Note to Britain: You Can Have Your NHS

As expected, the American press has heavily covered President Trump’s visit to Europe, including his time spent in Great Britain. But a row (that’s British for “argument”) that has gone under-reported on this side of the Atlantic also holds major implications for American patients.

Based on comments the President made earlier in the week, British politicians now believe they need to protect the country’s National Health Service (NHS) from “privatization” at the hands of American corporations. But even as they do so, another controversy—about the ways in which Britain denies life-saving treatments to patients, solely on cost grounds—illustrates the problems with socialized medicine, which the left wants to export to the United States.

Concern about Trade Agreements

During a press conference in London Tuesday, a British reporter questioned Trump about a post-Brexit trade deal between the U.S. and Britain. The reporter specifically asked whether “the entire economy needs to be on the table” in those discussions, “including the NHS.” Trump responded that “everything with a trade deal is on the table.”

Those comments—which Trump later attempted to walk back—prompted outrage that Britain’s “beloved” NHS was at risk. British politicians across parties raised concern that American companies could receive NHS contracts (even though subsidiaries of U.S. corporations have already done so), or that a free trade agreement could supersede legislative efforts by Parliament to prohibit additional private contracting within the health service.

The Health Secretary, Matt Hancock—an announced candidate in the race to succeed Theresa May as Conservative Party leader and Prime Minister—epitomized the sentiments, claiming that “the NHS

NHS Denying Patients Care

The controversy continued at Prime Minister’s Questions in the House of Commons Wednesday. In that hourlong session, no fewer than five questions asked whether the NHS was “for sale,” or some variation thereof. But the sixth NHS-related question, by Labour MP Karl Turner, proved the most revealing:

Twelve months ago, the Prime Minister told this House that she wanted a speedy resolution to the funding row between NHS England and Vertex regarding the drug Orkambi to treat cystic fibrosis. My seven-year-old constituent Oliver Ward wrote to the Prime Minister recently asking what progress she has made. Could the Minister please give Oliver some good news and tell him that he need not get up every day worrying about this terrible injustice?

Turner’s question referred to Orkambi, a drug that could help thousands of British patients currently suffering from cystic fibrosis. But the NHS refuses to pay for the drug—not because it does not work, but because it does not meet cost thresholds that government bureaucrats have set.

Britain’s National Institute for Health and Clinical Excellence decided in 2016 that the NHS would not pay for Orkambi at the price set by its manufacturer. For the three years since, British patients have not found that decision very NICE at all.

A Precursor of an American Single-Payer System?

Unfortunately, however, liberals want to export the British model of rationing health care on cost grounds to the United States. Recall President Obama’s comments about the issue a decade ago:

The chronically ill and those toward the end of their lives are accounting for potentially 80 percent of the total health care bill out here….There is going to have to be a conversation that is guided by doctors, scientists, ethicists. And then there is going to have to be a very difficult democratic conversation that takes place.

Months after those comments, the New York Times ran an article, entitled “Why We Must Ration Health Care,” that argued for bringing a British-style rationing model to our shores.

This prevailing mentality among intellectual elites explains why neither the House nor Senate single-payer bills prohibit a government-run health plan from implementing cost-effectiveness research. In fact, the House bill explicitly provides for cost-effectiveness research as a method of determining drug prices, because most liberals believe that bureaucrats can and should have the power to restrict access to care on cost grounds. Most Americans, on the other hand, would strongly object to this rationing of care.

As for British politicians saying the NHS “isn’t for sale,” I could not care less—I wouldn’t want to buy it even if it were. The American health care system has its flaws, to be sure, but I have little interest in creating a system where government bureaucrats have near-total control over patients’ medical decisions, and use that power to deny access to life-saving care. I think most Americans would agree.

This post was originally published at The Federalist.

Will the “Byrd Bath” Turn into a Tax Credit Bloodbath?

While most of official Washington waits for word—expected early this week—from the Congressional Budget Office (CBO) about the fiscal effects of House Republicans’ “repeal-and-replace” legislation, another, equally critical debate is taking place within the corridors of the Capitol. Arcane arguments behind closed doors about the nuances of parliamentary procedure will do much to determine the bill’s fate in the Senate—and could lead to a vastly altered final product.

In recent days, House leaders have made numerous comments highlighting the procedural limitations of the budget reconciliation process in the Senate. However, those statements do not necessarily mean the legislation released last week comports with all of those Senate strictures. Indeed, my conversations with more than half a dozen current and former senior Senate staff, all of whom have years of expertise in the minutiae of Senate rules and procedure, have revealed at least four significant procedural issues—one regarding abortion, two regarding immigration, and one regarding a structural “firewall”—surrounding the bill’s tax credit regime.

It is far too premature to claim that any of these potential flaws will necessarily be fatal. The Senate parliamentarian’s guidance to senators depends on textual analysis—of the bill’s specific wording, the underlying statutes to which it refers, and the CBO scores (not yet available)—and arguments about precedent made by both parties. Senate staff could re-draft portions of the House bill to make it pass procedural muster, or make arguments to preserve the existing language that the parliamentarian accepts as consistent with Senate precedents.

Nevertheless, if the parliamentarian validates even one of the four potential procedural problems, Republicans could end up with a tax credit regime that is politically unsustainable, or whose costs escalate appreciably.

In 2009, Democratic Sen. Kent Conrad famously opined that passing health care legislation through budget reconciliation would make the bill look like “Swiss cheese.” (While Democrats did not pass Obamacare through reconciliation, they did use the reconciliation process to “fix” the bill that cleared the Senate on Christmas Eve 2009.)

In reality, it’s much easier to repeal provisions of a budgetary nature—like Obamacare’s taxes, entitlements, and even its major regulations—through reconciliation than to create a new replacement regime. The coming week may provide firsthand proof of Conrad’s 2009 axiom.

The ‘Byrd Rule’ and Abortion

The Senate’s so-called “Byrd rule” governing debate on budget reconciliation rules, named after former Senate Majority Leader and procedural guru Robert Byrd (D-WV), consists of not one rule, but six. The six points of order (codified here) seek to keep extraneous material out of the expedited reconciliation process, preserving the Senate tradition of unlimited debate, subject to the usual 60-vote margin to break a filibuster.

The Byrd rule’s most famous test states that “a provision shall be considered extraneous if it produces changes in outlays or revenues which are merely incidental to the non-budgetary components of the legislation.” If the section in question primarily makes a policy change, and has a minimal budgetary impact, it remains in the bill only if 60 senators (the usual margin necessary to break a filibuster) agree to waive the Byrd point of order.

One example of this test may apply to the House bill’s tax credits: “Hyde amendment” language preventing the credits from funding plans that cover abortion. Such language protecting taxpayer funding of abortion coverage occurs several places throughout the bill, including at the top of page 25 of the Ways and Means title.

The question will then occur as to what becomes of both the credit and the Hyde protections. Some within the administration have argued that the Department of Health and Human Services (HHS) can institute pro-life protections through regulations, but administration insiders doubt HHS’ authority to do so. Moreover, most pro-life groups publicly denounced President Obama’s March 2010 executive order, which he claimed would prevent taxpayer funding of abortion coverage in Obamacare, as 1) insufficient and 2) subject to change under a future administration. How would those pro-life groups view a regulatory change by the current administration any differently?

Two Procedural Problems Related to Immigration

A similarly controversial issue—immigration—brings an even larger set of procedural challenges. Apart from the separate question of whether the current verification provisions in the House bill are sufficiently robust, any eligibility verification regime for tax credits faces not one, but two major procedural obstacles in the Senate.

Of the six tests under the Byrd rule, some are more fatal than others. For instance, if the Hyde amendment restrictions outlined above are ruled incidental in nature, then those provisions merely get stricken from the bill unless 60 Senators vote to retain them—a highly improbable scenario in this case.

Page 37 of the Ways and Means title of the bill requires creation of a verification regime for tax credits similar to that created under Sections 1411 and 1412 of Obamacare. As Joint Committee on Taxation Chief of Staff Tom Barthold testified last week during the Ways and Means Committee markup, verifying citizenship requires use of a database held by the Department of Homeland Security’s Bureau of Citizenship and Immigration Services (CIS).

That admission creates a big problem: The tax credit lies within the jurisdiction of the Senate Finance Committee, but CIS lies within the jurisdiction of the Senate Homeland Security and Governmental Affairs Committee. And because the Finance Committee’s portion of the reconciliation bill can affect only programs within the Finance Committee’s jurisdiction, imposing programmatic requirements on CIS to verify citizenship status could exceed the Finance Committee’s scope—potentially jeopardizing the entire bill.

The verification provisions in Sections 1411 and 1412 of Obamacare also require using  Social Security numbers, triggering another potentially fatal blow to the entire bill. Senate sources report that, during drafting the original reconciliation bill repealing Obamacare in the fall of 2015, Republicans attempted to repeal the language in Obamacare (Section 1414(a)(2), to be precise) giving the HHS secretary authority to collect and use Social Security numbers to establish eligibility. However, because Section 1414(a)(2) of Obamacare amended Title II of the Social Security Act, Republicans ultimately did not repeal this section of Obamacare in the reconciliation bill because it could have triggered a point of order fatal to the legislation.

If both the points of order against the verification regime are sustained, Congress will have to re-write the bill to create an eligibility verification system that 1) does not rely on the Department of Homeland Security and 2) does not use Social Security numbers. Doing so would create both political and policy problems. On the political side, the revised verification regime would exacerbate existing concerns that undocumented immigrants may have access to federal tax credits.

But the policy implications of a weaker verification regime might actually be more profound. Weaker verification would likely result in a higher score from CBO and JCT—budget scorekeepers would assume a higher incidence of fraud, raising the credits’ costs. House leaders might then have to reduce the amount of their tax credit to reflect the higher take-up of the credit by fraudsters taking advantage of lax verification. Any reduction in the credit amounts would bring with it additional political and policy implications, including lower coverage rates.

Concerns over the Tax Credit Firewall

Finally, the tax credit “firewall”—designed to ensure that only individuals without access to other health insurance options receive federal subsidies—could also present procedural concerns. Specifically, pages 27 and 28 of the bill make ineligible for the credit individuals participating in other forms of health insurance, several of which—Tricare, Veterans Administration coverage, coverage for Peace Corps volunteers, etc.—lie outside the Finance Committee’s jurisdiction.

If the Senate parliamentarian advises for the removal of references to these programs because they lie outside the Finance Committee’s jurisdiction, then participants in those programs will essentially be able to “double-dip”—to receive both the federal tax credit and maintain their current coverage. As with the immigration provision outlined above, such a scenario could significantly increase the tax credits’ cost, requiring offsetting cuts elsewhere, which would have their own budgetary implications.

Senate sources indicate this “firewall” concern could prove less problematic than the immigration concern outlined above. While the immigration provision extends new programmatic authority to the administration to develop a revised eligibility verification system, the “firewall” provisions have the opposite effect—essentially excluding Tricare and other program recipients from the credit. However, if the parliamentarian gives guidance suggesting that some or all of the “firewall” provisions must go, that will have a significant impact on the bill’s fiscal impact.

Broader Implications Of These Procedural Problems

Both individually and collectively, these four potential procedural concerns hint at an intellectual inconsistency in the House bill’s approach, one Yuval Levin highlighted in National Review last week. House leaders claim their bill was drafted to comply with the Senate reconciliation procedures. But the bill itself contains numerous actual or potential violations of those procedures and amends some of Obamacare’s insurance regulations, rather than repealing them outright, making their argument incoherent.

Particularly on Obamacare’s costly insurance regulations, there seems little reason not to make the “ol’ college try,” and attempt to repeal the major mandates that have raised premium levels. According to prior CBO scores, other outside estimates, and the Obama administration’s own estimates, the major regulations have significant budgetary effects.

Republicans can and should argue to the parliamentarian that the regulations’ repeal would be neither incidental nor extraneous—their repeal would remove the terms and conditions under which Obamacare created its insurance subsidies in the first place, thus meeting the Byrd test. If successful, such efforts would provide relief on the issue Americans care most about: Reducing health costs and staggering premium increases.

On the tax credit itself, Republicans may face some difficult choices. Abortion and immigration present thorny—and controversial—issues, either of which could sink the legislation. On the bill’s tax credits, the “Byrd bath,” in which the parliamentarian gives guidance on what provisions can remain in the reconciliation bill, could become a bloodbath. If pro-life protections and eligibility verification come out of the bill, a difficult choice for conservatives on whether to support tax credits will become that much harder.

This post was originally published at The Federalist.

How Automatic Renewal Could Cost Obamacare Enrollees

Last month I wrote that as the Obamacare open-enrollment period for 2015 approaches, the administration “faces a double-edged sword: Making reenrollment easier could result in premium increases for many individuals, particularly because the most widely subscribed plans have proposed significant rate hikes.” Two developments last Thursday appear to confirm that analysis.

First, the administration released proposed regulations regarding reenrollment for 2015. As some expected, the regulations confirmed that insurance exchanges would reenroll individuals in their existing plans if enrollees remain eligible for qualified health plans through the exchange and the plan in which they were enrolled remains available for renewal.

The same day, consultants at Avalere Health released an analysis showing that most low-cost plans have proposed sizable rate increases for 2015. In seven of the nine states Avalere analyzed, the lowest-cost “silver” plan would change; in six of the nine states, the second-lowest-cost silver plan would change.

These pricing changes have special importance: Federal insurance subsidies are tied to the price of the second-lowest-cost silver plan. Enrollees in plans with premiums greater than that benchmark stand to pay the full difference in premiums–without additional federal subsidies. The Avalere analysis demonstrates how costly such a decision could be. One hypothetical enrollee in Maryland would see her out-of-pocket premiums rise from $58 per month to $94, a 62 percent increase. In this instance, $32 of the $36 monthly premium increase stems from staying in a plan more costly than Maryland’s benchmark premium.

The administration no doubt views auto-enrollment as a way to minimize what even a supporter of the health-care law called the “massive technological challenge” associated with redetermining eligibility. But as The Wall Street Journal reported two weeks ago, the lowest-cost plans for 2014 have recorded some of the highest enrollments this year—and have proposed large increases for 2015. Unless millions of individuals switch plans, they could be in for some nasty spikes in their out-of-pocket premium costs come Jan. 1.

This post was originally published at the Wall Street Journal Think Tank blog.

Ezra Klein Can’t Save Obamacare’s Broken Premium Promise

Ezra Klein’s column in Bloomberg this week attempted to defend then-Senator Barack Obama’s repeated promises to lower premiums by $2,500. Unfortunately for Klein, virtually all of his defenses fall short.

First, Klein claims that “there was no time frame attached to the promise.” On this count, he’s flat-out wrong. Campaign advisor Jason Furman—the President’s recent nominee to head the Council of Economic Advisors—told the New York Times in July 2008 that “We think we could get to $2,500 in [premium] savings [per family] by the end of the first term, or be very close to it.” If Klein wants to argue that Americans’ premiums have gone down by $2,500 since 2009, he’s welcome to do so—but I doubt many Americans would believe him.

Second, Klein claims that “the [health care] savings are actually materializing.” He cites a recent study from David Cutler to make his claim, but that study doesn’t actually say health costs and premiums are falling—it just says they’re rising by less than they otherwise would have. Similarly, the Administration has often cited a 2009 study from the Business Roundtable to defend its “lower premiums” claim. I don’t think many Americans would look at the chart from that study and define its projected trend—a line showing premiums going up by “only” $12,400 from 2009 to 2019—as “lowering” premiums.

Premiumchart

Source: Report to Business Roundtable by Hewitt Associates, November 2009.

Third, Klein doesn’t point out that many studies view Obamanomics, not Obamacare, as the root cause of the current slowdown in health spending. One study recently released by the Kaiser Family Foundation—not exactly a group of firebrand conservatives—concluded:

Our analysis suggests that the vast majority (77%) of the recent decline in the health spending trend can be attributed to broader changes in the economy.

Of course, if Klein and the Obama Administration want to take credit for the lousy economy that’s slowing down the growth of costs, they’re welcome to do so.

Finally, Klein spends the second half of his column arguing that people on the exchanges will pay more for insurance, but will get better coverage. Trouble is, that’s not what then-Senator Obama promised. His plan promised that “For those who have insurance now, nothing will change under the Obama plan—except that you will pay less.” Klein effectively admits that neither of those provisions is true—at least some individuals will be forced to buy more expensive coverage.

The fact that Klein’s arguments are so far removed from the purported intent of Obamacare—defining premium savings down, and admitting millions of Americans will lose their current coverage and be forced into more expensive insurance—shows the massive gap between the law’s rhetoric and its reality. If he wants to mount an intellectually honest defense of the law, Klein should start by acknowledging the false promises upon which it was sold to the American people.

This post was originally published at The Daily Signal.

Obama’s Health Care Legacy: A $3,000 Premium Increase

The most important story in health care today involves the release of the Kaiser Family Foundation’s annual survey of employer-sponsored health insurance premiums.  According to the survey, premiums rose by $56 per month, or $672 per year, for the average family health insurance plan – that’s an increase of more than 4 percent, more than twice the rate of inflation.

As a reminder, candidate Obama said repeatedly his bill would CUT premiums by an average of $2,500 per family – meaning premiums would go DOWN, not merely just “go up by less than projected.”  The campaign also promised that that those reductions would occur within Obama’s first term.  However, the annual Kaiser Foundation survey of employer-provided insurance found that average family premiums totaled $12,680 in 2008, $13,375 in 2009, $13,770 in 2010, $15,073 in 2011, and $15,745 this year.  In other words, while candidate Obama promised premiums would fall by $2,500 on average, premiums have risen by $3,065 since Barack Obama was elected President.  (A visual representation of this broken promise – updated to reflect this year’s survey data – is attached below.)

Other conclusions from the Kaiser study:

  • You CAN’T Keep Your Current Coverage:  The survey found that a majority (52%) of workers have now been forced out of their pre-Obamacare coverage – that’s an increase of 8 percent from just last year.  The loss of employees’ pre-Obamacare coverage is occurring even faster than the Administration’s own estimates, which concluded half of all employers – and as many as 80% of small businesses – will be forced to give up their current coverage by 2013.  Just as important, by giving up their pre-Obamacare plans, both employers and employees will be subjected to costly new mandates that will increase premiums.
  • New Requirements are Raising Premiums:  Significant percentages of workers were in plans that had to change their services covered (41%) or cost-sharing requirements (33%) to meet Obamacare’s new preventive service mandates.  And the percentage of plans having to increase their benefits due to Obamacare rose by 10 percent when compared to last year.  These new mandates by definition will raise premiums for plans, as this year’s premium increase demonstrates.

Just before Obamacare passed, former Speaker Pelosi famously said we had to pass the bill to find out what’s in it.  Today we have once again found out just how much the 2700-page law is failing to live up to the President’s promises.

Weekly Newsletter: April 20, 2009

Administration Reiterates Support for Government Rationing to Reduce Health Costs

Yesterday, National Economic Council Director Larry Summers appeared on Meet the Press, where he offered his comments on the Administration’s health reform proposals.  Asked how the Administration intended to pay for the $1.5 trillion cost of its proposed new government-run health plan, Summers responded that “cost-effectiveness research [and] doing a better job on reimbursements” would achieve savings—“we could take as much as $700 billion a year out of our health care system.”

Some Members may be concerned that these comments, coupled with President Obama’s stated desire to create a government-run health plan that would cause as many as 120 million Americans to lose their current health coverage, would result in explicit rationing of care by government bureaucrats in order to pay for the costs of the Administration’s universal coverage scheme.  Some Members may also question how many jobs will be lost as a result of this arbitrary reduction of up to $700 billion in health care expenditures.

A previously prepared Policy Brief on the potential for health care rationing as a result of proposals in the Obama budget can be found here.

If It Walks Like a Duck…

During Congress’ two-week Easter recess, Administration officials and others have been talking about a government-run health plan, and how a so-called “public option” could be structured in such a manner as to address Member concerns on the issue.  On Wednesday, the head of the White House Office of Health Reform, Nancy-Ann DeParle, claimed that a government-run plan need not look like Medicare, and that, “when you start talking to [Members of Congress] about what [a government-run plan] might look like, you realize that you’re talking about two different things.”

However, many Members may remain concerned that the very nature of a government-run health plan means that it will end up eliminating private health coverage.  Congressional Budget Office Director Elmendorf recently testified that it would be “extremely difficult” to have a government-run plan compete “on a level playing field” with private coverage—and Democrats’ own actions prove that point.  For instance, some Members may note that the same Obama Administration that proposed a “level playing field” between a government-run health plan and private coverage want to eliminate the private market for student lending, forcing all students to use the government-run plan for college loans.  Some Members may therefore be concerned that Democrats would purposefully use a government-run health plan, no matter its structure, in order to eradicate private health coverage—just as they are currently attempting to do with the student loan marketplace.

A Policy Brief outlining potential concerns with a government-run health plan can be found here.

A Victory for Honest Budgeting

Just before the Easter recess, the Congressional Budget Office (CBO) released a letter with significant implications for the upcoming health reform debate.  In a letter to House Budget Committee Chairman Spratt, CBO defended its estimates for current law spending under Medicare—including the impact of a 21% cut in physician reimbursement levels scheduled to occur in January under the Sustainable Growth Rate (SGR) mechanism.  CBO Director Elmendorf noted it is unclear whether reductions in physician payment levels would, for instance, cause hospital spending to rise—a scenario which would likely reduce the estimated $285 billion cost of repealing the SGR.

Some Members may be heartened by this assessment, and what it portends for its analysis of health reform proposals.  Democrats have already admitted the implications of the CBO scoring model on the Congressional debate, with Senate Finance Committee Chairman Baucus going so far as to claim that the success or failure of health reform legislation hinges on the actions of CBO Director Elmendorf.  Yet despite Chairman Baucus’ public comments—and a letter from Chairman Spratt designed to create “phantom” budgetary savings unsupported by evidence—CBO has thus far indicated that it will not be moved by Democrat political pressure.  In a world of record budget deficits and seemingly unrestrained spending, some Members may find CBO’s impartial, evidence-based philosophy to budgetary score-keeping to date a refreshing approach.

Article of Note: A Democrat Leader Cautions His Party

Last Monday, a voice from the 1993-94 health reform debate re-surfaced to offer President Obama and Congressional Democrats advice on over-reaching in their efforts this time round.  Former House Majority Leader Dick Gephardt (D-MO), in an interview with the New York Times, warned his fellow Democrats to spend more time focusing on reducing health costs and less time on creating a government-run health insurance plan for all Americans.  Gephardt—who unsuccessfully attempted to cobble together a health reform bill that could pass the House in the summer of 1994—said that universal coverage “needs to be dealt with.  But the way to get to it is to show that we can deal with some of these problems [i.e. skyrocketing health costs] first.”

Some Members may agree with former Leader Gephardt’s assessment, and believe that slowing the growth of health costs while placing our existing entitlement programs on a stable long-term footing should take precedence over creating a new government-run health plan.  Medicare currently faces unfunded obligations of $36 trillion, and its Hospital Insurance Trust Fund is scheduled to be exhausted as soon as 2016.  However, Democrats have put forth no comprehensive plan to solve Medicare’s shortfalls, and President Obama proposed to use Medicare savings in order to create a “reserve fund” financing new entitlements—taking money from a program for seniors to expand health coverage for the young.  Some Members may believe that spending as much as $1.5 trillion on a new government-run health plan is precisely the wrong way to control costs, and that expanding competition—not government—represents a better approach to health reform.

Read the article here.

Legislative Bulletin: H.R. 2, Children’s Health Insurance Program Reauthorization Act

Order of Business: On January 14, 2009, H.R. 2 is expected to be considered on the floor under a likely closed rule, requiring a majority vote for passage. The rule is expected to waive all points of order against the bill, except those arising under clauses 10 of rule XXI (PAYGO), and provide for one hour of debate, equally divided between the Majority and the Minority, with one motion to recommit. This legislation was introduced by Representative Frank Pallone (D-NJ) on January 13, 2009. The bill was referred to the House Committees on Energy and Commerce and Ways and Means, but was never considered.

Summary: The State Children’s Health Insurance Program (SCHIP), established under the Balanced Budget Act (BBA) of 1997, is a state-federal partnership originally designed to provide low-income children with health insurance—specifically, those children under age 19 from families with incomes under 200 percent of the federal poverty level (FPL), or $42,400 for a family of four in 2008. Funds are provided to states on the basis of capped allotments, and states receive an “enhanced” federal match greater than the federal Medicaid matching rate in order to enroll covered children. SCHIP received nearly $40 billion in funding over ten years as part of BBA, and legislation passed by Congress in December 2007 (P.L. 110-173) extended the program through March 2009, while providing additional SCHIP funds for states.

H.R. 2 would reauthorize and expand the State Children’s Health Insurance Program (SCHIP), as follows:

Funding and Allotments: The bill would maintain the current capped allotment method of SCHIP financing but would increase the allotments over the four and a half year period of the reauthorization (through September 30, 2013). Including funding for the first half of the current fiscal year (i.e. through March 30, 2009) already provided under P.L. 110-173, the bill would include total SCHIP funding of nearly $69 billion—an increase of almost $44 billion in SCHIP outlays when compared to the statutory baseline.

The bill increases funding levels for the five fiscal years covered in the program—a total of $10.6 billion in FY09, $12.5 billion in FY10, $13.5 billion in FY11, and nearly $15 billion in FY12. For Fiscal Year 2013, the bill includes a total of $17.4 billion in funding. However, this funding would be delivered in two installments—one appropriation of $14.4 billion in October 2012, and a second six-month appropriation of $3 billion in March 2013. Some Members may be concerned that this funding “cliff”—which presumes a 66% reduction in SCHIP expenses, from $17.4 billion in FY13 to $6 billion in FY14—is a budgetary gimmick designed primarily to mask the true costs of an SCHIP expansion.

The bill shortens from three years to two years the amount of time states have to utilize their allotment funding and provides that unused state allotments would be redirected to states projected to have allotment shortfalls after that period. The bill rebases state allotments every two years to reflect actual state expenditures and provides that state allotments will increase annually to reflect increases in health care expenditures and the growth of child populations within each state. The bill language would permit states to obtain increases in their allotments to reflect planned future expansions of SCHIP coverage and would allow certain states to receive the enhanced SCHIP federal matching rate (if funds are available from the state’s allotment) for Medicaid coverage of children in families with incomes above 133% FPL ($28,196 for a family of four in 2008).

Child Enrollment Contingency Fund: The bill would establish a new contingency fund within the U.S. Treasury for states that exceed their allotments, while also increasing enrollment at a rate that exceeds the states’ child population growth by at least 1%. The money within the contingency fund would be carved out from the SCHIP allotments described above and could not exceed 20% of overall SCHIP funding. Some Members may be concerned that the fund—which does not include provisions making additional payments contingent on enrolling the low-income children­ for which the program was designed—will therefore help to subsidize wealthier children in states which have expanded their programs to higher-income populations, diverting SCHIP funds from the program’s original purpose.

Performance Bonus Payments: The bill creates a new performance bonus payment mechanism to offset state costs associated with enrollment outreach and retention activities. States which increase coverage of eligible low-income children in Medicaid by at least 2% will be eligible for bonuses of up to 15% of each beneficiary’s projected costs, and states which exceed their targets for enrolling eligible children by at least 10% will become eligible for additional bonus payments of up to 62.5%.

Funding for the performance bonus system under the bill totals at least $3.3 billion, which would be increased by any allotments not obligated to the states or any state allotments not expended or redistributed to other states. State eligibility for the performance bonuses would remain contingent on states’ use of several practices designed to increase ease of enrollment, including continuous eligibility for at least 12 months, eliminating or liberalizing asset tests associated with enrollment applications, automatic administrative renewal, presumptive eligibility for children, and participation in the “Express Lane” process outlined below.

As there are no provisions linking payment of performance bonuses to the enrollment of low-income children, some Members may be concerned that these performance bonuses may provide an inducement to instead enroll children from wealthier families, diverting the program from its original intent. Some Members may also be concerned that the provision linking performance bonuses to the adoption of at least four so-called best practices for enrollment—including the “Express Lane” process—will provide a strong financial incentive for states not to scrutinize the eligibility of certain applicants.

Coverage of Pregnant Women: The bill adds new language permitting states to utilize SCHIP funding to cover low-income, pregnant women. The bill imposes several requirements on states seeking to use SCHIP funds to cover pregnant women, including a minimum eligibility threshold of at least 185% FPL (and not below the Medicaid eligibility threshold) for pregnant women only after covering all children under and 200% FPL without a waiting list or other enrollment cap to limit children’s participation in the program. The provision provides that children born to certain low-income pregnant women participating in SCHIP will automatically be enrolled in the program for the child’s first year.

Coverage of Childless Adults: The bill prohibits the Centers for Medicare and Medicaid Services (CMS) from approving further waivers to cover childless adults under the SCHIP program and phases out SCHIP coverage of childless adults. States requesting an extension will receive a waiver to cover childless adults for two years under SCHIP. The bill also allows states to apply for a Medicaid waiver to continue to cover childless adults but at the lower Medicaid matching rate instead of the enhanced SCHIP rate. Some Members may be concerned that the bill would permit the continued coverage of childless adults within SCHIP for at least two years—and for indefinite periods beyond that using the lower Medicaid match rate—diverting its focus from the targeted low-income children for whom it was created.

Coverage of Low-Income Parents: The bill also prohibits the issuance of new SCHIP waivers permitting the coverage of low-income parents and phases out parent coverage. States may request an automatic two-year extension to cover low-income parents, and may continue coverage of low-income parents through the length of the authorization legislation (i.e. until October 2013), provided the state does not increase its income eligibility thresholds for parent coverage. Some Members may be concerned that the bill would permit the continued coverage of low-income adults within SCHIP for at least five years, diverting its focus from the targeted low-income children for whom it was created.

Coverage of Higher-Income Children: The bill places certain restrictions on states’ matching rate for coverage of children in families with “effective family income” higher than 300% FPL—$63,600 for a family of four in 2008—to the lower Medicaid match rate, rather than the enhanced SCHIP federal match. Specifically, the bill would prohibit states from using a “general exclusion of a block of income that is not determined by type of expense or type of income.” This provision is designed to address an issue related by New Jersey’s SCHIP program, which disregards all income between 200-350% FPL for purposes of eligibility—thus making children in families with incomes up to $74,200 eligible for federal health benefits.

However, the bill expressly retains states’ ability to disregard unlimited amounts of income by type of income (i.e. salary, capital gains) or type of expense (i.e. disregard all housing-related expenses)—thus permitting states to continue to use “income disregards” effectively to ignore some or all of a family’s income for purposes of determining whether the family income falls below the 300% FPL threshold. And the bill grandfathers in states (i.e. New Jersey) that already have programs in place using blanket income disregards.

Some Members may be concerned first that this provision does not prohibit states from expanding their Medicaid programs to families with incomes above $64,000, and second that the provisions allowing continued use of “income disregards” will only encourage states to use such mechanisms to expand their SCHIP programs to wealthier families—rather than covering poor children first.

Crowd-Out Provisions: The bill does not contain provisions to reduce “crowd-out”—that is, individuals leaving private coverage in order to join a government program—included in both versions of SCHIP legislation (H.R. 976, H.R. 3963) in 2007. Those provisions included several studies about the extent to which crowd-out occurs within SCHIP, best practices on how to reduce crowd-out, and authority for the Secretary to reduce payments to states enrolling too many children above 300% FPL. Some Members may be concerned that removal of these provisions will remove the last disincentive for states to enroll large numbers of children in families with incomes above $64,000—and possibly well above that threshold.

According to the Congressional Budget Office, the bill would result in 2.4 million individuals dropping private health insurance coverage to enroll in government programs—a higher level of crowd-out in both number and percentage terms than the first SCHIP bill (H.R. 976) presented to President Bush in 2007.

Outreach and Enrollment Provisions: The bill includes $100 million in new mandatory funding for grants to various entities—including states, localities, elementary and secondary schools, and other non-profit or faith-based organizations—to conduct outreach and enrollment activities, including 10% for a national enrollment campaign and an additional 10% set-aside for the Indian Health Service. The bill also provides a minimum 75% Medicaid and SCHIP match for translation or interpretation services under the two programs.

“Express Lane” Enrollment Option: The bill permits states to use eligibility determinations from “Express Lane” agencies as a means to facilitate enrollment in Medicaid and SCHIP, including renewals and re-determinations of coverage. Agencies—including but not limited to those which determine eligibility for Temporary Assistance to Needy Families (TANF), food stamps, federal school lunch programs, Head Start, and federal housing assistance—may not deem children ineligible for coverage based solely on an initial adverse determination with respect to income eligibility.

Under the program, states may establish an income threshold 30 percentage points above the Medicaid or SCHIP eligibility limit (i.e. if the SCHIP eligibility limit is 300% FPL, the state may establish a threshold of 330% FPL for purposes of Express Lane determinations). States may also temporarily enroll children in SCHIP if the child in question “appears eligible” (criteria undefined) based on the Express Lane agency’s income determination, subject to a “prompt follow up” (time limit undefined) by the state as to whether or not the child actually qualifies. The bill also allows states to “initiate and determine eligibility” for Medicaid or SCHIP “without a program application from, or on behalf of” children based on data from other sources.

The bill provides for a annual sample audit of Express Lane cases to establish whether or not the eligibility determinations made comport with eligibility determinations made using the full Medicaid review process and provides for state remedial actions (and eventually payment reductions) if the error rate for such audits exceeds 3%. The bill sunsets the Express Lane option at the end of the authorization and includes $5 million for a report on its effectiveness.

Some Members may be concerned first that the streamlined verification processes outlined above will facilitate individuals who would not otherwise qualify for Medicaid or SCHIP, due either to their income or citizenship, to obtain federally-paid health benefits.

Citizenship Verification: Current law applies citizenship verification requirements differently to state SCHIP programs, depending upon the nature of the program. The BBA permitted states to establish separate SCHIP programs, utilize Medicaid expansions to cover eligible populations, or some combination of the two. The eight states and the District of Columbia that chose Medicaid expansions, along with Medicaid beneficiaries of the 24 states that chose combination programs, must comply with citizenship verification provisions enacted as part of the Deficit Reduction Act (DRA, P.L. 109-171) in 2006. These procedures—which include verification of citizenship and nationality by presenting any of a variety of documents (e.g. birth certificate, passport, etc.)—were prompted in part by a July 2005 Inspector General report, which found that 47 states (including the District of Columbia) often relied on an applicant’s self-attestation of citizenship to determine Medicaid eligibility and that 27 of these states undertook no effort to determine whether the self-attestation was accurate. Beneficiaries in the 18 states with separate SCHIP programs are not subject to the DRA verification requirements with respect to either citizenship or nationality.

The bill provides an alternative to the Medicaid citizenship verification process enacted in DRA—and extends this process to beneficiaries in stand-alone SCHIP programs—for children up to age 21 by allowing states to verify applicants’ citizenship through a name and Social Security number match. If the Social Security Administration finds an invalid match, the state must make “a reasonable effort to identify and address the causes of such invalid match;” in the event the state cannot resolve the discrepancy, it must dis-enroll the individual within 120 days, during which time the individual in question has 90 days to respond and present satisfactory evidence to resolve the mis-match.

States will be required to submit data for each applicant to determine the states’ invalid match rates, but errors will only include cases where the individual has been dis-enrolled by the state after having received SCHIP benefits. The bill provides that states with error rates above 3% will be required to pay back funds used to pay for ineligible individuals in excess of the 3% threshold—except that the Secretary may waive such a return requirement “if the state is unable to reach the allowable error rate despite a good faith effort.”

Some Members may echo the concerns of Social Security Commissioner Michael Astrue, who in a September 2007 letter stated that the verification process proposed in the bill would not keep ineligible individuals from receiving federal benefits—since many applicants would instead submit another person’s name and Social Security number to qualify. Some Members may believe the bill, by laying out a policy of “enroll and chase,” will permit ineligible individuals, including illegal aliens, to obtain federally-paid health coverage for at least four months during the course of the verification process. Finally, some Members may be concerned that the bill, by not taking remedial action against states for enrolling illegal aliens—which can be waived entirely at the Secretary’s discretion—until states’ error rate exceeds 3%, effectively allows states to provide benefits to illegal aliens.

Coverage of Legal Aliens: The bill would permit states to cover legal aliens in Medicaid and SCHIP programs without imposing the five-year waiting period for most legal aliens to receive federal welfare benefits established as part of the welfare reform law (P.L. 104-196) signed by President Clinton in 1996. For decades, Medicare has maintained a five-year residency requirement for legal aliens to obtain access to benefits; this waiting period was upheld by the Supreme Court in 1976, when Justice John Paul Stevens, writing for a unanimous Court in the case of Mathews v. Diaz, held that “it is obvious that Congress has no constitutional duty to provide all aliens with the welfare benefits provided to citizens.”

Some Members may be concerned that permitting states to cover legal aliens without imposing waiting periods will override the language of bipartisan welfare reform legislation passed by a Republican Congress and signed by a Democrat President, conflict with decades-long practices in other federally-sponsored entitlement health programs (i.e. Medicare), and encourage migrants to travel to the United States for the sole or primary purpose of receiving health benefits paid for by federal taxpayers.

Premium Assistance: The bill permits states to establish premium assistance programs—which provide state and federal funds to finance employer-sponsored health insurance. The bill provides that employers must pay at least 40% of premium costs in order for the policy to qualify for premium assistance but prohibits high-deductible policies associated with Health Savings Accounts (HSAs) from qualifying under any circumstances.

The bill changes the current premium assistance criteria within SCHIP, such that rather than requiring the cost of covering the entire family through the employer policy be less than the costs to enroll a child in government-run coverage, states should instead use an “apples-to-apples” comparison of the marginal costs of covering the applicable child (or children) when compared to enrolling the child in SCHIP. The bill also permits states to “wrap-around” coverage to supplement the employer policy if the latter does not meet appropriate SCHIP benchmark standards, and to establish a purchasing pool for small employers (i.e. those with fewer than 250 employees) with low-income workers to provide workers options to utilize premium assistance to enroll their families.

The bill requires states that have created premium assistance programs to inform SCHIP applicants of the program and includes provisions regarding coordination with employer coverage and outreach to workers to inform them of premium assistance. However, the bill does not require states to establish premium assistance programs. Some Members may therefore be concerned that the bill does not ensure that all children with access to employer-sponsored coverage will be able to maintain their current coverage.

Quality Measures: The bill requires CMS to develop an initial set of child health quality measures for state Medicaid and SCHIP programs, including those administered by managed care organizations, and establish programs allowing states to report such measures and disseminate information to the states on best practices. The bill includes further requirements for the Department to create a second pediatric quality measures program “to improve and strengthen the initial core child health care quality measures” and authorizes grants and contracts to develop and disseminate evidence-based quality care measures for children’s health.

The bill requires states to report annually on state-specific health quality measures adopted by their Medicaid and/or SCHIP plans and authorizes up to 10 grants for demonstration projects related to improved children’s health care and the promotion of health information technology. The bill also authorizes (subject to appropriation) $25 million for a demonstration project to reduce childhood obesity by awarding grants to eligible local governments, educational or public health institutions, or community-based organizations.

The bill establishes a program to develop a model electronic health record for Medicaid and SCHIP beneficiaries and authorizes a study on pediatric health quality measures. These and the other quality programs addressed above would be funded through mandatory appropriations totaling $45 million per fiscal year.

Lastly, the bill applies certain quality provisions to the managed care organizations with whom states contract to provide SCHIP benefits—including marketing restrictions, required disclosures to beneficiaries, and access and quality standards both for the managed care organizations and the state agencies overseeing them. The bill also requires a Government Accountability Office (GAO) study on whether the rates paid to SCHIP managed care plans are actuarially sound.

Enhanced Benefits: The bill requires state SCHIP plans to have access to dental benefits, and mandates that those dental plans resemble a) coverage provided to children under the Federal Employee Health Benefit Program (FEHBP), b) “a dental benefits plan that is offered and generally available to state employees,” or c) the largest commercially-available dental plan in the state based on the number of covered lives.

The bill includes language requiring mental health parity in state SCHIP benefits, specifically that “financial requirements and treatment limitations applicable to such…benefits” are no more restrictive than those applied to medical and surgical benefits covered by the plan and establishes a prospective payment system for federally qualified health centers receiving Medicaid reimbursements. The bill also requires that states impose a grace period of at least 30 days on beneficiaries for non-payment of any applicable premiums due before terminating the beneficiaries’ coverage; under current law, such premiums generally only apply to individuals with family incomes above 150% FPL.

Other Provisions: The bill includes language stating that “nothing in this Act allows federal payment for individuals who are not legal residents.” However, as noted above, the bill provisions allow states to verify SCHIP eligibility without document verification and provide no financial penalties to states enrolling illegal aliens until those errors (which in the case of “Express Lane” applications will be derived from sample audits, not scrutiny of each application) exceed 3%—and these penalties may be waived in the Secretary’s sole discretion.

The bill includes language prohibiting the Department of Health and Human Services from approving any new state Health Opportunity Account demonstrations under the program established in DRA. Some Members may be concerned that the prohibition on this innovative—and entirely voluntary—program for beneficiaries may hinder beneficiaries’ ability to choose the health plan that best meets their needs.

The bill would disregard any “significantly disproportionate employer pension or insurance fund contribution” when calculating a state’s per capita income for purposes of establishing the federal Medicaid matching percentage for that state. According to CMS, only one state would benefit from this provision—Michigan. The bill would also increase Disproportionate Share Hospital (DSH) allotments for Tennessee and Hawaii and would clarify the treatment of a regional medical center in such a manner that the Congressional Budget Office, in its score of the bill, identified the provision as specifically benefiting the Memphis Regional Medical Center. Some Members therefore may view these provisions as constituting authorizing earmarks.

Tobacco Tax Increase; Pay-Fors: The bill would increase by 61 cents—from 39 cents to $1—the federal per-pack tobacco tax and place similar increases on cigars, cigarette papers and tubes, and smokeless and pipe tobacco products. Some Members may be concerned that an increase in the tobacco tax, which is highly regressive, would place an undue and unnecessary burden on working families during an economic downturn and could encourage the production of counterfeit cigarettes by criminal organizations and other entities.

The bill would impose additional restrictions on so-called specialty hospitals by limiting the “whole hospital” exemption against physician self-referral. Specifically, the bill would only extend the exemption to facilities with a Medicare reimbursement arrangement in place as of January 1, 2009, such that any new specialty hospital—including those currently under development or construction—would not be eligible for the self-referral exemption. The bill would also place restrictions on the expansion of current specialty hospitals’ capacity, such that any existing specialty hospital would be unable to expand its facilities, except under limited circumstances. Given the advances which several specialty hospitals have made in increasing quality of care and decreasing patient infection rates, some Members may be concerned that these additional restrictions may impede the development of new innovations within the health care industry.

Lastly, the bill increases the percentage of payment of certain corporate estimated taxes in the last fiscal quarter of 2013 by 1%, and reduces the next applicable estimated tax payment in the first fiscal quarter of 2014 by a similar amount.

Cost: According to the Congressional Budget Office, the bill would increase direct spending by a total of $39.4 billion between Fiscal Year 2009 and Fiscal Year 2014, and $73.3 billion over the FY09-FY19 period. Most of the spending in the first five years of the budget window ($34.3 billion) would be derived from the SCHIP expansion; and Medicaid spending in the latter five years would rise, as the score notes that children enrolled in SCHIP would be shifted to the Medicaid program upon SCHIP’s expiration. However, both the Medicaid and SCHIP scores are contingent upon provisions in the bill cutting SCHIP spending from $17.4 billion in Fiscal Year 2013 to $6 billion in Fiscal Year 2014. To the extent that Members believe this 66% reduction in SCHIP expenses will not take place, they may be concerned that the funding “cliff” is a budgetary gimmick designed to mask the true costs of the bill’s expansion of health care benefits.

The Joint Committee on Taxation estimates that the increase in tobacco taxes would generate $38.8 billion through Fiscal Year 2014, and $72 billion from Fiscal Years 2009-2018. The bill also increases revenues by $1.6 billion through Fiscal Year 2018 as a result of individuals dropping private health insurance in order to enroll in the SCHIP program, as employees with group health insurance would have less of their income sheltered from payroll and income taxes.

The JCT score on the tobacco tax notes that the tax provisions would generate $7.2 billion in FY10 (the first full year the tax increase would take effect), but only $6.4 billion in Fiscal Year 2019—a decrease of more than 10%. Some Members may be concerned that expansions of the SCHIP program would rely on a declining source of revenue.