Big Hospitals’ Obamacare Hypocrisy

As Republicans prepare legislation to repeal Obamacare, the health care industrial complex has raised a host of concerns. Notably, two hospital associations recently released a report highlighting the supposed negative implications of the reconciliation bill Congress passed, and President Obama vetoed, late last year.

While the hospitals allege that repealing Obamacare would decimate their industry, their report cleverly omits four inconvenient truths.

1. They Pushed Bad Ideas Because They Expect Bailouts

Kahn gave a simple, yet cynical, reply: “You could say, did you make a bad deal, and fortunately, I don’t think I’ll probably be working after 2020 [Laughter.]….I’m glad my contract only goes another six years. [Laughter.]”

Fast-forward those six years to earlier this fall, when the Congressional Budget Office (CBO) analyzed the effects of various Obamacare provisions on hospital margins. The report concluded that even under the best-case scenario—in which hospitals achieve a level of efficiency non-partisan experts doubt they can reach—the revenue from Obamacare’s coverage expansions will barely offset the negative effects of the productivity adjustments. Under the worst-case scenario, more than half of hospitals could become unprofitable by 2025, and the entire industry could face negative profit margins.

Kahn knew full well in August 2010 that Obamacare would eventually decimate his industry, through the cumulative effect of year-over-year reductions in Medicare payments. The laughter during his comments demonstrates Kahn thought it was one big joke. He and his colleagues cynically calculated first that they wouldn’t be around when those payment reductions really started to bite; and second that Congress would bail the hospitals out of their own bad deal—essentially, that hospitals are “too big to fail.”

2. Hospitals Supported Raiding Medicare to Pay for Obamacare

Last year’s reconciliation bill essentially undid the fiscal legerdemain that allowed Obamacare to pass in the first place. In the original 2010 legislation, Democrats used savings from Medicare both to improve the solvency of Medicare (at least on paper) and to fund the new entitlements.

The reconciliation bill would have repealed the new entitlements, and—in a truly novel concept—used Obamacare’s Medicare savings to…save Medicare. Instead, the hospital industry wants to continue the budget gimmickry that allows Medicare money to be spent twice and used for other projects.

3. Hospitals Believe Entitlements Are for Them, Not You

In theory, individuals receiving cash contributions in lieu of Medicaid coverage could improve their health in all sorts of ways—buy healthier food, obtain transportation to a higher-paying job, move to a better apartment closer to parks and recreation. But who would object to giving patients cash to improve their health instead of insurance? You guessed it: Hospitals.

Hospitals view Medicaid as their entitlement, not their patients’. That’s why hospitals have worked so hard for Obamacare’s Medicaid expansion. It’s also why they wouldn’t support diverting money from coverage into other programs (e.g., education, housing, nutrition, etc.) that could actually improve patients’ health more than insurance, which has been demonstrated not to improve physical health outcomes.

4. Insisting Health Care Is Their Personal Jobs Program

Hospitals will claim that repealing Obamacare will cost industry jobs, just as they pushed for states to expand Medicaid as a way to create jobs. But economic experts on both sides of the aisle find this argument frivolous at best. As Zeke Emanuel, a former Obama administration official, has noted: “Health care is about keeping people healthy or fixing them up when they get sick. It is not a jobs program.”

The health-care sector seems to believe they have a God-given right to consume at least one-sixth of the economy (and growing). Rebutting hospitals’ argument—that they, and only they, can create jobs—might represent the first step in lowering health costs, which would help non-health sectors of the economy grow more quickly.

This post was originally published at The Federalist.

The IRS, Obamacare, and You: The Government Is Coming for Your Health Insurance Records

Thanks to Obamacare, all Americans will now have to submit their health insurance information to the Internal Revenue Service (IRS). Sadly, this new requirement comes at the same time that serious questions have been raised about the IRS’s ability to manage personal health records competently.

As American Enterprise Institute scholar Scott Gottlieb noted:

An unnamed health care provider in California is suing the IRS and 15 unnamed agents, alleging that they improperly seized some 60 million medical records of 10 million Americans, including medical records of all California state judges, on March 11, 2011.

The complaint alleges that IRS agents exceeded the scope of their search warrant, seizing not just financial records, but “information on psychological counseling, gynecological counseling, sexual and drug treatment, and other sensitive medical treatment data.”

The alleged data seizure occurred at roughly the same time in which employees in another division of the IRS targeted tea party and other conservative groups due to their political beliefs. If true, these new allegations regarding seized medical records would further undermine trust in the IRS’s ability to conduct its affairs properly and to manage the sensitive and confidential information all Americans submit to the agency every year.

As this week’s entire series has shown, the IRS’s reach within Obamacare seemingly knows no bounds. Armed with new bureaucrats and funded by a massive spending blitz, the IRS will implement trillions of dollars in tax increases; issue new regulations, edicts, and orders; impose new paperwork burdens on all Americans; and increase the scope of government intrusion into the lives of ordinary, law-abiding citizens.

Prior to the recent scandals, many Americans thought the IRS could not be trusted to implement Obamacare in a competent and impartial manner. Now they know it. It’s one more reason why Congress should repeal Obamacare once and for all.

This post was originally published at The Daily Signal.

In Defense of J.D. Kleinke

On Sunday the New York Times published an op-ed by American Enterprise Institute fellow J.D. Kleinke, entitled “The Conservative Case for Obamacare.”  In recent days, the piece has drawn a great deal of pushback from right-leaning commentators.

Some of the criticism is justified, for the article itself is internally inconsistent.  Even as it claims the law is market-based, the article talks about Obamacare’s “forcibl[e] repatriat[ion]” of individuals who choose not to purchase health coverage – and any “market” that relies upon coercion isn’t really a market at all.  It attempts to equate Obamacare with association health plans, when the former is the antithesis of the latter – association health plans were designed to allow small business to opt-out of onerous state benefit mandates, whereas Obamacare imposes a whole new cohort of benefit mandates at the federal level.

Kleinke’s article is also misleading and factually inaccurate on critical points.  He claims that “Republicans conveniently forgot that [an individual mandate] was something many of them had supported for years.”  The only problem with that claim is that Kleinke conveniently forgot that an individual mandate was something many Republicans had opposed for decades:

  • Conservatives made the claim in 1993 that an individual mandate was unconstitutional, claims which quickly gained resonance.
  • In “The System” – the seminal account of the Clintoncare debate – Haynes Johnson and David Broder note that by the time Senate Republicans gathered in Annapolis in mid-1994, the individual mandate was an area of much controversy within the Conference (page 363).
  • Senator Don Nickles – who introduced a bill that included an individual mandate in the fall of 1993 – introduced an entirely new version of the same bill seven months later – one which excluded the mandate.  In comments in the Congressional Record back in June 1994, Nickles noted that “as we received input from the states, it is my belief that this individual mandate should be dropped from the legislation.” (Record, June 16, 1994, page S7085).
  • Two dozen Senate co-sponsors – more than half the Republican Conference at the time – agreed with Nickles’ view, and dropped the mandate from the bill.

So there is ample evidence that an individual mandate was not conservative orthodoxy back in 1993-94, let alone 2008.  Senator Nickles pointed all this out in a letter to the editor published in the Times earlier this year – meaning the facts were, and are, readily available for all those who wish to search for them.  Sadly, however, Kleinke, like Ezra Klein and others, failed to do so, perhaps because the “Republicans switched positions on the mandate to defeat Obama” meme is too politically valuable to abandon.  One would have hoped that an AEI scholar would have been slightly more thorough in his research than a liberal “JournoList.”  Unfortunately, that does not appear to have been the case.

On the other hand, it’s worth examining the behavior of liberal analysts over the past several months:

Given this behavior from the left’s purported “scholars,” Kleinke benefits himself from the soft bigotry of low expectations.  Yes, his piece is factually incorrect, and logically and philosophically inconsistent.  But hey – at least he’s not being two-faced about his position.

The Bad, The Ugly, and The Good of Liberal Entitlement Proposals

The New England Journal of Medicine yesterday published two new papers on entitlement reform and controlling health costs.  The first, by AEI’s Joe Antos and several co-authors, highlights several market-based mechanisms to slow the growth of costs.  The second, published by a group of liberal academics convened by the Center for American Progress, includes proposals that can be described as “The Bad, The Ugly, and The Good.”

First, the bad.  The CAP paper claims that “the only sustainable solution [to entitlements] is to control overall growth in costs.”  The problem is that, as we previously noted, over the next 25 years, demographics count for at least half – and as much as three-quarters – of projected increases in spending on Medicare, Medicaid, Social Security, and Obamacare insurance subsidies.  These demographic changes make existing entitlements untenable over the long term.  Yet by putting forth a half-solution focused solely on containing health costs, the CAP paper presumes a status quo of existing entitlement structures that is fundamentally unsustainable.

Next, the ugly.  In order to contain costs, the CAP paper proposes a system of supposed “self-regulation” that amounts to Obamacare’s Independent Payment Advisory Board on steroids:

Under a model of self-regulation, public and private payers would negotiate payment rates with providers, and these rates would be binding on all payers and providers in a state….The privately negotiated rates would have to adhere to a global spending target for both public and private payers in the state.  After a transition, this target should limit growth in health spending per capita to the average growth in wages, which would combat wage stagnation and resonate with the public.  We recommend that an independent council composed of providers, payers, businesses, consumers, and economists set and enforce the spending target.

In other words, CAP proposes that a board of “experts” can set spending levels for the entire health care system, and enforce this spending cap through “self-regulation.”  Many may believe that this system of “self-regulation” wouldn’t last long, because the fundamentally arrogant premise that a group of “experts” can micro-manage the health care decisions of the entire country (or even entire states) would soon be revealed for the folly it is.  The ultimate result would be a(nother) government takeover – this one of the supposed “voluntary” boards – and a federally-imposed system of “rationing with our eyes open” previously advanced by one of the paper’s authors, Donald Berwick.

Fortunately, however, even the CAP paper focuses on some good policy.  The discussion of competitive bidding features the rare admission from a group of liberals that market-based solutions can work in health care:

Instead of the government setting prices, market forces should be used to allow manufacturers and suppliers to compete to offer the lowest price.  In 2011, such competitive bidding reduced Medicare spending on medical equipment such as wheelchairs by more than 42%….We suggest that Medicare immediately expand the current program nationwide.  As soon as possible, Medicare should extend competitive bidding to medical devices, laboratory tests, radiologic diagnostic services, and all other commodities.

Given that strong endorsement of competitive bidding for some of Medicare, the real question is why the authors don’t believe in competitive bidding for all of Medicare.  CAP said as recently as this week that private insurance plans can’t price their coverage options below traditional Medicare – meaning traditional Medicare wouldn’t lose market share under a competitive bidding plan – so what are the authors of the paper afraid of?

Some may believe the reason why liberals are afraid to let traditional Medicare compete is the same reason why liberals won’t admit Medicare’s significant demographic problems: A desire to cling to the shibboleth that government-run Medicare represents the epitome of progressivism, and must remain unchanged and inviolate in perpetuity.  For all the demographic and other reasons we’ve outlined previously and above, that’s simply not going to happen, no matter how hard the left tries to (over-)regulate the health sector.  Stein’s Law guarantees that the demographic problems constituting more than half of Medicare’s increase in spending will not go unaddressed.

So the real question for the left is when liberals will admit that traditional Medicare cannot survive unchanged, or with mere tweaks at the margins, and needs fundamental structural reform.  Perhaps at that point the left will recognize that the competitive bidding structure they have promoted for parts of the Medicare program is best served to change the entire program.  Now THAT would be a change we could all believe in.

Medicaid Matching Formulae and the Democrat “Stimulus”

SUMMARY AND BACKGROUND

Debate in the Senate this week on economic “stimulus” legislation may focus on the differences between the House and Senate plan to spend a proposed $90 billion increase in Medicaid matching funds to the States.  While this week’s debate may focus on providing an appropriate level of additional assistance to the States in greatest economic need, some Members may note that the underlying Medicaid matching formula itself has resulted in wealthier states spending more on their Medicaid programs than poorer ones.  Some Members may therefore support more enduring reforms to the Medicaid matching formula that would remedy this underlying inequity as a way to pay for the “temporary” increases in Medicaid spending being proposed and as a down payment on comprehensive entitlement reform.

The federal share of spending on States’ Medicaid programs is determined through the Federal Medical Assistance Percentage (FMAP).  Based on a formula that compares a State’s per capita income to per capita income nationwide—a mechanism designed to gauge a State’s relative wealth—the FMAP can range from a low of 50% to a maximum of 83%.  The federal match rate averages 57% of total Medicaid spending, which the Congressional Budget Office estimated to be $184 billion in 2008 (exclusive of State payments).  For Fiscal Year 2009, 13 States have a match rate of 50% (the statutory minimum), while eight States have match rates at or above 70% under the current funding formula.[1]

LEGISLATIVE STATUS

The Senate version of “stimulus” legislation under consideration this week, like the House-passed legislation (H.R. 1), would spend nearly $90 billion to increase federal Medicaid payments to the States—but would do so using different formulae.  The House would provide an across-the-board increase in the Federal Medical Assistance Percentage (FMAP) of 4.9% for a total of nine calendar quarters—from October 1, 2008 through December 31, 2010.  Both the scope and the length of the FMAP increase exceed the 2.95% increase in the federal match rate for five fiscal quarters passed to help States during the last economic downturn as part of tax and budget reconciliation legislation (P.L. 108-27).

The House bill includes further increases in the FMAP percentage for “high unemployment States,” which are defined by using a 3-month average unemployment rate.  If, when compared to any prior 3-month period after January 1, 2006, unemployment in a State has increased 1.5%, the FMAP will be increased by 6%; if unemployment has increased 2.5%, the FMAP will be increased by 12%; and if unemployment has increased 3.5%, the FMAP will be increased by 14%.  Once qualifying as having high unemployment, a State’s FMAP increases outlined above will remain until at least July 1, 2010, even if unemployment in that State falls prior to that date.

On the other hand, the Senate bill, while providing the same net increase in federal Medicaid funding over the same nine calendar quarters, dedicates more of the increased FMAP funding to all States, rather than those with high unemployment.  As passed by the Senate Finance Committee, the “stimulus” legislation would provide an across-the-board FMAP increase of 7.6%, as opposed to the House bill’s 4.9% blanket rise.  As a result, the increases for States with high unemployment would be reduced—States with unemployment rises over 1.5% would see an additional 2.5% increase (compared to 6% in the House bill), States with unemployment increases over 2.5% would see an additional 4.5% increase (compared to 12% in the House bill), and States with unemployment increases of 3.5% would see an additional 6.5% increase (compared to 14% in the House bill).

 

Both the House and Senate bills include language providing that no State’s FMAP percentage (exclusive of any across-the-board or unemployment-based increase) shall decline during the nine calendar quarter period.  Finally, both bills include “maintenance of effort” provisions such that States wishing to receive the FMAP increases may not impose more restrictive eligibility standards than those in effect on July 1, 2008 (unless the States retroactively remove such restrictions) and may not deposit any amounts “directly or indirectly” into a State’s rainy day fund or reserve account.

CONCERNS WITH THE FEDERAL FORMULA

Health policy experts have for some time raised questions about two distortions caused by the FMAP formula.  First, the matching formula inherently encourages States to spend money on their Medicaid programs, because the federal government is guaranteed to pay at least half of the costs.  A State receiving the minimum 50% match would need to cut $2 million from its Medicaid budget to generate $1 million in State budgetary savings, while a State receiving a 70% match would need to reduce Medicaid expenses by $3,333,333 in order to yield a net savings of $1 million to the State.  Thus the FMAP formula, by ensuring that federal expenditures will always meet or exceed State outlays, encourages States to increase their Medicaid entitlement spending during strong economic times and discourages States from enacting Medicaid reductions during times of fiscal austerity.

The end result has been a Medicaid program that in many States has increased in both good economic times and bad.  One study—titled “What Goes Up May Not Go Down”—found that during the economic expansion of the 1990s, Medicaid expenditures for the period 1994-2000 increased at a rate faster than both the general economy and State revenues—even while poverty rates were falling.  Some Members therefore may not be surprised that these significant expansions of spending necessitated $10 billion by Congress in 2003—and may question the structural deficiencies in the current Medicaid formula that encourage such fiscal behavior.

Second, the statutory 50% minimum matching percentage encourages wealthier States greatly to expand their Medicaid programs—because the State share of such increased spending is less than otherwise would have occurred absent the minimum threshold.  An independent analysis compared State Medicaid expenditure data provided by the Centers for Medicare and Medicaid Services (CMS) to State poverty counts issued by the Census Bureau, and found an inverse relationship between a State’s number of poor citizens and Medicaid spending.  For example, the study found that in Fiscal Year 2006, Vermont spent more than $8,032 per poor citizen on its Medicaid program—highest in the nation—despite having a poverty rate of just over 10.2%—the ninth lowest overall, and well below the federal average of 13.3%.[2]  In other words, the behavioral effects of the current FMAP formula mean that wealthier States spend more on Medicaid than poorer ones—exactly the opposite of FMAP’s intended goal.

ALTERNATIVES

While the current Senate debate regarding the “stimulus” provisions surrounds what portion of a “temporary” FMAP increase should be targeted to States currently experiencing high unemployment, some Members may believe that the distortionary effects created by the FMAP as explained above warrant a review of the Medicaid matching mechanism itself.  The Congressional Budget Office in its December 2008 Budget Options report noted that “the floor of 50% provides a number of States with FMAP rates well above the rates they would be assigned in the absence of such a floor;” in one case, a State’s FMAP level would be 15% absent the statutory minimum percentage.

The same Budget Options paper noted that reducing the statutory minimum FMAP percentage from 50% to 45% would yield $53 billion in savings, while removing the statutory minimum percentage entirely would, if phased in over three years, yield a total of $88 billion in savings—virtually the entire cost of the “temporary” FMAP increase included in both the House and Senate bills.  If the current debate in the Senate is designed to achieve a “fair” solution that provides the most federal assistance to the neediest States, lowering or removing the statutory floor on the FMAP percentage would enable all federal Medicaid dollars—including dollars currently being spent—to go to those States in greatest economic need, rather than to wealthier States most able to expand their Medicaid programs to middle-income populations.

Therefore, some Members may agree with the need for a thorough examination of the current financing arrangements for the Medicaid program.  The open-ended nature of the Medicaid match, particularly when coupled with the 50% minimum federal contribution rate, encourages States to shift their spending priorities towards receipt of the federal match.  The end result has often been a perpetual “tug of war” between States and the federal government, whereby States use various accounting mechanisms to shift additional costs (whether directly health related or not) on to the federal government’s books.[3]

The Government Accountability Office (GAO) has examined the inequities of the current FMAP formula for more than a quarter-century, first proposing a reduction in the minimum FMAP percentage from 50% to 40% in a 1983 report.[4]  Other policy-makers have advocated for a system of capped allotments—similar to that which fund the State Children’s Health Insurance Program (SCHIP)—as a way to provide fairer and predictable payments to States while controlling the growth of federal Medicaid costs.[5]  Because the “stimulus” provisions as currently drafted would not eliminate these perverse incentives—indeed, by increasing the FMAP match rate, would likely expand them—some Members may agree with the experts who have called for a new approach.

CONCLUSION

Over and above the concern that an increase in the federal Medicaid match by definition provides no “stimulus,” instead substituting federal expenditures for State spending, some Members may believe that both the House and Senate provisions as drafted would not achieve their intended goal of providing greater federal aid to States with the largest economic need.  By contrast, altering the minimum FMAP formula would provide funds to offset this “temporary” Medicaid expansion in the short term—and in the longer term would ensure that wealthy States neither consume a disproportionate share of federal matching dollars nor expand their Medicaid programs to middle-income populations for whom the program was never intended.  Some Members may therefore believe that fundamental FMAP reform, rather than adding more federal spending to an already flawed funding formula, would be consistent with President Obama’s call for the federal government to re-examine and reform its current entitlement programs.

 

For further information on this issue see:

[1] Fiscal Year 2009 FMAP Table, available at http://aspe.hhs.gov/health/fmap09.htm (accessed January 31, 2009).  Note that the data cited above exclude the FMAP percentages for the District of Columbia and federal territories, which are set by statute and do not vary from year to year.

[2] Testimony of Robert Helms, House Energy and Commerce Subcommittee on Health hearing on “State Fiscal Relief: Protecting Coverage in an Economic Downturn,” July 22, 2008, available at http://energycommerce.house.gov/images/stories/Documents/Hearings/PDF/Testimony/HE/110-he-hrg.072208.Helms-Testimony.pdf (accessed January 31, 2009); U.S. Census Bureau Small Area Income and Poverty Estimates, available at http://www.census.gov/cgi-bin/saipe/national.cgi?year=2006&ascii=  (accessed January 31, 2009).

[3] The phrase frames the title of an August 2006 white paper issued by the National Academy for State Health Policy regarding ways to improve the fiscal integrity of the Medicaid program.  See Sonya Schwartz, et al., “Moving beyond the Tug of War,” available online at http://www.nashp.org/Files/Medicaid_Fiscal_Integrity.pdf (accessed February 2, 2009).

[4] Government Accountability Office, “Changing Medicaid Formula Can Improve Distribution of Funds to States,” Report GAO/GGD-83-27, March 9, 1983; available online at http://archive.gao.gov/f0102/120787.pdf (accessed February 2, 2009).

[5] Robert Helms, “The Medicaid Commission Report: A Dissent,” American Enterprise Institute Health Policy Outlook #2, January 2007, available online at http://www.aei.org/docLib/20070111_200701AHPOg.pdf (accessed February 2, 2009).

 

Top Ten Reasons NOT To Support a Medicaid Bailout

This week, the House is expected to consider “stimulus” legislation spending $100 billion on Medicaid—more than $87 billion for an increase in the federal Medicaid match, and nearly $11 billion to extend Medicaid benefits (fully paid by the federal government) to unemployed workers, among other spending provisions.  Below are a list of possible reasons to oppose these provisions which Members may wish to consider in advance of the vote.

  1. Provides $100 Billion in New Spending—with No Accountability.  In November, Speaker Pelosi conditioned Congressional approval of $25 billion in aid to automakers on the “Big Three” providing plans to show their long-term viability.  The Democrat “stimulus” package would give states four times as much money—without requiring states to take any steps to demonstrate or improve the sustainability of their Medicaid programs.
  2. Makes Disgraced Former CEOs Eligible for Free Government Health Care.  Under the Democrat legislation, workers receiving unemployment compensation are automatically eligible for Medicaid, regardless of their former salary level or other income sources.
  3. Does Not Reform Fraudulent and Improper Payments in a “High-Risk” Program.  In 2003, the Government Accountability Office (GAO) classified the Medicaid program as “high-risk” due to high incidence of fraud—and recently cited $32.7 billion in improper payments made during 2007 alone.  Additional federal funding will not resolve the “significant challenges to address the program’s vulnerabilities” which GAO identified and may provide a perverse disincentive for states not to recoup Medicaid dollars by pursuing anti-fraud cases vigorously.
  4. Unprecedented Expansion of Federal Medicaid Role. The Democrat plan could result in the federal government would be paying nearly all of a state’s Medicaid expenses—and will result in the federal government paying all state costs to cover unemployed workers.  This significant alteration of the state-federal Medicaid partnership would discourage states from fighting fraud and could give states a strong incentive to shift additional costs (whether directly health related or not) on to the federal government’s books.
  5. Significantly Larger than Past Medicaid Bailouts.  When compared to a 2003 increase in the federal Medicaid match to help states recovering from the last recession, the Democrat language spends nearly nine times as much money ($87.7 billion vs. $10 billion) and provides a significantly higher increase in the Medicaid match (a minimum of 4.9% and a maximum of 18.9%, vs. 2.95%) for a longer period of time (nine fiscal quarters vs. five).
  6. Provides No Stimulus.  Because increasing the federal Medicaid match only substitutes federal spending for state dollars, many may find it difficult to justify such a measure as providing economic “stimulus.”
  7. Medicaid Increases Private Insurance Costs.  A recent study from actuaries at the consulting firm Milliman found that low reimbursement rates for public programs including Medicare and Medicaid resulted in a 12% increase in private insurance costs.  Some may therefore view an increase in Medicaid enrollment as potentially placing additional strain on the private insurance system due to sizable cost shifting from public to private plans.
  8. Flawed FMAP Formula Encourages States to Overspend.  While the Federal Medical Assistance Percentage (FMAP) matching formula was originally designed to provide greater assistance to poorer states, an independent analysis of CMS data indicates that states with higher concentrations of poverty actually have lower per-capita Medicaid spending—exactly the opposite result of FMAP’s intended goal.  Some Members may therefore be concerned that an additional FMAP bailout will do nothing to reverse this disparity, and may exacerbate it.
  9. States Increase Medicaid Spending in Good Economic Times and Bad.  An American Enterprise Institute study found that during the 1994-2000 boom years, Medicaid spending grew faster than both GDP and state revenues.  Some Members may therefore question whether states acted responsibly in expanding their Medicaid programs during flush economic times, and whether the federal government should reward such behavior.
  10. Exacerbates Entitlement Shortfalls.  At a time when unfunded obligations for Medicare and Social Security exceed $53 trillion, some Members may be concerned by the impact of increasing Medicaid spending—and the federal deficit—on our ability to respond to this crisis with reforms to slow the growth of health care costs.

Top Ten Conservative Concerns with a Medicaid Bailout

  1. States Already Received a Medicaid Bailout. In June 2008, the wartime supplemental blocked the Centers for Medicare and Medicaid Services (CMS) from issuing six regulations cracking down on state transactions designed solely to increase the percentage of Medicaid spending paid for by the federal government.  Some may view the $1.6 billion moratoria on these anti-fraud regulations as a bailout in its own right, and question why states are asking for yet more relief from the federal government.
  2. Discourages States from Fighting Fraud. In September, New York State announced a record $90 million settlement from one hospital related to improper and fraudulent billing practices—the third such settlement from the same hospital in a decade.  Providing additional federal matching funds may provide a perverse disincentive for states not to recoup Medicaid dollars by pursuing anti-fraud cases vigorously.
  3. States Not Reforming Their Medicaid Programs. The Kaiser Family Foundation reports that only eight states have taken advantage of language in the Deficit Reduction Act to alter their Medicaid benefit packages or introduce modest cost-sharing.  Given the structural deficiencies in many state programs—fraudulent activity, long waits for specialists, and un-coordinated care—conservatives may view a “blank check” for more state Medicaid spending without new accountability or reforms as a disservice to both the federal taxpayer and the needy beneficiaries which the program is designed to serve.
  4. Rewards States for Improper Budgeting. An Urban Institute study notes that lost revenue creates a significantly larger impact on state budgets than increased costs due to enrollment increases in programs like Medicaid.  Some conservatives may therefore view a Medicaid bailout as rewarding states who failed to project revenues accurately and/or build up adequate “rainy day” reserves.
  5. Provides No Stimulus. Because increasing the federal Medicaid match only substitutes federal spending for state dollars, even Keynesians may find it difficult to justify such a measure as providing economic “stimulus.”
  6. Medicaid Increases Private Insurance Costs. A recent study from actuaries at the consulting firm Milliman found that low reimbursement rates for public programs including Medicare and Medicaid resulted in a 12% increase in private insurance costs, as providers charged private insurers more for their services.  Some may therefore view an increase in Medicaid enrollment financed by this bailout as potentially placing additional strain on the private insurance system due to sizable cost shifting from public to private plans.
  7. Earmark for Michigan Automakers. H.R. 5268 includes language disregarding “extraordinary employer pensions” as income.  According to CMS, only one state would fall into this category—Michigan.  Some conservatives may view this provision as an authorizing earmark.
  8. Flawed FMAP Formula Encourages States to Overspend. While the Federal Medical Assistance Percentage (FMAP) matching formula was originally designed to provide greater assistance to poorer states, an independent analysis of CMS data indicates that states with higher concentrations of poverty actually have lower per-capita Medicaid spending—exactly the opposite result of FMAP’s intended goal.  Some conservatives may therefore be concerned that an additional FMAP bailout will do nothing to reverse this disparity, and may exacerbate it.
  9. Medicaid Spending Only Continues to Grow. An American Enterprise Institute study found that during the 1994-2000 boom years, Medicaid spending grew faster than both GDP and state revenues.  Some conservatives may therefore question whether states were irresponsible in expanding their Medicaid programs during flush economic times, and whether the federal government should reward such behavior.
  10. Exacerbates Entitlement Shortfalls. At a time when unfunded obligations for Medicare and Social Security exceed $53 trillion, some conservatives may be concerned by the impact of increasing Medicaid spending—and the federal deficit—on our ability to respond to this crisis with reforms to slow the growth of health care costs.

Weekly Newsletter: March 31, 2008

Medicare Trustees’ Report Highlights Program’s Fiscal Woes…

While Congress was in recess last week, the trustees of the Medicare Trust Funds released their annual report, which quantified the size of the fiscal obstacles facing the entitlement program. According to the trustees, the Hospital Insurance Trust Fund is scheduled to be exhausted in early 2019—just over one decade from now. In addition, the trustees for the third straight year projected that Medicare is scheduled to consume a growing share of general federal revenues, “triggering” another funding warning that requires the next President to submit legislation to Congress with his (or her) budget remedying Medicare’s funding.

Of particular note in the report was the fact that while projections of future spending on hospitals (Medicare Part A) remained constant, and future estimates of physician payment levels (Medicare Part B) increased, estimated future costs for the Medicare Part D prescription drug benefit provided by private insurance companies decreased. As health costs continue to rise both inside and outside the Medicare program, some conservatives may believe that the benefits of competition and consumer empowerment seen in Part D could yield measurable savings if extended to the other parts of Medicare.

Here are RSC Policy Briefs on the Medicare trustees’ report and on health care cost growth. More information on the Medicare trigger—and the President’s proposals for reform—can be found here.

…While Democrats Minimize Need for Entitlement Reform

The trustees’ report also notes that in the past twelve months, the anticipated size of Medicare’s unfunded obligations has grown from $74 trillion to nearly $86 trillion. As Joe Antos of the American Enterprise Institute noted at an AEI briefing last week, the one-year increase in Medicare’s unfunded obligations is itself nearly ten times the size of the total losses anticipated from the losses in sub-prime lending markets.

Estimates of $1.2 trillion in worldwide losses due to the current credit crunch, less than half of which will hit American institutions, have sparked numerous “relief” proposals from the Democrat majority. Yet when it comes to the $86 trillion in losses on the horizon for Medicare, Democrats like Rep. Pete Stark (D-CA)—Chair of the House Ways and Means Health Subcommittee, with prime jurisdiction over entitlement reform—refrained from demands for swift action, calling Medicare “solvent and sustainable” and claiming that “the trigger has been pulled by Republican ideologues,” when in reality the report was written by the non-partisan actuaries at the Centers for Medicare and Medicaid Services.

By contrast, many conservatives believe that the ominous statistics in the trustees’ report provide further impetus for Congress to utilize the Medicare “trigger” to enact comprehensive entitlement reform this year. Every year that Congress does not address the unfunded obligations associated with Social Security and Medicare, their size grows by trillions of dollars. Some conservatives would argue that with the Hospital Insurance Trust Fund scheduled to be exhausted in just over a decade, Congress must act now to preserve the promise of Medicare for the neediest of American seniors.

Clinton Proposes Cap on Insurance Premiums, Additional Taxes

In an interview with the New York Times last week, Sen. Hillary Clinton offered additional details about the formulation of her health care plan. Clinton expressed a desire to cap insurance premiums for individuals at between 5-10% of individuals’ income. She also indicated her support for restrictions requiring health insurance companies to pay out a defined percentage of premium costs on health benefits (as opposed to administrative costs or profits). And she advocated an increase in the tobacco tax to finance health care reform, despite the dwindling base of smokers left to pay such taxes: “At some point, there’s going to be diminishing returns. But, sure, why not? I don’t have any objection to that.”

However, some conservatives may have objections to the Clinton approach, starting with a tobacco tax that may encourage counterfeiting and result in a long-term fiscal imbalance leading to more taxes once tobacco revenues dwindle. Both capping premiums on individuals and mandating that insurers pay a high percentage of premiums in health benefits would constitute significant government price controls on an industry that spends more than one in six dollars consumed in the United States. And some conservatives may share the concerns of MIT professor Jonathan Gruber, who generally supports Clinton’s approach but conceded that a cap on insurance premiums at 5% of income would not be “realistic” because of the heavy government subsidies necessary to finance the difference.

Instead of a heavy-handed approach that relies on additional government regulation and taxation, many conservatives support principles that rely on consumer empowerment. Unleashing the forces of competition, and providing financial incentives for individuals to curb marginal spending on health care, represents the best way to bring down costs and ensure access to care.

Article of Note: A Cry on the Left for Freedom

Just before the recess, former Senator and Presidential candidate George McGovern (D-SD) published an op-ed article in the Wall Street Journal advocating a greater role for consumers in several segments of the economy, including health care. Noting the growing array of state benefit mandates on health insurance plans while premium costs continue to rise, McGovern criticizes the “health-care paternalism” whereby “states dictate that you [have] to buy a Mercedes or no car at all.” McGovern also notes support for the idea of buying health insurance across state lines, where plan premiums may be more reasonable—a principle supported by many conservatives and introduced by RSC Member John Shadegg (R-AZ) in H.R. 4460, the Health Care Choice Act.

The fact that an icon of the Left such as Sen. McGovern can decry the growth of government regulation as a development consistent with paternalism demonstrates the incapacity of the public sector to respond to challenges such as the rapid growth in health care costs. Many conservatives believe that only through a freer market—and common-sense solutions like buying health insurance across state lines— will America finally come to take control of its skyrocketing expenditures on health care.

Read the article here: The Wall Street Journal: “Freedom Means Responsibility” (subscription required)