinence education programs), and the authorization for Transitional Medical Assistance (Medicaid benefits for low-income families transitioning from welfare to work), at a cost of $400 million over ten years.  TMA has historically been extended along with the Title V Abstinence Education Program.  Regarding the Title V grant program, in order for states to receive Title V block grant funds, states must use the funds exclusively for teaching abstinence.  In addition, in order to receive federal funds, a state must match every $4 in federal funds with $3 in state funds.

SCHIP Extension and Funding.  The bill extends the State Children’s Health Insurance Program through March 31, 2009, to allow for a reauthorization process that does not become entangled in the 2008 election season.  The bill also provides supplemental funding for states that are expected to exhaust their SCHIP funding at current levels.  (See “Additional Background.”)   This provision has a net cost of $800 million, according to CBO.

Additional Background: 

Medicare.  Under current Medicare law, doctors providing health care services to Part B enrollees are compensated through a “fee-for-service” system, in which physician payments are distributed on a per-service basis, as determined by a fee schedule and an annual conversion factor (a formula dollar amount).  The fee schedule assigns “relative values” to each type of provided service.  Relative value reflects physicians’ work time and skill, average medical practice expenses, and geographical adjustments.  In order to determine the physician payment for a specific service, the conversion factor ($37.8975 in 2006) is multiplied by the relative value for that service.  For example, if a routine office visit is assigned a relative value of 2.1, then Medicare would provide the physician with a payment of $79.58 for that service.  ($37.8975 x 2.1)

Medicare law requires that the conversion factor be updated each year.  The formula used to determine the annual update takes into consideration the following factors:

  • Medicare economic index (MEI)–cost of providing medical care;
  • Sustainable Growth Rate (SGR)–target for aggregate growth in Medicare physician payments; and
  • Performance Adjustment–an adjustment ranging from -13% to +3%, to bring the MEI change in line with what is allowed under SGR, in order to restrain overall spending.

Every November, the Centers for Medicare and Medicaid Services (CMS) announces the statutory annual update to the conversion factor for the subsequent year. The new conversion factor is calculated by increasing or decreasing the previous year’s factor by the annual update.

From 2002 to 2007, the statutory formula calculation resulted in a negative update, which would have reduced physician payments, but not overall physician spending. The negative updates occurred because Medicare spending on physician payments increased the previous year beyond what is allowed by SGR.  The SGR mechanism is designed to balance the previous year’s increase in physician spending with a decrease in the next year, in order to maintain the aggregate growth targets.  Thus, in light of increased Medicare spending in recent years, the statutory formula has resulted in negative annual updates.  It is important to note that while imperfect, the SGR was designed as a cost-containment mechanism to help deal with Medicare’s exploding costs, and to some extent it has worked, forcing offsets in some years and causing physician payment levels to be scrutinized annually as if they were discretionary spending.

Since 2003, Congress has chosen to override current law, providing doctors with increases each year, and level funding in 2006.  In 2007, Congress provided a 1.5% update bonus payment for physicians who report on quality of care measures; however, Congress also provided that the 2007 “fix” would be disregarded by CMS for the purpose of calculating the SGR for 2008, resulting in a higher projected cut next year.  The specific data for each year is outlined in the following table.

Year Statutory

Annual

Update (%)

Congressional “Fix” to the Update (%)*
2002 -5.4 -5.4**
2003 -4.4 +1.6
2004 -4.5 +1.5
2005 -3.3 +1.5
2006 -4.4 0
2007 -5.0 +1.5***
2008 -10.1§ 0.5 (proposed)

* The annual update that actually went into effect for that year.

** CMS made other adjustments, as provided by law, which resulted in a net update of – 4.8%; however, Congress did not act to override the -5.4% statutory update.

*** The full 1.5% increase was provided to physicians reporting quality of care measures; physicians not reporting quality of care received no net increase.

  • The Tax Relief and Health Care Act signed last year provided that 2007’s Congressional “fix” was to be disregarded for the purpose of calculating the SGR in 2008 and future years.

SCHIP.  According to a November Congressional Research Service report, 21 states are projected to face SCHIP shortfalls in the absence of additional funding for Fiscal Year 2008.  However, at least nine of these states’ shortfalls stem in part from their decisions to cover children in families making above 200% of the federal poverty level and/or to cover adults using the enhanced SCHIP funding match.  A Heritage Foundation analysis of the CRS data notes that “these overextended [state] programs…account for the lion’s share of the [SCHIP] shortfall.”  Some conservatives may have concerns that additional funding is being provided to cover the additional expenditures of states that have chosen to exceed the originally intended parameters of the SCHIP program.

Cost to Taxpayers:  S. 2499 eliminates a scheduled 10.1% reduction in payments to physicians effective December 31, 2007, at a cost of $6.4 billion.  The bill also includes $800 million in additional SCHIP funding to eliminate shortfalls through March 31, 2009.  This new spending is offset by rescinding $1.5 billion from the Medicare stabilization fund, which finances payments to regional preferred provider organizations.  S. 2499 also reduces payments to long-term care hospitals and inpatient rehabilitation facilities in 2008, saving an additional $5.2 billion over ten years.  These and other changes make S. 2499 technically compliant with PAYGO rules.

Committee Action:  The bill has not been considered by a House Committee.

Administration Position:  The Administration has indicated no opposition to the measure.

Does the Bill Expand the Size and Scope of the Federal Government?:  No.

Does the Bill Contain Any New State-Government, Local-Government, or Private-Sector Mandates?: No.

Does the Bill Comply with House Rules Regarding Earmarks/Limited Tax Benefits/Limited Tariff Benefits?:  An earmarks/revenue benefits statement required under House Rule XXI, Clause 9(a) was not available at press time.

Constitutional Authority:  A committee report citing constitutional authority is unavailable.