Pelosi Health Bill Would Expand Fraud, Undermine Federalism

Anyone who thought the defeat of Sen. Bernie Sanders in the Democrat presidential primaries ended the left’s quest for government control of health care should think again. Legislation introduced last week by House Democratic leaders, to be voted on by the House this week, would substantially expand Washington’s role in the welfare state, encouraging wasteful and fraudulent Medicaid spending and undermine the constitutional principles of federalism.

It seems bad enough that House Democrats decided to raid Medicare to the tune of nearly half a trillion dollars to fund their legislation. That these raided funds would go towards more than $200 billion in new Medicaid spending on individuals potentially ineligible for the program seems especially irresponsible.

Increased Fraud Risk

While expanding federal subsidies for exchange plans, the legislation would accelerate Obamacare’s movement to federalize Medicaid by placing additional requirements and mandates on states. For instance, the bill requires all Medicaid plans — even in states with approved Medicaid waivers — to cover individuals determined eligible for a minimum of 12 months.

Government audits have demonstrated that this policy of continuous eligibility leaves Medicaid programs ripe for waste, fraud, and abuse. In November 2018, Louisiana’s legislative auditor published a study showing individuals initially deemed eligible for Medicaid remained on the rolls despite having incomes as high as $145,146. Following the audit, Louisiana began more frequent eligibility checks and removed more than 30,000 ineligible individuals from the rolls — including at least 1,672 with incomes of over $100,000 — saving taxpayers approximately $400 million.

Broader economic studies confirm the experience of Louisiana. One report released last summer found that most of Obamacare’s coverage gains came from Medicaid and not insurance exchanges — even at income levels well above the threshold for Medicaid expansion. At a time a growing amount of evidence suggests millions of ineligible individuals are enrolling in Medicaid, the new House bill would sharply restrict states’ ability to remove ineligible individuals from the rolls.

On Friday, the Congressional Budget Office released its fiscal analysis of the Democrat legislation. The CBO concluded the continuous eligibility provision alone would result in $216.8 billion in new federal spending plus additional unfunded costs on states. A descriptive analysis of this provision was not provided by the CBO, but it is likely much of the $216.8 billion would fund Medicaid spending on individuals who beforehand would have lost eligibility for the program.

Unconstitutional Orders on States

Importantly, the bill undermines the flexibility of states in other ways, punishing any that have not accepted Obamacare’s Medicaid expansion to able-bodied adults. It would phase in a 10-percentage point reduction in non-expansion states’ federal match rate for administrative expenses — even as it imposes more administrative costs in the form of new reporting requirements. The move directly violates the Supreme Court’s 2012 opinion in NFIB v. Sebelius, which said Congress cannot “penalize states that choose not to participate in that new program [i.e., Medicaid expansion] by taking away their existing Medicaid funding.”

In permanently extending the State Children’s Health Insurance Program, the bill would eliminate the caps on federal funding that have defined the program since its creation nearly a quarter-century ago. It would also perpetually expand provisions first included in Obamacare that prohibit states from restricting eligibility. Together, these changes would essentially convert a program originally designed as a block grant into a permanent entitlement for states and individuals.

Wasteful Spending Is Obamacare on Steroids

Despite all these new restrictions on Medicaid and children’s health insurance programs, the bill does expand state flexibility in one important way: by eliminating all income eligibility thresholds for children. If states want to provide government-funded health care to the children of millionaires, the legislation would give them federal funds to do so, demonstrating that House Speaker Nancy Pelosi and her fellow Democrats only support Medicaid flexibility when states expand the number of people receiving government health care.

As Pelosi argues for a trillion-dollar bailout of state and local budgets, she has offered an excellent reason for Congress to reject both the bailout and the Obamacare “enhancement” act. Rather than giving states additional flexibility to remove ineligible individuals and narrow their budget gaps, the bill’s additional — and in at least one case, unconstitutional — mandates would cause Medicaid spending to balloon, leading to more state bailouts in subsequent years. Both taxpayers and the Constitution deserve better than this latest plan to put Obamacare on steroids.

This post was originally published at The Federalist.

Democrats Raid Medicare to Pay for Obamacare (Again!)

As Ronald Reagan would say, “There they go again.” A decade after Democrats raided Medicare by more than half a trillion dollars to fund Obamacare, House Speaker Nancy Pelosi (D-Calif.) and her Democratic colleagues recently introduced new Obamacare legislation that would raid Medicare by nearly another half-trillion dollars.

Sadly, the House plans to vote on this legislative package before the Independence Day holiday. Lowering spending in one unsustainable entitlement to fund another represents the height of fiscal irresponsibility. For Democrats, however, it looks like par for the course.

Obamacare on Steroids

Democrats have titled their bill the Obamacare “enhancement” act — and for good reason, because it would effectively put the law on quite the figurative steroids. The bill would stymie recent efforts by the Trump administration to offer more insurance options to consumers, such as short-term, limited-duration insurance and association health plans.

Instead, it would make skyrocketing premiums “affordable” by dedicating more taxpayer dollars towards Obamacare exchange subsidies, while also directing $10 billion per year to insurance companies via a new — and permanent — federal bailout fund.

The legislation would also balloon Obamacare’s Medicaid expansion to able-bodied Americans. It would require states to keep individuals on the rolls for 12 months, allowing affluent individuals to remain in this “low-income” program. The income cap on coverage for children would also be eliminated, permitting states to cover children of millionaires while receiving federal dollars for doing so if they choose.

At a time evidence already suggests significant waste and fraud takes place among individuals receiving Medicaid coverage, the Pelosi legislation would add to the ever-increasing budget woes of numerous states by forcing them to keep ineligible individuals on the rolls.

Socialist-Style Price Controls

How would Democrats fund all this new spending? From Medicare.

The Obamacare “enhancement” legislation includes drug pricing provisions that the House of Representatives passed last December. The provisions would require drug companies to “negotiate” prices with the Department of Health and Human Services (HHS),  which would effectively dictate prices to drug companies based on benchmarks laid out in the bill. Companies that do not “negotiate” would face excise taxes that could cause the manufacturer to lose money on every drug it sells in the United States.

The Congressional Budget Office confirmed back in December that these “negotiation” provisions would lead to the development of fewer drugs, as companies invest less in research and development. The CBO also said, however, that the blunt price controls would reduce Medicare and Medicaid spending. So Democrats used these price controls to fund their recent Obamacare expansion bill.

Raiding Medicare (Again)

According to CBO, the vast majority of the savings from drug pricing — a total of $448.2 billion over ten years, to be exact — used to fund the Obamacare bill comes from Medicare. That the Democrats are effectively raiding Medicare to expand entitlements for younger Americans makes the Obamacare “enhancement” legislation all the more odious and irresponsible, though, at this point, we really shouldn’t be surprised.

We’ve seen this act before. Indeed, the Obama administration spent years trying to justify the raid on Medicare. Kathleen Sebelius, then the HHS secretary, testified before Congress that provisions in the law would “both” extend Medicare’s solvency and pay for Obamacare. This is a position that defies both logic as well as common sense.

As it stands, Medicare has already become functionally insolvent. The year before Obamacare’s passage, the program’s trustees projected the Hospital Insurance Trust Fund would run out of money to pay all its bills in 2017 — three years ago. The Obamacare double-counting gimmicks that Sebelius testified about may appear to have extended the program’s solvency, but if only on paper. But the true cost of these things cannot remain hidden forever. According to current projections, even the funds from these phony solutions will run out by 2026.

Doing the Wrong Thing About Medicare’s Insolvency

Yet what would Pelosi and House Democrats do about Medicare’s looming insolvency? Not just nothing — worse than nothing. Rather than using the savings from their socialistic price controls to make Medicare solvent, they would take that money and throw it at health insurers to prop up Obamacare. As shocking as it may seem to some, this behavior echoes Pelosi’s 2011 interview with CNBC, when she bragged about how Democrats “took half a trillion dollars out of Medicare” to pay for Obamacare.

The Obamacare “enhancement” demonstrates how Pelosi and her fellow Democrats don’t care about fiscal responsibility or protecting America’s seniors. Instead, they view Medicare just as they did in 2010: A slush fund to raid on a whim as part of their effort to expand government-run health care at any cost.

This post was originally published at The Federalist.

Reduce Nursing Home Populations to Limit Coronavirus’ Spread

Why have so many nursing home patients died from coronavirus nationwide? The key to answering that question lies in many of the nation’s leading politicians’ policy responses to the pandemic. Most notably, Gov. Andrew Cuomo (D-N.Y.) issued an ill-conceived order requiring nursing homes to accept COVID-positive patients.

Forcing institutions to accept positive patients “seeded” coronavirus in nursing homes, where it spread like wildfire. Although Cuomo eventually rescinded that measure, the decision was too late to save the thousands of nursing home patients who died before it could undo the damage initially wrought. Last Thursday, in a display of callous indifference to the loved ones of deceased patients desperate for answers, Cuomo called the focus on his order a “shiny object” and “pure politics.”

But the high death toll in nursing homes also reflects underlying policy differences that preceded coronavirus: Some states house more individuals in nursing homes than others. These disparities, coupled with the inherent infection risk present in nursing homes, should provide states new motivation to accelerate the movement of seniors and individuals with disabilities out of institutional facilities wherever and wherever possible.

Differences Among States

As of 2017, more certified nursing facilities operated in Florida than in New York. But the larger average size of New York’s facilities means the state has nearly 35 percent more nursing home beds than Florida — even though Florida has 35 percent more seniors older than age 65 than New York does. New York’s nursing homes average 185.1 beds per facility, the highest in the country by far. With a larger nursing home population and larger facilities, the virus had more room to rampage than in other states with smaller facilities and smaller nursing home populations.

During the past several weeks, the growing death toll in nursing homes prompted state and federal officials to surge resources to facilities, from testing to personal protective equipment to infection control specialists. But policymakers should ask a more fundamental question: Why do we still have so many individuals in nursing homes at all? The spread of COVID is likely reduced by home-based care while providing an environment most patients prefer, and often at lower costs than nursing homes.

Over the past several decades, Congress and states have begun to redirect Medicaid spending from institutional care towards home and community-based services. From 1988 to 2016, the percentage of Medicaid long-term care spending directed toward home-based services grew from 10 percent to 57 percent.

But in some states, the powerful nursing home lobby still thwarts policy efforts that would empty facility beds. As of 2016, for one example, New York spent more on institutional care than Florida and California did combined.

A Better Solution

By contrast, Rhode Island’s global compact, approved in January 2009, consolidated myriad Medicaid waivers into a single effort increasing access to home-based care. The state’s experiment succeeded: The number of individuals receiving institutional care declined 6.2 percent, while those receiving community-based care rose by 25.8 percent. Rhode Island’s rebalancing towards community-based care helped keep overall Medicaid spending flat during a time of enrollment growth, and did so by increasing access to care, not limiting it.

States like Rhode Island that have moved individuals needing long-term care out of nursing homes wherever possible have the potential to see fewer incidents of mass deaths. Indeed, vulnerable populations will still need to take precautions to avoid COVID regardless. But moving seniors out of congregate settings like nursing homes would minimize the risk of a “super-spreader” incident in which a single individual infects dozens or even hundreds of patients.

Congress Inhibits Reform

With its ability to reduce health-care spending and the risk of infection, the coronavirus pandemic should have given states added incentive to transition Medicaid beneficiaries into home-based care — had Congress not gotten in the way. Legislation passed in March giving states an increase in the federal Medicaid match conditioned the additional dollars on states not limiting benefits. As a result, more aggressive attempts by states to direct spending to community-based care — for instance, by capping nursing home slots, or requiring beneficiaries to try home-based care first — could jeopardize states’ additional federal matching funds.

When I served on the congressional Commission on Long-Term Care in 2013, one of my colleagues often said the next person who told him she wanted to enter a nursing home would be the first person to express such a desire. That adage holds as true today as it did seven years ago, and this truth should compel states to promote home and community-based care wherever possible at all times. During the coronavirus pandemic, however, such a transition won’t just give seniors better care in a way that saves health-care costs — it could save seniors’ lives.

This post was originally published at The Federalist.

New Study Confirms How the Welfare State Perpetuates Poverty

Ronald Reagan had an old adage about the nine most terrifying words in the English language: “I’m from the government and I’m here to help.” Recently, a new paper reinforced that truth and adds to the existing literature showing how America’s welfare state often traps generations in a cycle of poverty.

At its core, a complicated set of welfare programs and tax breaks generate sizable incentives for many low-income Americans not to increase their incomes and improve their station in life. This “poverty trap” results in well-intentioned government programs hurting those they were designed to help.

Marginal Tax Rates

The study, published by the National Bureau of Economic Research (NBER), examined marginal net tax rates on American households. Their analysis included the phase-out effects of various government programs and the extent to which those phase-outs discourage work.

For instance, consider the $1,200 payments in March’s coronavirus “stimulus” legislation. Individuals with incomes under $75,000 qualified for the full $1,200 payment, while the payment was reduced by 5 percent for each dollar of income over $75,000. As a result of this phase-out rate, individuals with incomes over $99,000 receive no payment.

For every additional dollar of income a person making $75,000 received, he will lose five cents of his “stimulus” payment, plus have to pay regular federal income taxes (likely at a 22 percent rate), payroll taxes (7.65 percent), and state and local income taxes where applicable.

Put another way, the coronavirus checks gave people making between $75,000-$99,000 added incentive to reduce their income. By working fewer hours, sheltering income from taxes, or both, people could “maximize” their “free” payment from the federal government.

The researchers studied data from 2016, well before this year’s “stimulus” (or the coronavirus). But as the paper’s introduction notes, many other federal programs and laws have similar distortionary effects:

Earn $1 too much two years back and your Medicare Part B premiums will rise by close to $800. Earn $1 too much and, depending on the state, lose thousands of dollars in your own or your family’s Medicaid benefits. Hold $1 too much in assets and forfeit thousands in Supplemental Security Income. Earn an extra dollar and receive thousands of dollars in Obamacare subsidies. Earn $1 beyond Social Security’s earnings ceiling and watch your Social Security payroll tax drop to zero. Earn $1 too much and flip onto the Alternative Minimum Tax (AMT), reducing your marginal income-tax bracket from a rate as high as 37 percent to 28 percent. Earn $1 too much and lose 22 cents, in the Earned Income Tax Credit and the list goes on.

If this appears to look almost like a game, you’re not far off. It’s hard not to view it as the government picking winners and losers through its various program parameters. Made an extra $1 of income? Too bad — now we’re taking your subsidy away. Do not pass go, do not collect $200.

Worst Effects on the Poor

Unfortunately, these distortionary effects hit poor and near-poor households the hardest. As Gene Steuerle of the Urban Institute has documented, phase-outs of programs like cash welfare, food stamps, the Earned Income Tax Credit, and Obamacare subsidies mean households making roughly $10,000-$40,000 can lose almost as much in government benefits as they gain in added income by working additional hours.

The new NBER study further quantifies this phenomenon. It finds that, both over the current year and over their lifetimes, individuals in the lowest income quintile (the bottom 20 percent) face higher marginal tax rates than those in the next three income quintiles (from the 20th percentile of income through the 80th percentile). Essentially, when taking the phase-out of government benefits into account, the poor face more disincentives to work than the middle class.

It gets worse. One in four low-income households (those with income in the bottom 20 percent) face lifetime marginal net tax rates of more than 70 percent. As the authors put it: “One in four of our poorest households, regardless of age, make between two and three times as much for the government than they make for themselves in earning an extra $1,000.” Given the construct of the modern welfare state, it seems less logical to ask why poor people wouldn’t work and instead to ask why they would.

There is, however, one silver lining in the paper: States can help undo the damage caused by poorly crafted federal policy. The NBER researchers found that a “typical household can raise its total remaining lifetime spending by 8.1 percent by moving from a high-tax to a low-tax state.”

Break the Cycle of Poverty

Obamacare didn’t create the phenomenon of the welfare state discouraging work, but it did make this worse. The Congressional Budget Office noted repeatedly that the phase-outs in the law’s insurance subsidies penalize individuals who earn more income. Its most recent in-depth analysis, conducted in February 2014, concluded the law would reduce the labor supply by the equivalent of about 2.5 million full-time jobs.

More recently, of course, lawmakers in the CARES Act provided a $600 per week federal supplement to unemployment insurance, further discouraging work. Because more than two-thirds of unemployed individuals can now make more money on unemployment than they did while working, businesses face difficulty recruiting furloughed employees back to their jobs.

At a time our country faces a massive recession brought on by the coronavirus lockdowns, America’s welfare state exacerbates that stagnation. Reforming the system to eliminate work disincentives could save taxpayer funds. More importantly, it would encourage all Americans to embrace the dignity of work.

This post was originally published at The Federalist.

Medicaid’s Blue State Bailout

In discussing future coronavirus legislation, Senate Majority Leader Mitch McConnell (R-Ky.) has taken a skeptical view towards additional subsidies to states, including a potential “blue state bailout.” But current law already includes just such a mechanism, giving wealthy states an overly generous federal Medicaid match that results in bloated program spending by New York and other blue states.

Section 1905(b) of the Social Security Act establishes Federal Medical Assistance Percentages, the matching rate each state receives from the federal government under Medicaid. The statutory formula compares each state’s per capita income to the national average, calculated over a rolling three-year period. Poorer states receive a higher federal match, while richer states receive a lower match.

However, federal law sets a minimum Medicaid match of 50 percent, and a maximum match of 83 percent. No poor states come close to hitting the 83 percent maximum rate, but a total of 14 wealthy states would have a federal match below 50 percent absent the statutory minimum. (In March, Congress temporarily raised the federal match rate for all states by 6.2 percentage points for the duration of the coronavirus emergency.)

Absent the statutory floor, Connecticut would receive a match rate of 11.69 percent in the current fiscal year, according to Federal Funds Information Service, a state-centered think-tank. At that lower federal match, Connecticut would receive approximately one federal dollar for every eight the state spends on Medicaid, rather than the one-for-one ratio under current law.

Federal taxpayers pay greatly because the overly generous match rate for wealthy states leads to additional Medicaid spending. In fiscal year 2018, Connecticut spent far more on its traditional Medicaid program ($6.5 billion in combined state and federal funds) than similarly sized states like Oklahoma ($4.9 billion) and Utah ($2.5 billion). Those totals exclude the dollars Connecticut received from Obamacare, which guarantees all states a 90 percent Medicaid match for covering able-bodied adults.

The budget crisis in New York that preceded the pandemic stems in large part from Washington’s overly generous match for wealthy states. Absent the statutory floor, the state would receive a Medicaid match of 34.49 percent this fiscal year, meaning it would have to spend approximately two dollars to receive an additional federal dollar.

But the one-to-one Medicaid match guaranteed under federal law led New York to expand its program well beyond most states’. At more than $77 billion in 2018, New York Medicaid cost taxpayers more than three times the $23.4 billion spent by the larger state of Florida. And a federal audit last summer concluded that New York Medicaid spent $1.8 billion on more than 600,000 ineligible enrollees in just a six-month period. Little wonder that Gov. Andrew Cuomo in January called the state’s fiscal situation “unsustainable” after the state announced a $6 billion budget deficit, most of which came from Medicaid.

To his credit, Cuomo proposed changes to crack down on Medicaid fraud and enact other program reforms. He also criticized Congress when it passed legislation to block New York and other states from changing their Medicaid programs during the pandemic. But he has not acknowledged the underlying flaws in federal law that, by encouraging profligate blue state spending, created the problem in the first place.

Of the 14 wealthy states that benefit from the guaranteed 50 percent minimum Medicaid match, Hillary Clinton won 11. If the dramatic drop in oil and commodity prices in recent weeks persists, the three traditionally red states—Alaska, North Dakota, and Wyoming—that benefit from the statutory floor may no longer do so, should those states’ income decline. In the number of states affected and overall spending levels, the 50 percent minimum Medicaid match encourages overspending by blue states at the expense of federal taxpayers in red states.

In December 2018, the Congressional Budget Office estimated that removing the guaranteed 50 percent Medicaid match would save $394 billion over ten years. If McConnell and his colleagues want to tackle rising federal debt while stopping blue state bailouts, they should amend the Medicaid statute accordingly.

This post was originally published at The Federalist.

How Congress’ Coronavirus Legislation Could See Millionaires on Medicaid

Congress’ urge to legislate quickly on the coronavirus outbreak has resulted in all manner of unintended policy consequences. Numerous reports indicate that the Internal Revenue Service has sent coronavirus relief payments to deceased individualsLarge restaurant chains have received loans from the Paycheck Protection Program intended for businesses that have less access to capital, even as small businesses struggling to survive report being shut out of the PPP.

Even more worrisome than these reports: A series of Medicaid-related provisions that provide a potential steppingstone toward a single-payer health-care system. These provisions not only encourage waste, fraud, and abuse, but will also further entrench government-run health care—the left’s ultimate objective.

Maintenance of Effort Provisions

Section 6008 of pandemic relief legislation the president signed on March 18 provides states a 6.2 percent increase in the federal Medicaid match. But the funds, designed in part to offset states’ revenue loss during the economic downturn, come with a huge catch.

To receive the additional federal funding, states may not adopt more restrictive Medicaid eligibility standards, impose new premiums, or otherwise restrict benefits. These “maintenance of effort” requirements echo provisions included in the 2009 “stimulus” legislation, which also raised states’ Medicaid match. But this year’s bill went even further, prohibiting states from terminating benefits for any enrollee during the coronavirus public health emergency “unless the individual requests a voluntary termination of eligibility or the individual ceases to be a resident of the State.”

In layman’s terms, this provision prohibits state Medicaid programs from terminating the enrollment of individuals with income that exceeds state eligibility limits. For instance, following a scathing report by the state’s legislative auditor, Louisiana last year disenrolled 1,672 individuals with incomes of more than $100,000 from the state’s Medicaid program—including some with income higher than Gov. John Bel Edwards’ salary.

But the provisions Congress enacted in March now prohibit Louisiana, or any other state, from disenrolling these ineligible individuals during the coronavirus outbreak. To put it another way, an individual who enrolled in Medicaid while unemployed could take a new job making $1 million per year, and the state would have absolutely no recourse to kick that individual off of the government rolls, so long as he wants to remain enrolled in “free,” taxpayer-funded health coverage.

Pave the Way for Single Payer?

It doesn’t take a rocket scientist to see how the next president could use these provisions to empower a vast expansion of government-run care. A Biden administration could leave the public health emergency declaration in place for its entire presidency—and would have strong policy incentives to do so. By preventing states from removing ineligible beneficiaries for its entire presidency, a Biden administration could massively expand Medicaid, turning the program into something approaching liberals’ dream of a single-payer system.

The Louisiana experience also shows the direct correlation between eligibility checks, enrollment, and spending on Medicaid. State officials removed at least 30,000 individuals from the program last spring, reducing enrollment in expansion by more than 10 percent, and lowering program spending by approximately $400 million. A Biden administration that prohibits states from removing ineligible beneficiaries for four or eight years would see taxpayers spending billions of dollars funding millions of ineligible enrollees—an enrollment explosion that could prove difficult to unwind.

Don’t Bail Out the States

House Speaker Nancy Pelosi (D-Calif.) has already begun work on the next coronavirus package, with she and her fellow Democrats adamantly insisting that a bailout of states stands next on Congress’ “to-do” list.

But it seems highly disingenuous for Pelosi and Democrats to call for bailing out state budgets, even as they prohibit those same states from removing ineligible individuals from the Medicaid program. Even Gov. Andrew Cuomo (D-NY) has called the new requirements on state Medicaid programs absurd: “Why would the federal government say, ‘I’m going to trample the state’s right to redesign its Medicaid program, that it runs—that saves money?’”

Conservatives in Congress should demand that lawmakers fix the Medicaid provisions, either by allowing states to remove ineligible beneficiaries, setting a specific end-date for the increased federal matching funds, or (more preferably) both. Otherwise, by prohibiting states from purging their rolls of Medicaid enrollees who don’t belong in the program, the United States could find itself with a single-payer system by the back door.

This post was originally published at The Federalist.

Democrats in Congress Won’t Let Andrew Cuomo Fight Medicaid Fraud

Over the past several weeks, Gov. Andrew Cuomo has taken several shots at Sen. Chuck Schumer, his fellow New York Democrat, about the coronavirus “stimulus” bills passed by Congress. Cuomo has repeatedly attacked Schumer for not looking out for their home state’s interests, calling the most recent measure, which cost more than $2 trillion, “terrible” for the Empire State.

The intraparty feuding seems all the more noteworthy for one reason Cuomo found the “stimulus” terrible: It precludes New York from taking steps to right-size its Medicaid program. That senior Democrats in Congress tied the hands of a governor from their own party as he works to enact reforms, and combat fraud, in the costly program speaks to how leftists will fight tooth-and-nail to maintain every facet of the welfare state.

New York’s Medicaid Mess

Even prior to the coronavirus pandemic, New York’s state Medicaid program faced major difficulties. In fiscal year 2018, New York’s Medicaid program spent nearly as much ($74.8 billion) as California’s ($83.9 billion), even though California has more than twice the population (39.5 million vs. 19.5 million for New York).

Some of New York’s high Medicaid spending stems from rampant waste and fraud. A 2005 in-depth investigation by The New York Times quoted a former investigator as saying that 10 percent of all Medicaid spending constituted outright fraud, with another 20-30 percent representing “unnecessary spending that might not be criminal.”

New York’s Medicaid program also spends disproportionate sums on institutional care for individuals with disabilities. The state spends more than twice as much on nursing home care ($5.5 billion) as California ($2.5 billion), despite having less than half the population. New York also exceeds California’s spending on intermediate care facilities for the intellectually disabled.

Smart reforms to Medicaid would attempt to keep individuals in their own homes wherever possible. Paying for home and community-based services would save taxpayers money. More importantly, it would also treat patients in the location the vast majority of patients prefer: Their own homes. Changes to move in this direction, coupled with efforts to fight waste and fraud, would bring long-overdue reform to Medicaid in New York.

Cuomo Tried to Fix the Problem

Prior to the pandemic, New York faced a $6 billion budget shortfall that Cuomo blamed (correctly) on the Medicaid mess. He asked a commission to recommend reforms, and the commission came back with a series of proposals that would save more than $1.6 billion in state dollars during the coming fiscal year, and additional sums thereafter. (Because the federal government provides at least a 50 percent Medicaid match to New York, the changes would save federal taxpayers at least as much as they would save state taxpayers.)

While the recommendations do include across-the-board reductions in provider payment levels, changes to long-term care represent the largest amount of savings ($715 million of the $1.65 billion total). The package includes a focus on home- and community-based services, tightens restrictions on households who attempt to hide assets to have Medicaid cover their long-term care costs, and includes reforms to program integrity as well.

Did Schumer Stop Reform?

As New York’s Democrat governor proposed a Medicaid reform package, what did New York’s senior senator do? By one account he worked to ensure that his fellow Democrat could not enact the needed changes.

As I previously noted, the second “stimulus” bill included a Medicaid bailout for states, coupled with maintenance of effort provisions. These provisions prohibit states from making any changes to eligibility or benefits in exchange for the 6.2 percent increase in the federal Medicaid match (which will last for the duration of the coronavirus public health emergency). States that increase cost-sharing, change benefits, impose premiums—pretty much any change to the Medicaid benefit package, other than arbitrary reductions in provider payments—lose eligibility for the increased federal match.

Cuomo railed against these restrictions: “Why would the federal government say, ‘I’m going to trample the state’s right to redesign its Medicaid program, that it runs—that saves money?’…I don’t even know what the political interest is they’re trying to protect.”

The governor appeared to win the argument—at first. Section 3720 of a draft version of the third “stimulus” bill (beginning at page 394 here) would have amended the second “stimulus” bill to allow New York to go ahead with its reforms, while still receiving the 6.2 percent increase in the federal Medicaid match.

But Section 3720 of the version that made it into law (page 147 here) stripped out the original language that allowed New York to proceed with its Medicaid changes. Rep. Lee Zeldin (R-N.Y.) claims Schumer got the language removed, presumably because he opposes Cuomo’s reform package:

Lee Zeldin

@RepLeeZeldin

Re-upping here for additional background on what Gov Cuomo is talking about right now re FMAP and the stimulus bill.

McConnell offered Schumer exactly what Cuomo asked for on this fix and Schumer rejected it. https://twitter.com/RepLeeZeldin/status/1243210360334815232 

Lee Zeldin

@RepLeeZeldin

Gov. Cuomo just said the stimulus package could’ve & should’ve provided additional support for the NYS budget.

He is right.

Here’s the context not mentioned:

McConnell offered the FMAP language Cuomo asked for & Schumer blocked it, resulting in the loss of SIX BILLION for NY.

Stop Defending Fraudsters

Who exactly nixed the language helping New York, and why, may remain a mystery. But it seems highly unlikely that Senate Republicans would have insisted on its removal. Most conservatives support states’ Medicaid reform proposals, and fought maintenance of effort requirements included in the 2009 “stimulus” and Obamacare that thwarted state flexibility. The objection that led to the New York provision’s removal almost certainly came from the Democrat side of the aisle.

As to why, consider this quote from Politico: “Critics argue…that even if there is some sense in targeting waste and fraud, it also makes sense to raise taxes on the wealthy to support a program that poor New Yorkers rely on.”

Yes, by all means let’s raise taxes during the midst of an economic cataclysm. If we crack down on fraud too much, the fraudsters might go out of business—and they need to eat just like the rest of us!

It’s exactly this kind of mentality that left the United States with $23 trillion in debt (and rising). Cuomo rightly called out the members of his own party for their socialistic games, because the American people deserve better than the left’s welfare-industrial complex.

This post was originally published at The Federalist.

The Tough Cost-Benefit Choices Facing Policymakers Regarding Coronavirus

Right now, the United States, like most of the rest of the world, faces two critical, yet diametrically opposed, priorities: Stopping a global pandemic without causing a global economic depression.

Balancing these two priorities presents tough choices—all else equal, revitalizing the economy will exacerbate the pandemic, and fighting the pandemic will worsen economic misery. Yet, as they navigate this Scylla and Charybdis, some policymakers have taken positions contrary to their prior instincts.

In his daily press briefing Tuesday, Gov. Andrew Cuomo (D-NY) discussed the false choice between the economy and public health. He made the following assertions:

My mother is not expendable, your mother is not expendable, and our brothers and sisters are not expendable, and we’re not going to accept the premise that human life is disposable, and we’re not going to put a dollar figure on human life. The first order of business is to save lives, period. Whatever it costs….

If you ask the American people to choose between public health and the economy then it’s no contest. No American is going to say accelerate the economy at the cost of human life because no American is going to say how much a life is worth.

On this count, Cuomo is flat wrong. Entities in both the United States and elsewhere—including within his own state government—put a dollar figure on human life on a regular basis.

Rationing on Cost Grounds Already Happens

Consider the below statement describing the National Institute of Health and Care Excellence (NICE), a British institution that determines coverage guidelines for the country’s National Health Service (NHS). NICE uses the quality-adjusted life year (QALY) formula, which puts a value on human life and then judges whether a new treatment exceeds its “worth” to society:

As a treatment approaches a cost of £20,000 [about $24,000 at current exchange rates] per QALY gained over existing best practice, NICE will scrutinize it closely. It will consider how robust the analysis relating to its cost- and clinical-effectiveness is, how innovative the treatment is, and other factors. As the cost rises above £30,000 [about $36,000] per QALY, NICE states that ‘an increasingly stronger case for supporting the technology as an effective use of NHS resources’ is necessary.

Entities in the United States undertake similar research. The Institute for Clinical and Economic Review (ICER) also performs cost-effectiveness research using the QALY metric. The organization’s website notes that “the state of New York has used [ICER] reports as an input into its Medicaid program of negotiating drug prices.” In other words, Cuomo’s own administration places a value on human life when determining what the state’s Medicaid program will and won’t pay for pharmaceuticals.

Cost-Effectiveness Thresholds

Cuomo represents but one example of the contradictions in the current coronavirus debate. Donald Berwick, an official in the Obama administration and recent advisor to the presidential campaign of Sen. Elizabeth Warren (D-MA), infamously discussed the need to “ration with our eyes open” While many liberals like him have traditionally endorsed rationing health care on cost grounds, few seem willing to prioritize economic growth over fighting the pandemic.

Conversely, conservatives often oppose rationing as an example of government harming the most vulnerable by placing an arbitrary value on human life. Nonetheless, the recent voices wanting to prioritize a return to economic activity over fighting the pandemic have come largely from the right.

The calls to reopen the economy came in part from an Imperial College London study examining outcomes from the pandemic. The paper concluded that an unmitigated epidemic (i.e., one where officials made no attempt to stop the virus’ spread) would cost approximately 2.2 million lives in the United States. Mitigation strategies like social distancing would reduce the virus’ impact and save lives, but would prolong the outbreak—and harm the economy—for more than a year.

The paper’s most interesting nugget lies at its end: “Even if all patients were able to be treated”—meaning hospitals would not get overwhelmed with a surge of patients when the pandemic peaks—“we predict there would still be in the order of…1.1-1.2 million [deaths] in the US.” Based on the Imperial College model, shutting down the economy so as not to let the virus run rampant would save approximately 1 million lives compared to the worst-case scenario.

A Cost of $1 Million Per Estimated Life Saved

Some crude economic math suggests the value a pandemic-inspired economic “pause” might place on human life. Based on a U.S. gross domestic product of approximately $21 trillion, a 5 percent reduction in GDP—which seems realistic, or perhaps even conservative, based on current worldwide projections—would erase roughly $1.05 trillion in economic growth. The Imperial College estimate that mitigation and social distancing measures would save roughly 1 million lives would therefore place the value of each life saved at approximately $1 million.

Of course, these calculations depend in large part on inputs and assumptions—how quickly the virus spreads, whether large numbers of Americans have already become infected asymptomatically, whether already infected individuals gain immunity from future infection, how much the slowdown harms economic growth in both the short and long-term, and many, many more. Other assumptions could yield quite different results.

But if these types of calculations, particularly when performed with varying assumptions and inputs, replicate the results of the crude math above, policymakers likely will sit up and take notice. Given that Britain’s National Health Service makes coverage decisions by valuing life as worth tens of thousands of pounds, far less than millions of dollars, it seems contradictory to keep pursuing a pandemic strategy resulting in economic damage many multiples of that amount for every life saved.

Tough Cost-Benefit Analysis

Unfortunately, lawmakers the world over face awful choices, and can merely attempt to select the least-bad option based on the best evidence available to them at the time. Slogans like “Why put your job over your grandmother?” or “If you worry about the virus, just stay home” belie the very real consequences the country could face.

Consider possible scenarios if officials loosen economic restrictions while the pandemic persists. Some individuals with health conditions could face the prospect of returning to work in an environment they find potentially hazardous, or losing their jobs. Individuals who stay home to avoid the virus, yet develop medical conditions unrelated to the virus—a heart attack, for instance—could die due to their inability to access care, as hospitals become swarmed with coronavirus patients. And on and on.

The president said on Tuesday he would like to start reopening the economy by Easter, a timeline that seems highly optimistic, at best. If by that time the situation in New York City deteriorates to something resembling Italy’s coronavirus crisis—and well it could—both the president and the American people may take quite a different view towards reopening the economy immediately. (And governors, who have more direct power over their states, could decide to ignore Trump and keep state-based restrictions on economic activity in place regardless of what he says.)

Nonetheless, everyone understands that the economy cannot remain in suspended animation forever. Hopefully, better data, more rapid viral testing, and the emergence of potential treatments will allow the United States and the world to begin re-establishing some sense of normalcy, at the minimum possible cost to both human life and economic growth.

This post was originally published at The Federalist.

Don’t Just Bail Out a Flawed Medicaid Program

In recent days, some observers have discussed the possibility of targeted assistance to state Medicaid programs affected by the coronavirus outbreak. Unfortunately, the legislation proposed by House Speaker Nancy Pelosi (D-CA) falls far short of that marker, providing a gusher of new spending with no long-term reforms to the program. Conservatives should insist on better.

The House’s bill, introduced late in the night Wednesday, contains several noteworthy flaws. By increasing the federal Medicaid match for all states by 8 percentage points for the entire public health emergency, it prevents the targeting of assistance to those states most affected by coronavirus cases.

Increasing the federal match for able-bodied adults to 98 percent encourages states to prioritize these individuals over disabled populations, while discouraging states from rooting out fraud. The legislation also precludes states from making any changes to their Medicaid programs for the duration of the bailout, reinstituting the fiscal straight-jacket contained in President Obama’s “stimulus” bill.

Like that 2009 package, Pelosi’s legislation proposes tens of billions in new spending for an already-sprawling Medicaid program without any structural changes. But if Pelosi or conservatives wish to pay for the short-term largesse via long-term changes to Medicaid, they need not look far: President Obama’s budgets included several proposals that, if enacted into law, would change incentives in Medicaid for the better.

One area ripe for reform: Medicaid provider taxes. Hospitals and other medical providers often support these taxes—the only entities that ever endorse new taxes on themselves—because they immediately come right back to the health care industry, after states use the tax revenue to draw down additional Medicaid matching funds. In 2011, none other than Joe Biden reportedly called this form of legalized money laundering a “scam.”

At minimum, Congress should immediately enact a moratorium on any new provider taxes, or any increases in existing provider taxes, cutting off the spigot of federal dollars via this budget gimmick. Lawmakers can echo President Obama’s February 2012 budget submission, which would have saved $21.8 billion by reducing states’ maximum provider tax rate.

That proposal delayed its effective date by three years, “giv[ing] states more time to plan”—which would in this case delay the changes until the coronavirus outbreak subsides. Another positive solution: Codifying the Trump administration’s Medicaid fiscal accountability rule, which includes welcome reforms reining in states’ most egregious accounting gimmicks, effective a future date.

More broadly, Congress should also consider the ways the existing matching rate formula encourages additional Medicaid spending by states. For instance, current law provides all states with a minimum 50 percent match rate, encouraging richer states to spend more on Medicaid. Absent that floor, 14 states—11 of them blue—would face a lower match; Connecticut’s rate would plummet from 50 percent to 11.69 percent.

Gradually lowering or eliminating the federal floor on the match rate, beginning 2-3 years hence, would discourage wealthier states from growing their Medicaid programs beyond their, and the federal government’s, control. Had lawmakers enacted this proposal as part of the 2009 “stimulus,” New York—which would have a federal match rate of 34.49 percent in the current fiscal year absent the 50 percent minimum—might have right-sized its Medicaid program well before the program’s current budget crunch.

Alternatively, Congress could embrace Obama’s budget proposal for a blended Medicaid matching rate. Replacing the current morass of varying federal match rates for different populations could save money, and eliminate the perverse incentives included in Obamacare, which gives states a higher match rate to cover able-bodied adults than individuals with disabilities.

Judging from her initial bid in the “stimulus” wars, Pelosi has taken Rahm Emanuel’s advice never to let a serious crisis go to waste. If she wishes to emulate Obama’s first chief of staff, conservatives should insist that she also enact some of the Medicaid changes proposed in Obama’s own budgets, to begin the process of reforming the program.

This post was originally published at The Federalist.

Hospitals Seek to Defend Their Questionable Accounting Scams

With the federal government more than $23 trillion in debt, why should taxpayers continue to fund states’ accounting scams designed to bilk Washington out of additional Medicaid matching funds? It’s a good question, but one hospital lobbyists don’t want you to ask.

Late last year, the Trump administration released a proposed regulation designed to bring more transparency and accountability into the Medicaid program. The hospital sector in particular has begun an all-out blitz to try and overturn the rulemaking process. The need for the regulations demonstrates the problems with the current American health-care system, and how hospitals stand as one of the biggest obstacles to reform.

How the ‘Scam’ Works

The proposed regulations call for more transparency about supplemental payments within the Medicaid program. These payments, which take a variety of different forms, are considered supplemental in nature because they are not directly connected to the treatment of any one particular patient.

Many of these supplemental payments represent a way for states—and hospitals—to obtain a greater share of Medicaid matching dollars from the federal government. Hospitals, local governments, or other entities “contribute” funds to the state for the express purpose of obtaining additional Medicaid funds from Washington. Those matching funds then get funneled right back to many of the same entities that “contributed” the funds in the first place. As the old saying goes, it’s nice work if you can get it.

Over the years, even liberal groups have expressed concern about these shady funding mechanisms. In 2011, then-Vice President Joe Biden reportedly called provider taxes—in which hospitals and nursing homes pay an assessment, which gets laundered through state coffers to receive—a “scam.” Think about it: How often do you ask to pay higher taxes? Hospitals and nursing homes often propose new or higher provider taxes because they believe they will get their money back, and then some, via greater Medicaid payments.

Likewise, in 2000 the liberal Center on Budget and Policy Priorities decried the use of “Rube Goldberg-like accounting arrangements” that “use complex accounting gimmicks to secure additional federal funds for states without actual state matching contributions.” Yet two decades later, the scams continue to proliferate, because, as a 2005 government audit noted, most states have hired contingency-fee consultants for the sole purpose of bilking additional Medicaid matching funds from the federal government.

Hospitals’ Scare Tactics Rationalize Theft

The Trump administration’s proposal would make these accounting arrangements more transparent, with the goal of phasing out several of the most egregious arrangements altogether. This has prompted hospital executives to consider the proposed rule something just short of Armageddon.

During a 2008 debate on a similar set of Medicaid regulations put forward by the Bush administration, very few members of Congress even debated the regulations, as opposed to their effects on hospitals. Likewise, most hospital lobbyists and executives don’t try to defend the merits of these accounting scams. Instead, they just focus on the effects, with the typical “parade of horribles” examples: “If you end these payments, Tiny Tim will die.”

Hospitals’ reluctance to defend these opaque funding arrangements on their merits represents an implicit admission: They never should have received this money in the first place. Translation: “We stole that money fair and square—and you better let us keep stealing that money, or else” the hospital will close, people will lose their jobs, etc.

Hospitals’ Disingenuous Tactics

Some lobbyists on Capitol Hill claim they “only” want to delay the regulations, to allow for additional feedback and give hospitals time to adjust. It’s a ridiculous argument on multiple levels. First, as the policy paper from 2000 reveals, hospitals have engaged in these types of tactics for more than two decades, and they continue to grow and proliferate. The idea that hospitals need additional time to adjust to a problem they created seems laughable on its face.

Consider also what happened in 2008, when the Bush administration proposed a similar set of regulations designed to crack down on Medicaid financing abuses. Democrats passed a one-year moratorium preventing the administration from finalizing the rules, blocking them from taking effect.

Why only a one-year delay and not an outright ban? At the time, staff for the House Energy and Commerce Committee publicly stated that the moratorium “intended to delay the implementation of the Medicaid rules just long enough so that a future Administration can withdraw them.”

That’s exactly what ended up happening: The Obama administration withdrew the regulations upon taking office in 2009, so Congress didn’t have to pay for the cost associated with blocking them permanently. Hospital lobbyists asking for a delay of the regulations are hoping a Democrat wins the White House this fall, and can withdraw the regulations next year. They just won’t tell Republican staffers that their strategy is premised upon President Trump losing his re-election bid.

Let the Regulations Proceed, And Let States Decide

If the regulations went into effect today, they wouldn’t automatically lead to any hospitals closing down, or even hospitals losing any money. The Centers for Medicare and Medicaid Services (CMS) said it would work with states to transition away from the offending transactions over time.

That said, some governors oppose the regulations for the same reason hospitals do: It would force state governors and lawmakers to make difficult choices. If the loopholes that allow states to bilk more funds out of Washington end, then states would have to pony up “real” money from their coffers to maintain payments to providers, rather than funds obtained via accounting gimmicks. Hospitals would have to compete with other important state priorities—transportation, education, corrections, etc.—to maintain their existing payments.

But as the old saying goes, to govern is to choose. Better for a state to raise taxes—and be up-front and honest about doing so—to fund its Medicaid program than for that same state to use opaque gimmicks to squeeze out more federal dollars. The latter situation amounts to a (deferred) tax increase anyway, by adding more dollars to Washington’s ever-growing debt.

After decades of delays, and with our country’s debt growing ever-larger by the day, Medicaid deserves the fiscal integrity these new regulations would bring. They should go into full effect, and sooner rather than later.

This post was originally published at The Federalist.