White House Budget Summary: Obama’s “One Percent” Solution

According to the Congressional Budget Office’s most recent baselines, the federal government will spend a total of $6.87 trillion on Medicare and $4.36 trillion on Medicaid over the next ten years – that’s $11.2 trillion total, not even counting additional state spending on Medicaid.  Yet President Obama’s budget, released today, contains net deficit savings of only $152 billion from health care programs.  That’s a total savings of only 1.35 percent of the trillions the federal government will spend on health care in the coming decade.  Sadly, it’s another sign the President isn’t serious about real budget and deficit reform.

Overall, the budget:

  • Proposes a total of $401 billion in savings, yet calls for $249 billion in unpaid-for spending due to the Medicare physician reimbursement “doc fix” – thus resulting in only $152 billion in net deficit savings. (The $249 billion presumes a ten year freeze of Medicare physician payments; however, the budget does NOT propose ways to pay for this new spending.)
  • Proposes few structural reforms to Medicare; those that are included – weak as they are – are not scheduled to take effect until 2017, well after President Obama leaves office.  If the proposals are so sound, why the delay?
  • Requests a more than 50% increase – totaling $1.4 billion – for program management at the Centers for Medicare and Medicaid Services, of which the vast majority would be used to implement Obamacare.
  • Includes mandatory proposals in the budget that largely track last year’s budget and the President’s September 2011 deficit proposal to Congress, with a few exceptions.  The largest difference between this year’s budget and the prior submissions is a massive increase in savings from reductions to nursing and rehabilitation facilities – $79 billion, compared to a $32.5 billion estimated impact in September 2011.

A full summary follows below.  We will have further information on the budget in the coming days.

Discretionary Spending

When compared to Fiscal Year 2013 appropriated amounts, the budget calls for the following changes in discretionary spending by major HHS divisions (tabulated by budget authority):

  • $37 million (1.5%) increase for the Food and Drug Administration (not including $770 million in increased user fees);
  • $435 million (4.9%) increase for the Health Services and Resources Administration;
  • $97 million (2.2%) increase for the Indian Health Service;
  • $344 million (5.7%) increase for the Centers for Disease Control;
  • $274 million (0.9%) increase for the National Institutes of Health; and
  • $1.4 billion (52.9%) increase for the discretionary portion of the Centers for Medicare and Medicaid Services program management account.

With regard to the above numbers for CDC and HRSA, note that these are discretionary numbers only.  The Administration’s budget also would allocate an additional $1 billion mandatory spending from the Prevention and Public Health “slush fund” created in Obamacare, further increasing spending levels.  For instance, CDC spending would be increased by an additional $755 million.

Obamacare Implementation Funding and Personnel:  As previously noted, the budget includes more than $1.4 billion in discretionary spending increases for the Centers for Medicare and Medicaid Services, which the HHS Budget in Brief claims would be used to “continue implementing key provisions of [Obamacare].”  This funding would finance 712 new bureaucrats within CMS when compared to last fiscal year – a massive increase when compared to a request of 256 new FTEs in last year’s budget proposal.  Overall, the HHS budget proposes an increase of 1,311 full-time equivalent positions within the bureaucracy compared to projections for the current fiscal cycle, and an increase of 3,327 bureaucrats compared to last fiscal year.

The budget includes specific requests related to Obamacare totaling over $2 billion, including:

  • $803.5 million for “CMS activities to support [Exchanges] in FY 2014,” including funding for the federally-funded Exchange, for which the health law itself did not appropriate funding;
  • $837 million for “beneficiary education and outreach activities through the National Medicare Education program and consumer support…including $554 million for the [Exchanges];”
  • $519 million for “general IT systems and other support,” including funding for the federal Exchange;
  • $3.8 million for updates to healthcare.gov;
  • $18.4 million to oversee the medical loss ratio regulations; and
  • $24 million for administrative activities in Medicaid related to “implement[ing] new responsibilities” under Obamacare.

Exchange Funding:  The budget envisions HHS spending $1.5 billion on Exchange grants in 2013.  That’s an increase of over $300 million compared to last year’s estimate of fiscal year 2013 spending – despite the fact that most states have chosen not to create their own Exchanges.  The budget anticipates a further $2.1 billion in spending on Exchange grants in fiscal year 2014.  The health care law provides the Secretary with an unlimited amount of budget authority to fund state Exchange grants through 2015.  However, other reports have noted that the Secretary does NOT have authority to use these funds to construct a federal Exchange.

Abstinence Education Funding:  The budget proposes eliminating the abstinence education funding program, and converting those funds into a new pregnancy prevention program.

Medicare Proposals (Total savings of $359.9 Billion, including interactions)

Bad Debts:  Reduces bad debt payments to providers – for unpaid cost-sharing owed by beneficiaries – from 65 percent down to 25 percent over three years, beginning in 2014.  The Simpson-Bowles Commission made similar recommendations in its final report.  Saves $25.5 billion.

Medical Education Payments:  Reduces the Indirect Medical Education adjustment paid to teaching hospitals beginning in 2014, saving $11 billion.  Previous studies by the Medicare Payment Advisory Committee (MedPAC) have indicated that IME payments to teaching hospitals may be greater than the actual costs the hospitals incur.

Rural Payments:  Reduces critical access hospital payments from 101% of costs to 100% of costs, saving $1.4 billion, and prohibits hospitals fewer than 10 miles away from the nearest hospital from receiving a critical access hospital designation, saving $700 million.

Anti-Fraud Provisions:  Assumes $400 million in savings from various anti-fraud provisions, including limiting the discharge of debt in bankruptcy proceedings associated with fraudulent activities.

Imaging:  Reduces imaging payments by assuming a higher level of utilization for certain types of equipment, saving $400 million.  Imposes prior authorization requirements for advanced imaging; no savings are assumed, a change from the September 2011 deficit proposal, which said prior authorization would save $900 million.

Pharmaceutical Price Controls:  Expands Medicaid price controls to dual eligible and low-income subsidy beneficiaries participating in Part D, saving $123.2 billion according to OMB.  Some have expressed concerns that further expanding government-imposed price controls to prescription drugs could harm innovation and the release of new therapies that could help cure diseases.

Medicare Drug Discounts:  Proposes accelerating the “doughnut hole” drug discount plan included in PPACA, filling in the “doughnut hole” completely by 2015.  While the budget claims this proposal will save $11.2 billion over ten years, some may be concerned that – by raising drug spending, and eliminating incentives for seniors to choose generic pharmaceuticals over brand name drugs, this provision will actually INCREASE Medicare spending, consistent with prior CBO estimates at the time of PPACA’s passage.

Post-Acute Care:  Reduces various acute-care payment updates (details not specified) and equalizes payment rates between skilled nursing facilities and inpatient rehabilitation facilities, saving $79 billion – a significant increase compared to the $56.7 billion in last year’s budget and the $32.5 billion in proposed savings under the President’s September 2011 deficit proposal.  Equalizes payments between IRFs and SNFs for certain conditions, saving $2 billion.  Adjusts payments to inpatient rehabilitation facilities and skilled nursing facilities to account for unnecessary hospital readmissions and encourage appropriate care, saving a total of $4.7 billion.  Restructures post-acute care reimbursements through the use of bundled payments, saving $8.2 billion.

Physician Payment:  Includes language extending accountability standards to physicians who self-refer for radiation therapy, therapy services, and advanced imaging services, saving $6.1 billion.  Makes adjustments to clinical laboratory payments, designed to align Medicare with private payment rates, saving $9.5 billion.  Expands availability of Medicare data for performance and quality improvement; no savings assumed.

Medicare Drugs:  Reduces payment of physician administered drugs from 106 percent of average sales price to 103 percent of average sales price.  Some may note reports that similar payment reductions, implemented as part of the sequester, have caused some cancer clinics to limit their Medicare patient load.  By including a similar proposal in his budget, President Obama has effectively endorsed these policies.  Saves $4.5 billion.

Medicare Advantage:  Resurrects a prior-year proposal to increase Medicare Advantage coding intensity adjustments; this provision would have the effect of reducing MA plan payments, based on an assumption that MA enrollees are healthier on average than those in government-run Medicare.  Saves $15.3 billion over ten years.  Also proposes $4.1 billion in additional savings by aligning employer group waiver plan payments with average MA plan bids.

Additional Means Testing:  Increases means tested premiums under Parts B and D by five percentage points, beginning in 2017.  Freezes the income thresholds at which means testing applies until 25 percent of beneficiaries are subject to such premiums.  Saves $50 billion over ten years, and presumably more thereafter, as additional seniors would hit the means testing threshold, subjecting them to higher premiums.

Medicare Deductible Increase:  Increases Medicare Part B deductible by $25 in 2017, 2019, and 2021 – but for new beneficiaries only; “current beneficiaries or near retirees [not defined] would not be subject to the revised deductible.”  Saves $3.3 billion.

Home Health Co-Payment:  Beginning in 2017, introduces a home health co-payment of $100 per episode for new beneficiaries only, in cases where an episode lasts five or more visits and is NOT proceeded by a hospital stay.  MedPAC has previously recommended introducing home health co-payments as a way to ensure appropriate utilization.  Saves $730 million.

Medigap Surcharge:  Imposes a Part B premium surcharge equal to about 15 percent of the average Medigap premium – or about 30 percent of the Part B premium – for seniors with Medigap supplemental insurance that provides first dollar coverage.  Applies beginning in 2017 to new beneficiaries only.  A study commissioned by MedPAC previously concluded that first dollar Medigap coverage induces beneficiaries to consume more medical services, thus increasing costs for the Medicare program and federal taxpayers.  Saves $2.9 billion.

Generic Drug Incentives:  Proposes increasing co-payments for certain brand-name drugs for beneficiaries receiving the Part D low-income subsidy, while reducing co-payments for relevant generic drugs by 15 percent, in an attempt to increase generic usage among low-income seniors currently insulated from much of the financial impact of their purchasing decisions.  Saves $6.7 billion, according to OMB.

Lower Caps on Medicare Spending:  Section 3403 of the health care law established an Independent Payment Advisory Board tasked with limiting Medicare spending to the growth of the economy plus one percentage point (GDP+1) in 2018 and succeeding years.  The White House proposal would reduce this target to GDP+0.5 percent.  The Medicare actuary has previously written that the spending adjustments contemplated by IPAB and the health care law “are unlikely to be sustainable on a permanent annual basis” and “very challenging” – problems that would be exacerbated by utilizing a slower target rate for Medicare spending growth.  According to the budget, this proposal would save $4.1 billion, mainly in 2023.

Medicaid and Other Health Proposals (Total savings of $41.1 Billion)

Limit Durable Medical Equipment Reimbursement:  Caps Medicaid reimbursements for durable medical equipment (DME) at Medicare rates, beginning in 2014.  The health care law extended and expanded a previous Medicare competitive bidding demonstration project included in the Medicare Modernization Act, resulting in savings to the Medicare program.  This proposal, by capping Medicaid reimbursements for DME at Medicare levels, would attempt to extend those savings to the Medicaid program.  Saves $4.5 billion over ten years.

Rebase Medicaid Disproportionate Share Hospital Payments:  Proposes beginning DSH payment reductions in 2015 instead of 2014, and “to determine future state DSH allotments based on states’ actual DSH allotments as reduced” by PPACA.  Saves $3.6 billion, all in fiscal 2023.

Medicaid Anti-Fraud Savings:  Assumes $3.7 billion in savings from a variety of Medicaid anti-fraud provisions.  Included in this amount are proposals that would remove exceptions to the requirement that Medicaid must reject payments when another party is liable for a medical claim.  A separate proposal related to the tracking of pharmaceutical price controls would save $8.8 billion.

Transitional Medical Assistance/QI Program:  Provides for temporary extensions of the Transitional Medical Assistance program, which provides Medicaid benefits for low-income families transitioning from welfare to work, along with the Qualifying Individual program, which provides assistance to low-income seniors in paying Medicare premiums.  The extensions cost $1.1 billion and $590 million, respectively.

“Pay-for-Delay:”  Prohibits brand-name pharmaceutical manufacturers from entering into arrangements that would delay the availability of new generic drugs. Some Members have previously expressed concerns that these provisions would harm innovation, and actually impede the incentives to generic manufacturers to bring cost-saving generic drugs on the market.  OMB scores this proposal as saving $11 billion.

Follow-on Biologics:  Reduces to seven years the period of exclusivity for follow-on biologics.  Current law provides for a twelve-year period of exclusivity, based upon an amendment to the health care law that was adopted on a bipartisan basis in both the House and Senate (one of the few substantive bipartisan amendments adopted).  Some Members have expressed concern that reducing the period of exclusivity would harm innovation and discourage companies from developing life-saving treatments.  OMB scores this proposal as saving $3.3 billion.

State Waivers:  Accelerates from 2017 to 2014 the date under which states can submit request for waivers of SOME of the health care law’s requirements to HHS.  While supposedly designed to increase flexibility, even liberal commentators have agreed that under the law’s state waiver programcritics of Obama’s proposal have a point: It wouldn’t allow to enact the sorts of health care reforms they would prefer” and thatconservatives can’t do any better – at least not under these rules.”  No cost is assumed; however, in its re-estimate of the President’s budget last year, CBO scored this proposal as costing $4.5 billion.

Implementation “Slush Fund:”  Proposes $400 million in new spending for HHS to implement the proposals listed above.

FEHB Contracting:  Similar to last year’s budget, proposes streamlining pharmacy benefit contracting within the Federal Employee Health Benefits program, by centralizing pharmaceutical benefit contracting within the Office of Personnel Management (OPM), saving $1.6 billion.  However, this year’s budget goes further in restructuring FEHBP – OPM would also be empowered to modernize benefit designs (savings of $264 million); create a “self-plus-one” benefit option for federal employees and extend benefits to domestic partners (total savings of $5.2 billion, despite the costs inherent in the latter option); and adjust premium levels based on tobacco usage and/or participation in wellness programs (savings of $1.3 billion).  Some individuals, noting that OPM is also empowered to create “multi-state plans” as part of the health care overhaul, may be concerned that these provisions could be part of a larger plan to make OPM the head of a de facto government-run health plan.

Other Health Care Proposal of Note

Tax Credit:  The Treasury Green Book proposes expanding the small business health insurance tax credit included in the health care law.   Specifically, the budget would expand the number of employers eligible for the credit to include all employers with up to 50 full-time workers; firms with under 20 workers would be eligible for the full credit.  (Currently those levels are 25 and 10 full-time employees, respectively.)  The budget also changes the coordination of the two phase-outs based on a firm’s average wage and number of employees, with the changes designed to make more companies eligible for a larger credit.  The changes would begin in the current calendar and tax year (i.e., 2013).  According to OMB, these changes would cost $10.4 billion over ten years – down from last year’s estimate of $14 billion over ten years.  Many may view this proposal as a tacit admission that the credit included in the law was a failure, because its limited reach and complicated nature – firms must fill out seven worksheets to determine their eligibility – have deterred American job creators from receiving this subsidy.  Moreover, the reduced score in this year’s budget compared to last year’s implies that even this expansion of the credit will have a less robust impact than originally anticipated.

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.

Democrats’ Mediscare Rhetoric Exposed

Over the past week, two articles have appeared challenging the tired allegation from President Obama and Democrats that premium support proposals would raise seniors’ Medicare premiums by $6,400.  First, the Washington Post’s Fact Checker gave Democrats Two Pinocchios for basing their allegations on the House Republican budget created in April 2011, even though that plan was substantially modified earlier this year: “The policy differences on Medicare are substantial, but that still does not justify using out-of-date figures from last year’s plan — especially because the plan has been updated and made more generous to deal with some of the original criticisms made by Democrats.”

Second, this week’s Health Matters column in CongressDaily (subscription required) pointed out another key flaw in Democrats’ allegations.  The CBO analysis on which the Democrat attacks are based assumes that Medicare premium support results in ZERO budgetary savings from plans competing head-to-head to see which can offer Medicare benefits most efficiently:

[CBO] Director Douglas Elmendorf told the House Budget Committee in 2011, his office doesn’t have the ability to account for any cost decreases (or increases, for that matter) that could come from competition between private plans.  “We are not applying any additional effects of competition on this growth rate over time in our analysis of your proposal.  And, again, we don’t have the tools, the analysis, we would need to do a quantitative evaluation of the importance of those factors,” Elmendorf said.

That’s because most health economists have no idea what really happens when insurance companies truly compete for Medicare beneficiaries.  The studies aren’t there….

CBO’s current estimate puts the effects of competition at zero, which Gail Wilensky, a former head of Medicare and Medicaid in the George H.W. Bush administration, says is an even worse assumption than making some sort of educated guess.  “You know it’s not zero, that’s the complete cop-out,” Wilensky said in an interview.  “Their assumption is zero; it’s a very specific assumption, and it’s the one thing that’s definitely not accurate.”

It’s particularly ironic that the Obama Administration is relying on an analysis that assumes no savings from competition – because the Administration is perfectly willing to trumpet savings from competitive bidding when it suits its own purposes.  Last year, the Administration sent out a press release trumpeting Medicare’s competitive bidding process for durable medical equipment.  Among the quotes in that press release:

[Then-CMS Administrator Donald Berwick:]  “By expanding our successful competitive bidding program, we can ensure that Medicare pays a fair rate for these goods.”

[Medicare head Jonathan Blum:]  “The success we’ve had in the first phase tells us that we can achieve these savings with no disruption for patients’ access and no negative effect on patients’ health.”

So if the Administration admits that competitive bidding can work for durable medical equipment purchases within Medicare – saving taxpayers (and seniors) money without harming beneficiaries – why can’t the same tactics work for the Medicare program as a whole?  Or are Democrats’ objections to premium support primarily ideological – because liberals can’t stomach the idea of seniors choosing their own private health insurance plan, rather than participating in an entitlement run by the federal government…?

White House Budget Summary

Overall, the budget:

  • Proposes $362 billion in savings, yet calls for $429 billion in unpaid-for spending due to the Medicare physician reimbursement “doc fix” – thus resulting in a net increase in the deficit. (The $429 billion presumes a ten year freeze of Medicare physician payments; however, the budget does NOT propose ways to pay for this new spending.)
  • Proposes few structural reforms to Medicare; those that are included – weak as they are – are not scheduled to take effect until 2017, well after President Obama leaves office.  If the proposals are so sound, why the delay?
  • Requests just over $1 billion for program management at the Centers for Medicare and Medicaid Services, of which the vast majority – $864 million – would be used to implement the health care law.
  • Requests more than half a billion dollars for comparative effectiveness research, which many may be concerned could result in government bureaucrats imposing cost-based limits on treatments.
  • Includes mandatory proposals in the budget that largely track the September deficit proposal to Congress, with a few exceptions.  The budget does NOT include proposals to reduce Medicare frontier state payments, even though this policy was included in the September proposal.  The budget also does not include recovery provisions regarding Medicare Advantage payments to insurers; however, the Administration has indicated they intend to implement this provision administratively.
  • Does not include a proposal relating to Medicaid eligibility levels included in the September submission, as that proposal was enacted into law in November (P.L. 112-56).

 

Discretionary Spending

When compared to Fiscal Year 2012 appropriated amounts, the budget calls for the following changes in discretionary spending by major HHS divisions (tabulated by budget authority):

  • $12 million (0.5%) increase for the Food and Drug Administration – along with a separate proposed $643 million increase in FDA user fees;
  • $138 million (2.2%) decrease for the Health Services and Resources Administration;
  • $116 million (2.7%) increase for the Indian Health Service;
  • $664 million (11.5%) decrease for the Centers for Disease Control;
  • No net change in funding for the National Institutes of Health;
  • $1 billion (26.2%) increase for the discretionary portion of the Centers for Medicare and Medicaid Services program management account; and
  • $29 million (5.0%) increase for the discretionary Health Care Fraud and Abuse Control fund.

With regard to the above numbers for CDC and HRSA, note that these are discretionary numbers only.  The Administration’s budget also would allocate additional $1.25 billion in mandatory spending from the new Prevention and Public Health “slush fund” created in the health care law, likely eliminating any real budgetary savings (despite the appearance of same above).

Other Health Care Points of Note

Tax Credit:  The Treasury Green Book proposes expanding the small business health insurance tax credit included in the health care law.   Specifically, the budget would expand the number of employers eligible for the credit to include all employers with up to 50 full-time workers; firms with under 20 workers would be eligible for the full credit.  (Currently those levels are 25 and 10 full-time employees, respectively.)  The budget also changes the coordination of the two phase-outs based on a firm’s average wage and number of employees, with the changes designed to make more companies eligible for a larger credit.  According to OMB, these changes would cost $14 billion over ten years.  Many may view this proposal as a tacit admission that the credit included in the law was a failure, because its limited reach and complicated nature – firms must fill out seven worksheets to determine their eligibility – have deterred American job creators from receiving this subsidy.

Comparative Effectiveness Research:  The budget proposes a total of $599 million in funding for comparative effectiveness research.  Only $78 million of this money comes from existing funds included in the health care law – meaning the Administration has proposed discretionary spending of more than $500 million on comparative effectiveness research.  Some have previously expressed concerns that this research could be used to restrict access to treatments perceived as too costly by federal bureaucrats.  It is also worth noting that this new $520 million in research funding would NOT be subject to the anti-rationing provisions included in the health care law.  Section 218 of this year’s omnibus appropriations measure included a prohibition on HHS using funds to engage in cost-effectiveness research, a provision which this budget request would presumably seek to overturn.

Obamacare Implementation Funding and Personnel:  As previously noted, the budget includes more than $1 billion in discretionary spending increases for the Centers for Medicare and Medicaid Services, which the HHS Budget in Brief claims would be used to “continue implementing [Obamacare], including Exchanges.”  This funding would finance 256 new bureaucrats within CMS, many of whom would likely be used to implement the law.  Overall, the HHS budget proposes an increase of 1,393 full-time equivalent positions within the bureaucracy.

Specific details of the $1 billion in implementation funding include:

  • $290 million for “consumer support in the private marketplace;”
  • $549 million for “general IT systems and other support,” including funding for the federally-funded Exchange, for which the health law itself did not appropriate funding;
  • $18 million for updates to healthcare.gov;
  • $15 million to oversee the medical loss ratio regulations; and
  • $30 million for consumer assistance grants.

Exchange Funding:  The budget envisions HHS spending $1.1 billion on Exchange grants in 2013, a $180 million increase over the current fiscal year.  The health care law provides the Secretary with an unlimited amount of budget authority to fund state Exchange grants through 2015.  However, other reports have noted that the Secretary does NOT have authority to use these funds to construct a federal Exchange, in the event some states choose not to implement their own state-based Exchanges.

Abstinence Education Funding:  The budget proposes eliminating the abstinence education funding program, and converting those funds into a new pregnancy prevention program.

Medicare Proposals (Total savings of $292.2 Billion)

Bad Debts:  Reduces bad debt payments to providers – for unpaid cost-sharing owed by beneficiaries – from 70 percent down to 25 percent over three years, beginning in 2013.  The Fiscal Commission had made similar recommendations in its final report.  Saves $35.9 billion.

Medical Education Payments:  Reduces the Indirect Medical Education adjustment paid to teaching hospitals by 10 percent beginning in 2014, saving $9.7 billion.  Previous studies by the Medicare Payment Advisory Committee (MedPAC) have indicated that IME payments to teaching hospitals may be greater than the actual costs the hospitals incur.

Rural Payments:  Reduces critical access hospital payments from 101% of costs to 100% of costs, saving $1.4 billion, and prohibits hospitals fewer than 10 miles away from the nearest hospital from receiving a critical access hospital designation, saving $590 million.  The budget does NOT include a proposal to end add-on payments for providers in frontier states, which was included in the President’s September deficit proposal.

Post-Acute Care:  Reduces various acute-care payment updates (details not specified) during the years 2013 through 2022, saving $56.7 billion – a significant increase compared to the $32.5 billion in savings under the President’s September deficit proposal.  Equalizes payment rates between skilled nursing facilities and inpatient rehabilitation facilities, saving $2 billion.  Increases the minimum percentage of inpatient rehabilitation facility patients that require intensive rehabilitation from 60 percent to 75 percent, saving $2.3 billion.  Reduces skilled nursing facility payments by up to 3%, beginning in 2015, for preventable readmissions, saving $2 billion.

Pharmaceutical Price Controls:  Expands Medicaid price controls to dual eligible and low-income subsidy beneficiaries participating in Part D, saving $155.6 billion according to OMB.  Some have expressed concerns that further expanding government-imposed price controls to prescription drugs could harm innovation and the release of new therapies that could help cure diseases.

Anti-Fraud Provisions:  Assumes $450 million in savings from various anti-fraud provisions, including limiting the discharge of debt in bankruptcy proceedings associated with fraudulent activities.

EHR Penalties:  Re-directs Medicare reimbursement penalties against physicians who do not engage in electronic prescribing beginning in 2020 back into the Medicare program.  The “stimulus” legislation that enacted the health IT provisions had originally required that penalties to providers be placed into the Medicare Improvement Fund; the budget would instead re-direct those revenues into the general fund, to finance the “doc fix” and related provisions.  OMB now scores this proposal as saving $590 million; when included in last year’s budget back in February, these changes were scored as saving $3.2 billion.

Imaging:  Reduces imaging payments by assuming a higher level of utilization for certain types of equipment, saving $400 million.  Also imposes prior authorization requirements for advanced imaging; no savings are assumed, a change from the September deficit proposal, which said prior authorization would save $900 million.

Additional Means Testing:  Increases means tested premiums under Parts B and D by 15%, beginning in 2017.  Freezes the income thresholds at which means testing applies until 25 percent of beneficiaries are subject to such premiums.  Saves $27.6 billion over ten years, and presumably more thereafter, as additional seniors would hit the means testing threshold, subject them to higher premiums.

Medicare Deductible Increase:  Increases Medicare Part B deductible by $25 in 2017, 2019, and 2021 – but for new beneficiaries only; “current beneficiaries or near retirees [not defined] would not be subject to the revised deductible.”  Saves $2 billion.

Home Health Co-Payment:  Beginning in 2017, introduces a home health co-payment of $100 per episode for new beneficiaries only, in cases where an episode lasts five or more visits and is NOT proceeded by a hospital stay.  MedPAC has previously recommended introducing home health co-payments as a way to ensure appropriate utilization.  Saves $350 million.

Medigap Surcharge:  Imposes a Part B premium surcharge equal to about 15 percent of the average Medigap premium – or about 30 percent of the Part B premium – for seniors with Medigap supplemental insurance that provides first dollar coverage.  Applies beginning in 2017 to new beneficiaries only.  A study commissioned by MedPAC previously concluded that first dollar Medigap coverage induces beneficiaries to consume more medical services, thus increasing costs for the Medicare program and federal taxpayers.  Saves $2.5 billion.

Lower Caps on Medicare Spending:  Section 3403 of the health care law established an Independent Payment Advisory Board tasked with limiting Medicare spending to the growth of the economy plus one percentage point (GDP+1) in 2018 and succeeding years.  The White House proposal would reduce this target to GDP+0.5 percent.  This approach has two potential problems:

  • First, under the Congressional Budget Office’s most recent baseline, IPAB recommendations would not be triggered at all – so it’s unclear whether the new, lower target level would actually generate measurable budgetary savings.  (In August 2010, CBO concluded an IPAB with an overall cap of GDP+1 would yield $13.8 billion in savings through 2020 – not enough to make a measurable impact on a program spending $500 billion per year.)
  • Second, the Medicare actuary has previously written that the spending adjustments contemplated by IPAB and the health care law “are unlikely to be sustainable on a permanent annual basis” and “very challenging” – problems that would be exacerbated by utilizing a slower target rate for Medicare spending growth.

According to the budget, this proposal would NOT achieve additional deficit savings.

Medicaid and Other Health Proposals (Total savings of $70.4 Billion)

Medicaid Provider Taxes:  Reduces limits on Medicaid provider tax thresholds, beginning in 2015; the tax threshold would be reduced over a three year period, to 3.5 percent in 2017 and future years.  State provider taxes are a financing method whereby states impose taxes on medical providers, and use these provider tax revenues to obtain additional federal Medicaid matching funds, thereby increasing the federal share of Medicaid expenses paid while decreasing the state share of expenses.  The Tax Relief and Health Care Act of 2006, enacted by a Republican Congress, capped the level of Medicaid provider taxes, and the Bush Administration proposed additional rules to reform Medicaid funding rules – rules that were blocked by the Democrat-run 110th Congress.  However, there is bipartisan support for addressing ways in which states attempt to “game” the Medicaid system, through provider taxes and other related methods, to obtain unwarranted federal matching funds – the liberal Center for Budget and Policy Priorities previously wrote about a series of “Rube Goldberg-like accounting arrangements” that “do not improve the quality of health care provided” and “frequently operate in a manner that siphons extra federal money to state coffers without affecting the provision of health care.”  This issue was also addressed in the fiscal commission’s report, although the commission exceeded the budget proposals by suggesting that Congress enact legislation “restricting and eventually eliminating” provider taxes, saving $44 billion.  OMB scores this proposal as saving $21.8 billion.

Blended Rate:  Proposes “replac[ing]…complicated federal matching formulas” in Medicaid “with a single matching rate specific to each state that automatically increases if a recession forces enrollment and state costs to rise.”  Details are unclear, but the Administration claims $17.9 billion in savings from this proposal – much less than the $100 billion figure bandied about in previous reports last summer.  It is also worth noting that the proposal could actually INCREASE the deficit, if a prolonged recession triggers the automatic increases in the federal Medicaid match referenced in the proposal.  On a related note, the budget once again ignores the governors’ multiple requests for flexibility from the mandates included in the health care law – unfunded mandates on states totaling at least $118 billion.

Transitional Medical Assistance/QI Program:  Provides for temporary extensions of the Transitional Medical Assistance program, which provides Medicaid benefits for low-income families transitioning from welfare to work, along with the Qualifying Individual program, which provides assistance to low-income seniors in paying Medicare premiums.  The extensions cost $815 million and $1.7 billion, respectively.

Limit Durable Medical Equipment Reimbursement:  Caps Medicaid reimbursements for durable medical equipment (DME) at Medicare rates, beginning in 2013.  The health care law extended and expanded a previous Medicare competitive bidding demonstration project included in the Medicare Modernization Act, resulting in savings to the Medicare program.  This proposal, by capping Medicaid reimbursements for DME at Medicare levels, would attempt to extend those savings to the Medicaid program.  OMB now scores this proposal as saving $3 billion; when included in the President’s budget last year, these changes were scored as saving $6.4 billion.

Rebase Medicaid Disproportionate Share Hospital Payments:  In 2021 and 2022, reallocates Medicaid DSH payments to hospitals treating low-income patients, based on states’ actual 2020 allotments (as amended and reduced by the health care law).  Saves $8.3 billion.

Medicaid Anti-Fraud Savings:  Assumes $3.2 billion in savings from a variety of Medicaid anti-fraud provisions, largely through tracking and enforcement of various provisions related to pharmaceuticals.  Included in this amount are proposals that would remove exceptions to the requirement that Medicaid must reject payments when another party is liable for a medical claim.

Flexibility on Benchmark Plans:  Proposes some new flexibility for states to require Medicaid “benchmark” plan coverage for non-elderly, non-disabled adults – but ONLY those with incomes above 133 percent of the federal poverty level (i.e., NOT the new Medicaid population obtaining coverage under the health care law).  No savings assumed.

“Pay-for-Delay:”  Prohibits brand-name pharmaceutical manufacturers from entering into arrangements that would delay the availability of new generic drugs.  Some Members have previously expressed concerns that these provisions would harm innovation, and actually impede the incentives to generic manufacturers to bring cost-saving generic drugs on the market.  OMB scores this proposal as saving $11 billion.

Follow-on Biologics:  Reduces to seven years the period of exclusivity for follow-on biologics.  Current law provides for a twelve-year period of exclusivity, based upon an amendment to the health care law that was adopted on a bipartisan basis in both the House and Senate (one of the few substantive bipartisan amendments adopted).  Some Members have expressed concern that reducing the period of exclusivity would harm innovation and discourage companies from developing life-saving treatments.  OMB scores this proposal as saving $3.8 billion.

FEHB Contracting:  Proposes streamlining pharmacy benefit contracting within the Federal Employee Health Benefits program, by centralizing pharmaceutical benefit contracting within the Office of Personnel Management (OPM).  Some individuals, noting that OPM is also empowered to create “multi-state plans” as part of the health care overhaul, may be concerned that these provisions could be part of a larger plan to make OPM the head of a de facto government-run health plan.  OMB scores this proposal as saving $1.7 billion.

Prevention “Slush Fund:”  Reduces spending by $4 billion on the Prevention and Public Health Fund created in the health care law.  Some Members have previously expressed concern that this fund would be used to fund projects like jungle gyms and bike paths, questionable priorities for the use of federal taxpayer dollars in a time of trillion-dollar deficits.

State Waivers:  Accelerates from 2017 to 2014 the date under which states can submit request for waivers of SOME of the health care law’s requirements to HHS.  While supposedly designed to increase flexibility, even liberal commentators have agreed that under the law’s state waiver programcritics of Obama’s proposal have a point: It wouldn’t allow to enact the sorts of health care reforms they would prefer” and thatconservatives can’t do any better – at least not under these rules.”  The proposal states that “the Administration is committed to the budget neutrality of these waivers;” however, the plan allocates $4 billion in new spending “to account for the possibility that CBO will estimate costs for this proposal.”

Implementation “Slush Fund:”  Proposes $400 million in new spending for HHS to implement the proposals listed above.

The President’s Shrinking Entitlement Savings

The President’s deficit proposal released this morning claims to achieve $320 billion in deficit savings.  As we’ve previously noted, given the size of our entitlement programs, that’s a comparatively insignificant amount – barely enough to finance a long-term “doc fix,” let alone make Medicare and Medicaid solvent for the long term.  But what’s interesting is how the size of the health care savings put forward by the President has actually SHRUNK over time.  The White House’s April “deficit framework” (i.e., a speech) claimed to achieve $340 billion in savings – $20 billion MORE than this morning’s proposal.

So what exactly prompted the President to LOWER his sights for entitlement savings over the last five months?  Was it the unprecedented downgrade of America’s debt rating?  The stock market swoon that quickly followed?  The chaos in Europe as that continent struggles to achieve fiscal discipline and avert a sovereign default crisis?  Or was it the event that happens on the Tuesday after the first Monday in November every fourth year?  You be the judge…

All that said, a detailed summary of the President’s (new) proposal follows below.  Keep in mind that Administration/OMB estimates may vary significantly from CBO scores, so remember that your budgetary mileage may vary.  (All scores are over a ten-year period unless otherwise indicated.)

 

Medicare Proposals (Total savings of $248 Billion)

Bad Debts:  Reduces bad debt payments to providers – for unpaid cost-sharing owed by beneficiaries – from 70 percent down to 25 percent over three years, beginning in 2013.  The Fiscal Commission had made similar recommendations in its final report.  Saves $20.2 billion.

Medical Education Payments:  Reduces the Indirect Medical Education adjustment paid to teaching hospitals by 10 percent beginning in 2013, saving $9.1 billion.  Previous studies by the Medicare Payment Advisory Committee (MedPAC) have indicated that IME payments to teaching hospitals may be greater than the actual costs the hospitals incur.

Rural Payments:  Ends add-on payments for providers in frontier states, saving $2.1 billion.  Reduces critical access hospital payments from 101% of costs to 100% of costs, saving $1 billion, and prohibits hospitals fewer than 10 miles away from the nearest hospital from receiving a critical access hospital designation, saving $3 billion.

Post-Acute Care:  Reduces various acute-care payment updates (details not specified) during the years 2014 through 2021, saving $32.5 billion.  Equalizes payment rates between skilled nursing facilities and inpatient rehabilitation facilities, saving $4.5 billion.  Increases the minimum percentage of inpatient rehabilitation facility patients that require intensive rehabilitation from 60 percent to 75 percent, saving $2.6 billion.  Reduces skilled nursing facility payments by up to 3%, beginning in 2015, for preventable readmissions, saving $2 billion.

Pharmaceutical Price Controls:  Expands Medicaid price controls to dual eligible and low-income subsidy beneficiaries participating in Part D, saving $135 billion according to OMB.  However, according to the Congressional Budget Office’s March 2011 Budget Options (Option 25), this proposal would generate smaller savings ($112 billion).  Some have expressed concerns that further expanding government-imposed price controls to prescription drugs could harm innovation and the release of new therapies that could help cure diseases.

MA Repayment Provisions:  Recovers payments to insurers participating in the Medicare Advantage (MA) program.  MA plans are currently paid on a prospective basis, with those payments adjusted according to the severity of beneficiaries’ ill health.  Some sample audits have discovered instances where plans could not retrospectively produce the necessary documentation to warrant the prospective coding adjustment that some beneficiaries received.  The deficit plan would apply this adjustment, currently contemplated for some beneficiaries based on the sample audit, to ALL beneficiaries.  OMB now scores this proposal as saving $2.3 billion; when included in the President’s budget back in February, these changes were scored as saving $6.2 billion.

Anti-Fraud Provisions:  Assumes $600 million in savings from various anti-fraud provisions, including limiting the discharge of debt in bankruptcy proceedings associated with fraudulent activities.

EHR Penalties:  Re-directs Medicare reimbursement penalties against physicians who do not engage in electronic prescribing beginning in 2020 back into the Medicare program.  The “stimulus” legislation that enacted the health IT provisions had originally required that penalties to providers be placed into the Medicare Improvement Fund; the budget would instead re-direct those revenues into the general fund, to finance the “doc fix” and related provisions.  OMB now scores this proposal as saving $500 million; when included in the President’s budget back in February, these changes were scored as saving $3.2 billion.

Imaging:  Reduces imaging payments by assuming a higher level of utilization for certain types of equipment, saving $400 million.  Also imposes prior authorization requirements for advanced imaging, saving $900 million.

Additional Means Testing:  Increases means tested premiums under Parts B and D by 15%, beginning in 2017.  Freezes the income thresholds at which means testing applies until 25 percent of beneficiaries are subject to such premiums.  Saves $20 billion over ten years, and presumably more thereafter, as additional seniors would hit the means testing threshold, subject them to higher premiums.

Medicare Deductible Increase:  Increases Medicare Part B deductible by $25 in 2017, 2019, and 2021 – but for new beneficiaries only; “current beneficiaries or near retirees [not defined] would not be subject to the revised deductible.”  Saves $1 billion.

Home Health Co-Payment:  Introduces a home health co-payment of $100 per episode for new beneficiaries only, in cases where an episode lasts five or more visits and is NOT proceeded by a hospital stay.  MedPAC has previously recommended introducing home health co-payments as a way to ensure appropriate utilization.  Saves $400 million.

Medigap Surcharge:  Imposes a Part B premium surcharge equal to about 15 percent of the average Medigap premium – or about 30 percent of the Part B premium – for seniors with Medigap supplemental insurance that provides first dollar coverage.  Applies beginning in 2017 to new beneficiaries only.  A study commissioned by MedPAC previously concluded that first dollar Medigap coverage induces beneficiaries to consume more medical services, thus increasing costs for the Medicare program and federal taxpayers.  Saves $2.5 billion.

Lower Caps on Medicare Spending:  Section 3403 of the health care law established an Independent Payment Advisory Board tasked with limiting Medicare spending to the growth of the economy plus one percentage point (GDP+1) in 2018 and succeeding years.  The White House proposal would reduce this target to GDP+0.5 percent.  This approach has two potential problems:

  • First, under the Congressional Budget Office’s most recent baseline, IPAB recommendations would not be triggered at all – so it’s unclear whether the new, lower target level would actually generate measurable budgetary savings.  (In August 2010, CBO concluded an IPAB with an overall cap of GDP+1 would yield $13.8 billion in savings through 2020 – not enough to make a measurable impact on a program spending $500 billion per year.)
  • Second, the Medicare actuary has previously written that the spending adjustments contemplated by IPAB and the health care law “are unlikely to be sustainable on a permanent annual basis” and “very challenging” – problems that would be exacerbated by utilizing a slower target rate for Medicare spending growth.

According to the Administration document, this proposal would NOT achieve additional deficit savings.

Medicaid and Other Health Proposals (Total savings of $72 Billion)

Medicaid Provider Taxes:  Reduces limits on Medicaid provider tax thresholds, beginning in 2015; the tax threshold would be reduced over a three year period, to 3.5 percent in 2017 and future years.  State provider taxes are a financing method whereby states impose taxes on medical providers, and use these provider tax revenues to obtain additional federal Medicaid matching funds, thereby increasing the federal share of Medicaid expenses paid while decreasing the state share of expenses.  The Tax Relief and Health Care Act of 2006, enacted by a Republican Congress, capped the level of Medicaid provider taxes, and the Bush Administration proposed additional rules to reform Medicaid funding rules – rules that were blocked by the Democrat-run 110th Congress.  However, there is bipartisan support for addressing ways in which states attempt to “game” the Medicaid system, through provider taxes and other related methods, to obtain unwarranted federal matching funds – the liberal Center for Budget and Policy Priorities previously wrote about a series of “Rube Goldberg-like accounting arrangements” that “do not improve the quality of health care provided” and “frequently operate in a manner that siphons extra federal money to state coffers without affecting the provision of health care.”  This issue was also addressed in the fiscal commission’s report, although the commission exceeded the budget proposals by suggesting that Congress enact legislation “restricting and eventually eliminating” provider taxes, saving $44 billion.  OMB now scores this proposal as saving $26.3 billion; when included in the President’s budget back in February, these changes were scored as saving $18.4 billion.

Blended Rate:  Proposes “replac[ing]…complicated federal matching formulas” in Medicaid “with a single matching rate specific to each state that automatically increases if a recession forces enrollment and state costs to rise.”  Details are unclear, but the Administration claims $14.9 billion in savings from this proposal – much less than the $100 billion figure bandied about in previous reports this summer.  It is also worth noting that the proposal could actually INCREASE the deficit, if a prolonged recession triggers the automatic increases in the federal Medicaid match referenced in the proposal.  On a related note, the deficit plan once again ignored the governors’ multiple requests for flexibility from the mandates included in the health care law – unfunded mandates on states totaling at least $118 billion.

Limit Durable Medical Equipment Reimbursement:  Caps Medicaid reimbursements for durable medical equipment (DME) at Medicare rates, beginning in 2013.  The health care law extended and expanded a previous Medicare competitive bidding demonstration project included in the Medicare Modernization Act, resulting in savings to the Medicare program.  This proposal, by capping Medicaid reimbursements for DME at Medicare levels, would attempt to extend those savings to the Medicaid program.  OMB now scores this proposal as saving $4.2 billion; when included in the President’s budget back in February, these changes were scored as saving $6.4 billion.

Third Party Liability:  Removes exceptions to the requirement that Medicaid must reject payments when another party is liable for a medical claim, saving $1.3 billion.

Rebase Medicaid Disproportionate Share Hospital Payments:  In 2021, reallocates Medicaid DSH payments to hospitals treating low-income patients, based on states’ actual 2020 allotments (as amended and reduced by the health care law).  Saves $4.1 billion.

Medicaid Anti-Fraud Savings:  Assumes $110 million in savings from a variety of Medicaid anti-fraud provisions, largely through tracking and enforcement of various provisions related to pharmaceuticals.

Amend MAGI Definition:  Amends the health care law to include Social Security benefits in the new definition of Modified Adjusted Gross Income used to determine eligibility for Medicaid benefits.  As previously reported, this “glitch” in the law would make millions of early retirees – who receive a large portion of their income from Social Security – eligible for free taxpayer-funded benefits, and would discourage work by providing greater subsidies to those relying on Social Security, as opposed to wage earnings, for their income.  Saves $14.6 billion.

Flexibility on Benchmark Plans:  Proposes some new flexibility for states to require Medicaid “benchmark” plan coverage for non-elderly, non-disabled adults – but ONLY those with incomes above 133 percent of the federal poverty level (i.e., NOT the new Medicaid population obtaining coverage under the health care law).  No savings assumed.

“Pay-for-Delay:”  Prohibits brand-name pharmaceutical manufacturers from entering into arrangements that would delay the availability of new generic drugs.  Some Members have previously expressed concerns that these provisions would harm innovation, and actually impede the incentives to generic manufacturers to bring cost-saving generic drugs on the market.  OMB now scores this proposal as saving $2.7 billion; when included in the President’s budget back in February, these changes were scored as saving $8.8 billion.

Follow-on Biologics:  Reduces to seven years the period of exclusivity for follow-on biologics.  Current law provides for a twelve-year period of exclusivity, based upon an amendment to the health care law that was adopted on a bipartisan basis in both the House and Senate (one of the few substantive bipartisan amendments adopted).  Some Members have expressed concern that reducing the period of exclusivity would harm innovation and discourage companies from developing life-saving treatments.  OMB now scores this proposal as saving $3.5 billion; when included in the President’s budget back in February, these changes were scored as saving $2.3 billion.

FEHB Contracting:  Proposes streamlining pharmacy benefit contracting within the Federal Employee Health Benefits program, by centralizing pharmaceutical benefit contracting within the Office of Personnel Management (OPM).  Some individuals, noting that OPM is also empowered to create “multi-state plans” as part of the health care overhaul, may be concerned that these provisions could be part of a larger plan to make OPM the head of a de facto government-run health plan.  OMB now scores this proposal as saving $1.6 billion; when included in the President’s budget back in February, these changes were scored as saving $1.8 billion.

Prevention “Slush Fund:”  Reduces spending by $3.5 billion on the Prevention and Public Health Fund created in the health care law.  Some Members have previously expressed concern that this fund would be used to fund projects like jungle gyms and bike paths, questionable priorities for the use of federal taxpayer dollars in a time of trillion-dollar deficits.

State Waivers:  Accelerates from 2017 to 2014 the date under which states can submit request for waivers of SOME of the health care law’s requirements to HHS.  While supposedly designed to increase flexibility, even liberal commentators have agreed that under the law’s state waiver programcritics of Obama’s proposal have a point: It wouldn’t allow to enact the sorts of health care reforms they would prefer” and thatconservatives can’t do any better – at least not under these rules.”  The proposal states that “the Administration is committed to the budget neutrality of these waivers;” however, the plan allocates $4 billion in new spending “to account for the possibility that CBO will estimate costs for this proposal.”

Implementation “Slush Fund:”  Proposes $400 million in new spending for HHS to implement the proposals listed above.

White House Deficit Proposal: Only $42 Billion in Net Health Savings

Based on preliminary press reports, Peggy Lee might have written the President’s deficit reduction proposal – because many observers, upon reading it, may be asking “Is That All There Is?”

The White House fact sheet claims $340 billion in savings over ten years – “an amount sufficient to fully pay to reform [sic] the Medicare Sustainable Growth Rate (SGR) physician payment formula while still reducing the deficit.”  However, the President’s budget estimated the cost of a ten-year “doc fix” at $370 billion, and the Congressional Budget Office estimates the net cost at $297.6 billion over ten years.  Assuming Congress utilizes the President’s proposed savings to fund a “doc fix,” the NET deficit reduction from the White House’s health proposals will be $42.4 billion – this when the Medicare Hospital Insurance Trust Fund is scheduled to be insolvent in nine short years according to the Congressional Budget Office.  And the proposal does NOTHING to reduce spending on the $2.6 trillion new entitlement created under the health care law.

A slightly longer summary of the proposal’s health care details (such as they are available) follows below  – they include the new and old (i.e., those included in the President’s 2012 budget submission) proposals.  Details are not available for many of the proposals – most notably a new plan to reform Medicaid matching rates – as well as other efforts regarding delivery system reform.

However, the top-line numbers on the net deficit reduction from the health provisions are sufficient to disappoint those calling for the President to lead on comprehensive entitlement reform – because a “Where’s the Beef?” proposal will do nothing to solve the looming fiscal crises facing Medicare and Medicaid.

 

The New

Lower Caps on Medicare Spending:  Section 3403 of the health care law established an Independent Payment Advisory Board tasked with limiting Medicare spending to the growth of the economy plus one percentage point (GDP+1) in 2018 and succeeding years.  The White House proposal would reduce this target to GDP+0.5 percent.  This approach has two potential problems:

  • First, under the Congressional Budget Office’s most recent baseline, IPAB recommendations would not be triggered at all – so it’s unclear whether the new, lower target level would actually generate measurable budgetary savings.  (In August 2010, CBO concluded an IPAB with an overall cap of GDP+1 would yield $13.8 billion in savings through 2020 – not enough to make a measurable impact on a program spending $500 billion per year.)
  • Second, the Medicare actuary has previously written that the spending adjustments contemplated by IPAB and the health care law “are unlikely to be sustainable on a permanent annual basis” and “very challenging” – problems that would be exacerbated by utilizing a slower target rate for Medicare spending growth.

Expanded Price Controls:  Expands Medicaid price controls to dual eligible beneficiaries participating in Part D, which according to the Congressional Budget Office’s March 2011 Budget Options (Option 25) would generate $112 billion in savings.  Some have expressed concerns that further expanding government-imposed price controls to prescription drugs could harm innovation and the release of new therapies that could help cure diseases.

Medicaid Restructuring:  Proposes “replac[ing] the current complicated federal matching formulas” in Medicaid “with a single matching rate for all program spending that rewards states for efficiency and automatically increases if a recession forces enrollment and state costs to rise.”  Details and potential budgetary impacts are unclear, but it’s worth noting that automatic increases during times of economic hardship could INCREASE budget deficits rather than reducing them.  The proposal also discusses receiving recommendations from governors “for ways to reform and strengthen Medicaid,” but ignored the governors’ multiple requests for flexibility from the mandates included in the health care law – unfunded mandates on states totaling at least $118 billion.

The Old

“Pay-for-Delay:”  Prohibits brand-name pharmaceutical manufacturers from entering into arrangements that would delay the availability of new generic drugs.  Some Members have previously expressed concerns that these provisions would harm innovation, and actually impede the incentives to generic manufacturers to bring cost-saving generic drugs on the market.

Limit Durable Medical Equipment Reimbursement:  Caps Medicaid reimbursements for durable medical equipment (DME) at Medicare rates.  The health care law extended and expanded a previous Medicare competitive bidding demonstration project included in the Medicare Modernization Act, resulting in savings to the Medicare program.  This proposal, by capping Medicaid reimbursements for DME at Medicare levels, would attempt to extend those savings to the Medicaid program.

Medicaid Provider Taxes:  Reduces limits on Medicaid provider tax thresholds, beginning in 2015; the tax threshold would be reduced over a three year period, to 3.5 percent in 2017 and future years.  State provider taxes are a financing method whereby states impose taxes on medical providers, and use these provider tax revenues to obtain additional federal Medicaid matching funds, thereby increasing the federal share of Medicaid expenses paid while decreasing the state share of expenses.  The Tax Relief and Health Care Act of 2006, enacted by a Republican Congress, capped the level of Medicaid provider taxes, and the Bush Administration proposed additional rules to reform Medicaid funding rules – rules that were blocked by the Democrat-run 110th Congress.  However, there is bipartisan support for addressing ways in which states attempt to “game” the Medicaid system, through provider taxes and other related methods, to obtain unwarranted federal matching funds – the liberal Center for Budget and Policy Priorities previously wrote about a series of “Rube Goldberg-like accounting arrangements” that “do not improve the quality of health care provided” and “frequently operate in a manner that siphons extra federal money to state coffers without affecting the provision of health care.”  This issue was also addressed in the fiscal commission’s report, although the commission exceeded the budget proposals by suggesting that Congress enact legislation “restricting and eventually eliminating” provider taxes, saving $44 billion.  As proposed in the budget, the above provisions would save $18.4 billion.

Potential Fiscal Impact

Small Net Savings:  The White House fact sheet claims $340 billion in savings over ten years – “an amount sufficient to fully pay to reform [sic] the Medicare Sustainable Growth Rate (SGR) physician payment formula while still reducing the deficit.”  However, the President’s budget estimated the cost of a ten-year “doc fix” at $370 billion, and the Congressional Budget Office estimates the net cost at $297.6 billion over ten years.  Assuming Congress utilizes the President’s proposed savings to fund a “doc fix,” that means the NET deficit reduction from the White House’s health proposals will be $42.4 billion – this when the Medicare Hospital Insurance Trust Fund is scheduled to be insolvent in nine short years according to the Congressional Budget Office.

Updated Summary of President’s Budget Proposals

Apologies for sending a further e-mail, but this revised (hopefully final) summary reflects documents that weren’t available when I sent out my first summary document around lunchtime.  Specifically, the below reflects the Administration’s justifications for reductions and terminations, the HHS Budget in Brief, and the Treasury’s Green Book proposals.

Below is a summary of the changes included in the President’s budget proposal.  As previously indicated, the budget includes $62 billion in mandatory health care savings that would pay for approximately two years of a Medicare “doc fix.”  (However, the budget does NOT specify offsets for the $315.4 billion cost of a “doc fix” beyond 2013.) The $62 billion in savings comes from a “grab bag” of relatively minor tweaks to entitlement spending – the largest of which are $18.4 billion in savings from a reduction in Medicaid provider taxes and $12.9 billion in savings from the pharmaceutical industry, including a shorter exclusivity period for follow-on biologics and provisions to end so-called “pay-for-delay” arrangements.

I’ve also included discretionary request amounts for major HHS divisions below.  These numbers have been updated, and reflect the budget authority proposals included in the HHS Budget in Brief document.  (Some of these numbers are slightly different from the OMB budget document, but it’s not fully clear why – and unfortunately HHS staff weren’t particularly enlightening on this technical detail during their budget briefing.)  Of particular note is the more than $1 billion, 30% increase in the Centers for Medicare and Medicaid Services discretionary program management account – which likely reflects money needed to implement the health care law.  (Remember when Democrats attempted to refute the CBO letter indicating the law would lead to $115 billion in discretionary appropriations?  This 30% increase is a down payment on that $115 billion total…)  Since it’s drawn some attention, I’ll also point out that the Administration proposed eliminating the Graduate Medical Education program for children’s hospitals, which is a discretionary $318 million program run through HRSA. (For more details, see page 16 of the terminations document.)

I didn’t include it in the below summary, but page 97 of the Treasury Green Book “would repeal the additional [1099] information reporting requirements imposed by” the health care law.  However, the Treasury document scores this proposal as costing only $9.2 billion over ten years – far less than the $19 billion cost the Joint Committee on Taxation has previously assigned to 1099 repeal – so it’s unclear whether this discrepancy is a result of the differences in OMB and JCT scoring models, or whether there’s some other explanation.

A final note: Please keep in mind that these proposals were scored by the Office of Management and Budget, not CBO; the specific details on the scoring may change slightly when CBO issues its re-estimate of the budget in a few weeks.  (All numbers in my summary represent 10-year totals, except for the section on discretionary appropriations.)

 

Mandatory Spending

Medicare “Doc Fix”:  Freezes Medicare physician payments under the sustainable growth rate (SGR) mechanism, preventing a scheduled cut of more than 25 percent scheduled to take effect in January 2012.  Total cost of the provision is $369.8 billion over ten years – $54.4 billion in 2012 and 2013, and $315.4 billion in 2014 and succeeding years.  While the cost of the two-year fix is paid for, the $315.4 billion extension beyond 2014 is not – the budget summary tables include a line marked “offsets,” but none are specified in the document.  (Details of the $62.2 billion in pay-fors that would fund a two year fix are listed below.)  Note also that this year’s proposal calls for a ten-year freeze on physician payments; last year’s budget document assumed a 1 percent per year increase, likely explaining its higher cost ($371 billion last year vs. $369.8 billion this year).

Tricare for Life:  Assumes $530 million in new Medicare spending associated with a proposal to shift Uniformed Services Family Health Plan enrollees into Tricare for Life and Medicare.

Transitional Medical Assistance/QI Program:  Provides for temporary, nine-month extensions of the Transitional Medical Assistance program, which provides Medicaid benefits for low-income families transitioning from welfare to work, along with the Qualifying Individual program, which provides assistance to low-income seniors in paying Medicare premiums.  The extensions cost $665 million and $495 million, respectively.

Liability Reform:  The Justice Department portion of the budget calls for $250 million in new mandatory spending – $100 million in fiscal year 2012, followed by $50 million in 2013 through 2015, to “provide incentives for state medical malpractice reform.”  Specific details are unclear, but an article on this issue can be found here.

Discretionary Spending

When compared to Fiscal Year 2010 appropriated amounts, the budget calls for the following changes in discretionary spending by major HHS divisions (tabulated by budget authority):

  • $380 million (13.8%) increase for the Food and Drug Administration;
  • $684 million (9.1%) decrease for the Health Services and Resources Administration;
  • $572 million (14.1%) increase for the Indian Health Service;
  • $580 million (9.0%) decrease for the Centers for Disease Control;
  • $745 million (2.4%) increase for the National Institutes of Health;
  • $1.029 billion (30.6%) increase for the Centers for Medicare and Medicaid Services program management account; and
  • $270 million (86.8%) increase for the discretionary Health Care Fraud and Abuse Control fund.

With regard to the above numbers for CDC and HRSA, note that these are discretionary numbers only.  The Administration’s budget also would allocate $1 billion in mandatory spending from the new Prevention and Public Health “slush fund” created in the health care law, likely eliminating any real budgetary savings (despite the appearance of same in the table referred to above).

Detail to Fund Two Year “Doc Fix” (Total savings of $62.2 billion)

Program Integrity Provisions (Total savings of $32.3 billion)

Medicaid Provider Taxes:  Reduces limits on Medicaid provider tax thresholds, beginning in 2015; the tax threshold would be reduced over a three year period, to 3.5 percent in 2017 and future years.  State provider taxes are a financing method whereby states impose taxes on medical providers, and use these provider tax revenues to obtain additional federal Medicaid matching funds, thereby increasing the federal share of Medicaid expenses paid while decreasing the state share of expenses.  The Tax Relief and Health Care Act of 2006, enacted by a Republican Congress, capped the level of Medicaid provider taxes, and the Bush Administration proposed additional rules to reform Medicaid funding rules – rules that were blocked by the Democrat-run 110th Congress.  However, there is bipartisan support for addressing ways in which states attempt to “game” the Medicaid system, through provider taxes and other related methods, to obtain unwarranted federal matching funds – the liberal Center for Budget and Policy Priorities previously wrote about a series of “Rube Goldberg-like accounting arrangements” that “do not improve the quality of health care provided” and “frequently operate in a manner that siphons extra federal money to state coffers without affecting the provision of health care.”  This issue was also addressed in the fiscal commission’s report, although the commission exceeded the budget proposals by suggesting that Congress enact legislation “restricting and eventually eliminating” provider taxes, saving $44 billion.  As proposed in the budget, the above provisions would save $18.4 billion.

Medicaid Third-Party Liability:  Strengthens third-party liability provisions allowing Medicaid to recover costs from other insurers, saving $1.6 billion.

High-Risk Products:  Requires states to track high prescribers and utilizers of prescription drugs within Medicaid, saving $3.5 billion. Also creates a system to validate orders for high-risk products and services (e.g., imaging services, DME, home health, etc.), saving an additional $1.8 billion.

MA Repayment Provisions:  Recovers payments to insurers participating in the Medicare Advantage (MA) program.  MA plans are currently paid on a prospective basis, with those payments adjusted according to the severity of beneficiaries’ ill health.  Some sample audits have discovered instances where plans could not retrospectively produce the necessary documentation to warrant the prospective coding adjustment that some beneficiaries received.  The budget would apply this adjustment, currently contemplated for some beneficiaries based on the sample audit, to ALL beneficiaries.  The budget scores this proposal as saving $6.2 billion.

Other Provisions:  Also included in the program integrity section are proposals that would:

  • Require manufacturers to repay states in cases of improper reporting (savings of $125 million);
  • Allow civil monetary penalties for providers who do not update enrollment information (savings of $80 million);
  • Permit the exclusion of officials affiliated with sanctioned entities from participating in health care programs (savings of $50 million);
  • Require prepayment review for all power wheelchairs (savings of $240 million);
  • Use up to 25 percent of Recovery Audit Contractor recoveries to implement anti-fraud actions (savings of $230 million);
  • Provide flexibility to HHS/CMS in using predictive modeling to recover improper and/or fraudulent payments (savings of $100 million); and
  • Limit debt discharges in bankruptcy proceedings associated with fraudulent activity (savings of $150 million).

Provisions without Scoreable Savings:  Included on this list are proposals to:

  • Enforce Medicaid drug price rebate agreements;
  • Increase penalties on drug manufacturers for fraudulent non-compliance with Medicaid drug price rebate agreements;
  • Require drugs to be listed with the FDA in order to be reimbursed under the Medicaid program
  • Prohibit federal funds from being used as a state’s share of Medicaid/SCHIP spending unless specifically authorized;
  • Increase scrutiny of providers receiving Medicare reimbursement through higher-risk banking arrangements;
  • Study the feasibility of using universal product numbers in Medicare to improve payment accuracy; and
  • Strengthen penalties for illegal distribution of Medicare, Medicaid, and SCHIP identity and billing information

Medicaid Provisions (Total savings of $10.6 billion)

Limit Durable Medical Equipment Reimbursement:  Caps Medicaid reimbursements for durable medical equipment (DME) at Medicare rates.  The health care law extended and expanded a previous Medicare competitive bidding demonstration project included in the Medicare Modernization Act, resulting in savings to the Medicare program.  This proposal, by capping Medicaid reimbursements for DME at Medicare levels, would attempt to extend those savings to the Medicaid program.  Saves $6.4 billion.

Rebase Medicaid Disproportionate Share Hospital Payments:  In 2021, reallocates Medicaid DSH payments to hospitals treating low-income patients, based on states’ actual 2020 allotments (as amended and reduced by the health care law).  Saves $4.2 billion.

Medicare Provisions (Total savings of $6.5 billion)

Quality Improvement Organizations:  Includes several provisions regarding the Quality Improvement Organization (QIO) program within Medicare.  Proposals would require QIO contracts to be determined on a geographic basis to maximize efficiency (savings of $2.2 billion), eliminate conflicts of interest between QIOs’ activities on beneficiary protection and quality improvement (savings of $710 million), expand the eligible pool of QIO contractors (savings of $170 million), extend QIO contract from three to five years (savings of $160 million), and align QIO contract terminations with federal regulations (no savings scored).  Provisions would save $3.1 billion total.

Health IT Penalties:  Re-directs Medicare reimbursement penalties against physicians who do not engage in electronic prescribing beginning in 2020 back into the Medicare program.  The “stimulus” legislation that enacted the health IT provisions had originally required that penalties to providers be placed into the Medicare Improvement Fund; the budget would instead re-direct those revenues into the general fund, to finance the “doc fix” and related provisions.  Estimated savings of $3.2 billion.

Pharmaceutical Provisions (Total savings of $12.9 billion)

Follow-on Biologics:  Reduces to seven years the period of exclusivity for follow-on biologics.  Current law provides for a twelve-year period of exclusivity, based upon an amendment to the health care law that was adopted on a bipartisan basis in both the House and Senate (one of the few substantive bipartisan amendments adopted).  Some Members have expressed concern that reducing the period of exclusivity would harm innovation and discourage companies from developing life-saving treatments.  Saves $2.3 billion over ten years.

“Pay-for-Delay:”  Prohibits brand-name pharmaceutical manufacturers from entering into arrangements that would delay the availability of new generic drugs.  Some Members have previously expressed concerns that these provisions would harm innovation, and actually impede the incentives to generic manufacturers to bring cost-saving generic drugs on the market.  Saves $8.8 billion over ten years.

FEHB Contracting:  Proposes streamlining pharmacy benefit contracting within the Federal Employee Health Benefits program, by centralizing pharmaceutical benefit contracting within the Office of Personnel Management (OPM).  Some individuals, noting that OPM is also empowered to create “multi-state plans” as part of the health care overhaul, may be concerned that these provisions could be part of a larger plan to make OPM the head of a de facto government-run health plan.  Saves $1.8 billion.

Legislative Bulletin: H.R. 4872, Health Care and Education Reconciliation Act

Title I—Coverage, Medicare, Medicaid, and Revenues

Subsidies: Increases subsidies for health coverage, offered as refundable, advanceable tax credits payable directly to insurance companies. Specifically, the bill raises premium subsidy levels for those with incomes between 133-150% of the federal poverty level (FPL), and those between 250-400%.   Individuals with incomes between 300-400% FPL would be forced to pay 9.5% of their adjusted gross income on health insurance, instead of 9.8% in the Senate bill. The federal share of cost-sharing would also be increased for individuals with income of between 133-250% of FPL.

Revises the income definitions in the Senate bill, using “modified adjusted gross income” instead of “modified gross income” for purposes of determining subsidy eligibility, and permitting states an income disregard of 5% of income with respect to determining Medicaid eligibility. However, the bill also includes an additional adjustment and trigger mechanism after 2018 to slow the growth of the premium subsidy levels. The Congressional Budget Office has stated that “over time, the spending on exchange subsidies would therefore fall back toward the level under H.R. 3590 by itself.”

Increase in individual mandate:  Modifies the penalty for not having health insurance from $750 or 2 percent of income to $695 or 2.5 percent of income.  The effect of this is to shift the burden of the mandate slightly from lower income Americans to upper income Americans.  Raises $2 billion more in revenue relative to Senate bill.

Increase in employer mandate:  Increases the penalty for businesses that don’t offer health insurance and have at least one employee receiving a subsidy in the exchange from $750 per full time employee to $2,000 per full time employee.  The first 30 workers are disregarded in calculating the penalty.  Strikes the small business exemption carve-out for the construction industry.  Raises $25 billion more relative to the Senate bill.

Implementation Funding: Provides $1 billion in new mandatory spending in a “Health Insurance Reform Implementation Fund” created within the Department of Health and Human Services.

Medicare Part D “Doughnut Hole:” Provides a $250 rebate for 2010 for any Medicare beneficiary who enters the prescription drug coverage gap. Some may note that the flat $250 payment is not tied to a beneficiary’s actual spending within the coverage gap; thus a beneficiary would receive the full $250 payment if he or she only entered the “doughnut hole” by $10. The bill also postpones until January 2011 the start of the prescription drug “discount” program created in the Senate bill by six months, until January 1, 2011.

Starts a process of closing the “doughnut hole” beginning in 2011; however, that gap will not be filled until 2020—outside the ten-year budget window. Some may view the delay as a budgetary gimmick designed to mask the true cost of this new entitlement.

Medicare Advantage Cuts: The bill imposes yet more cuts to Medicare Advantage, phasing in a new system of blended benchmarks. Benchmarks will be phased in beginning in 2012, and are based on overall levels of Medicare spending, with low-cost areas receiving up to 115% of traditional Medicare spending and high-cost areas receiving 95% of traditional Medicare spending. Benchmarks are phased in over longer periods in areas currently receiving higher MA rebates. These cuts, over and above those included in the Senate bill, will further reduce access to both MA plans and the additional benefits they provide.

Establishes a new mechanism to increase payments to “high-quality” MA plans, even though traditional Medicare does not base its payments on quality measures. Plans receiving at least four stars in a new scorecard will be subject to bonus payments of 5% in 2014 and succeeding years, with those amounts doubled in urban markets with high MA penetration and below-average Medicare spending. Requires additional adjustments to MA plan payments reflecting differences in coding intensity compared to traditional Medicare, and repeals a comparative cost adjustment program created as part of the Medicare Modernization Act (P.L. 108-173). Requires MA plans to spend at least 85 percent of their premium costs on medical claims, and directs rebates from plans not meeting that threshold into a management account at CMS.

Other Medicare Cuts: Begins reductions in Medicare disproportionate share hospital (DSH) payments in 2014, rather than 2015 in the Senate bill, but lessens the overall impact of DSH reductions by $3 billion through 2019. The bill makes further market basket adjustments to inpatient hospitals, long-term care hospitals, inpatient rehabilitation facilities, psychiatric hospitals, and outpatient hospitals than those included in the underlying Senate bill. The bill also accelerates and expands changes in the Senate bill regarding the presumed increase in utilization rates for imaging services, resulting in an additional $1.2 billion in savings.

Physician Self-Referral: Extends from August 1, 2010 to December 31, 2010 implementation of a ban on new physician-owned hospitals included in the Senate bill, and adds a limited exception to growth caps on existing physician-owned facilities for those hospitals that treat the largest number of Medicaid patients in their county.

Medicaid Funding: The bill amends the Senate legislation to “fix” the “Cornhusker Kickback,” such that all states would have 100% of their Medicaid expansion costs paid in 2014 through 2016, 95% in 2017, 94% in 2018, 93% in 2019, and 90% in 2020 and future years. Some may however note that these provisions still leave states responsible for tens of billions in unfunded liabilities through 2019—sums that will only grow in the years outside of the budget window.

Provides for a five-year transition period in 2014-2018 for “expansion states” that have already broadened their Medicaid programs to include the populations (namely, childless adults) covered under the Senate bill.

Provides an increase in Medicaid reimbursement levels to the prevailing Medicare rates in each Medicare fee schedule area, fully funded by the federal government—but only for years 2013 and 2014. Many may consider this “cliff” in the years following 2014 a budgetary gimmick to mask the bill’s true cost, similar to the sustainable growth rate (SGR) mechanism now used to calculate Medicare physician reimbursements. Some may also question whether this reimbursement bias in favor of primary care will give providers and states a greater incentive to classify their treatments as constituting primary care, in order to obtain higher reimbursements fully paid for by federal dollars.

Further reduces Medicaid disproportionate share hospital (DSH) payments beyond those included in the Senate bill, and establishes a payment methodology whereby the largest DSH reductions would be imposed on the states with the largest reduction in the number of uninsured individuals. Provides special language increasing DSH allotments for Tennessee, which some may view as a “backroom deal” designed to win the votes of Tennessee House Members.

Other Medicaid Provisions: The bill increases Medicaid funding for American territories, delays establishment of the “community first choice option” for long-term care services from October 2010 to October 2011, and narrows the definition of a covered drug with respect to the Medicaid drug rebate program.

Fraud and Abuse Provisions: The bill re-defines “community mental health centers” within Medicare, and repeals a section of the Medicare statute related to Medicare prepayment medical review. Authorizes the disclosure of information regarding seriously delinquent tax debts to the Centers for Medicare and Medicaid Services (CMS), and requires CMS to consider such information in reviewing provider enrollment applications and reimbursing Medicare providers. The bill includes a total of $250 million in new funding for the Health Care Fraud and Abuse Control Fund, and links future increases in funding for the Medicaid Integrity Program to consumer price inflation. The bill also provides for a 90-day period of enhanced oversight of the initial claims of durable medical equipment (DME) providers in cases deemed a significant risk of fraud.

Tax Increases

Decrease in high-cost plans excise tax: Delays the effective date of the high-cost plans tax from 2013 to 2018 from 2013; raises the thresholds for what qualifies as a high-cost plan to $10,200 for singles and $27,500 for families, adjusted upwards by 55 percent and then again adjusted for each percentage point the cost of the FEHB Standard Blue Cross/Blue Shield plan grows over 55 percent between 2010 and 2018. Strikes the transition rule for high-cost states, and indexes the thresholds after 2020 for CPI inflation instead of inflation plus one percent. Includes a carve out for multiemployer plans that generally cover unionized firms that allows single employees to qualify for higher the family threshold. Raises $116.9 billion less relative to the Senate bill.

New Medicare HI tax on investment income: For the first time in history, imposes a 3.8 percent tax, transferred to the Medicare Trust Fund, on investment income (interest income, dividends, annuities, royalties, or rents) for singles earning over $200,000 and families earning over $250,000; exempts active income from certain business ownership stakes and expenses and distributions from retirement plans. Much like the Alternative Minimum Tax, these thresholds are not indexed for inflation, so an ever increasing number of Americans will become subject to these investment and wage taxes over time. Raises $123.4 billion more relative to the Senate bill.

Delay limitation of flexible spending accounts by two years: Delays the effective date of the $2,500 cap on flexible spending accounts from 2011 to 2013. Raises $1 billion less relative to the Senate bill.

Increase in tax on pharmaceutical industry: Delays the effective date of the pharma tax one year to 2011, increases the annual fee within the budget window to $4.2 billion in 2018, and increases the per-year fee in perpetuity to $2.8 billion. Raises $4.8 billion more relative to the Senate bill within the budget window.

Increase in tax on medical device manufacturers: Changes the annual fee with a set dollar amount to an excise tax on medical device sales at 2.9 percent of the price of the device; delays until 2013. Exempts eyeglasses, contacts, hearing aids, and “generally purchased” goods. Raises $800 million more relative to the Senate bill.

Increased fees on health insurers: Delays the effective date on the net premiums for the insurance company tax from 2010 to 2014, provides an exclusion for certain non-profit insurers and voluntary employees’ beneficiary associations (VEBAs); increases the annual fee to $14.3 billion in 2018, increasing thereafter annually based on premium growth. Raises $500 million more relative to the Senate bill within the budget window and significantly more outside it.

Delay of elimination of deductible Part D subsidy: Ends the deduction for the Medicare Part D subsidy two years later, in 2013. Raises $900 million less relative to the Senate-passed bill.

Elimination of cellulosic biofuel credit for “Black liquor”: Uses the revenue raiser from the Senate-passed Baucus extenders bill that prevents a byproduct from paper production known as “black liquor” from qualifying for the cellulosic biofuels tax credit. Raises $23.6 billion over ten years.

Codification of the Economic Substance Doctrine: Uses the revenue raiser from the Senate-passed Baucus extenders bill that codifies a judicial code used to determine the economic substance of a transaction for tax purposes. Raises $4.5 billion over ten years.



 
Senate bill Reconciliation Bill plus Senate bill Implied Effects of Reconciliation bill
Cadillac plan tax $148.9 $32.0 ($116.9)
Employer W-2 reporting of health benefits Negligible Negligible
Conform definition of medical expenses $5.0 $5.0 $0.0
Increase penalty for nonqualified HSA deductions $1.3 $1.4 $0.1
Limit FSAs to $2,500 $14.0 $13.0 ($1.0)
Corporate information reporting $17.1 $17.1 $0.0
Requirements for non-profit hospitals Negligible Negligible
Pharma fee $22.2 $27.0 $4.8
Device manufacturer fee $19.2 $20.0 $0.8
Health insurer fee $59.6 $60.1 $0.5
Eliminate subsidy related to Part D $5.4 $4.5 ($0.9)
Raise 7.5 percent AGI floor to 10 percent $15.2 $15.2 $0.0
$500k deduction cap on pay for heath insurers $0.6 $0.6 $0.0
Medicare (HI) tax on wage and investment income $86.8 $210.2 $123.4
Section 833 treatment of certain insurers (the Blues) $0.4 $0.4 $0.0
Tanning tax $2.7 $2.7 $0.0
Fee on health plans for Comparative Effectiveness Trust Fund $2.6 $2.6 $0.0
Deny eligibility of “black liquor” for cellulosic biofuels credit n/a $23.6 $23.6
Codify economic substance doctrine n/a $4.5 $4.5
Individual mandate penalties $15.0 $17.0 $2.0
Employer mandate penalty $27.0 $52.0 $25.0
Effects of coverage provisions on revenues $63.0 $46.0 ($17.0)
Other changes in revenue $14.3 $14.3 $0.0
Total $520.3 $569.2 $48.9

 

 

 

Title II – Education and Health

Federal Pell Grants: Provides mandatory funding to increase the maximum Pell Grant to $5,500 in 2010 with progressive increases up to $5,975 by 2017. Beginning in 2013, Pell Grant increases would be indexed to inflation using the Consumer Price Index. CBO estimates this will cost $22.6 billion over 10 years.

Student Financial Assistance: Provides $13.5 billion in mandatory funds to partially cover the discretionary Pell Grant shortfall. Funds will remain available until September 30, 2012.

College Access Challenge Grant Program: Provides mandatory funding in the amount of $750 million over five years for the College Access Challenge Grant Program which promotes partnerships between federal, state, and local governments and philanthropic organizations through matching formula grants that are intended to increase the number of low-income students who are prepared to enter and succeed in postsecondary education.

Historically Black Colleges and Universities: Provides mandatory funding in the amount of $2.55 billion for Historically Black Colleges and Universities through the end of fiscal year 2019.

Termination of Federal Family Education Loan Appropriations: Ensures that no funds can be expended after June 30, 2010 can be used to support new lending activity in the Federal Family Education Loan (FFEL) program and shift all new loans to the federally run Direct Loan (DL) program. CBO estimates this will save $61 billion over $10 years.

Federal Consolidated Loans: Gives temporary authority for certain borrowers who are still in school to consolidate their loans into a Direct consolidation loan. These loans would have the same terms as Direct consolidation loans except the interest rate on the underlying loans are the applicable in-school rates and the rate is not rounded up to the nearest one-tenth. The goal of this provision is to ensure students have one servicer of their loans which could be split between the FFEL and Direct Loan program after the transition. CBO predicts this will cost $40 billion

Direct Loans at Institutions Outside the United States: Allows foreign institutions to participate in the Direct Loan program by making arrangements with domestic banks designated by the Secretary for loans to American students attending such institutions. Under current law, American students attending foreign institutions could only receive a federal loan through the FFEL program.

Contracts, Mandatory Funds: Provides mandatory funds and requires the Secretary of Education to award contracts to non-profit loan servicing agencies. Each eligible agency would be given a maximum of 100,000 student loans to service initially. Provides $50 million in mandatory funds for the U.S. Department of Education to provide technical assistance to institutions of higher education so they can switch from FFEL to DL. Provides $50 million in mandatory funds for fiscal year 2010 and 2011 ($25 million each year) for payments to loan servicers for retaining jobs.

Agreements with State Owned Banks: Would allow banks that are guaranteed by a state, owned by a state, under the control of a board of directors that includes the Governor, and originates or holds loans under the FFEL program prior to July 1, 2009 to continue to provide federally guaranteed loans to students who are residents of that state or are attending an institution of higher education in that state. The only bank that currently meets this definition is the Bank of North Dakota.

Income Based Repayment: Beginning July 1, 2014 would expand the existing income-based repayment program which limits the percentage of an individual’s income that goes to student loan repayment, as well as the length of time they have to pay off the loan. The provision would decrease the limit on loan payments from 15% to 10% of individual income and forgive loans after 20 years rather than 25 years. CBO estimates this will cost $1.5 billion over ten years.

Insurance Reforms: The bill applies to all “grandfathered” health plans provisions in the Senate bill regarding excessive waiting periods before becoming eligible for employer-based insurance, lifetime limits on benefits, rescissions, and coverage of dependents, and clarifies that only non-married dependents may remain on their parents’ insurance policies until turning 26. These provisions would both raise premiums and violate the promise that “If you like your current plan, you can keep it.”

340B Program: The bill repeals the Senate bill’s expansion of the program to inpatient drugs, and exempts orphan drugs from the 340B program with respect to new participants in same.

Community Health Centers: The bill amends the Senate legislation to increase mandatory funding for community health centers by $2.5 billion. However, neither the reconciliation bill nor the Senate-passed measure include ANY prohibition on community health centers using these federal funds to offer elective abortion.

Cost

According to the Congressional Budget Office (CBO), the reconciliation bill, when combined with the Senate bill, would spend a total of $940 billion on coverage expansions. However, these provisions exclude other non-coverage spending: $93.9 billion in related mandatory health spending in the Senate bill, $50.3 billion in mandatory health spending in the reconciliation bill, $41.6 billion in mandatory education spending in the reconciliation bill, and at least $70 billion in discretionary spending included in the Senate bill, bringing the total cost in the bill’s first 10 years to $1.2 trillion. Moreover, Republican staff on the Senate Budget Committee estimates that the total spending in the Senate bill’s first 10 years of full implementation (fiscal years 2014-2023) would total $2.4 trillion.

To pay for the additional spending on subsidies and education spending, the bill would raise taxes by an additional $50 billion, and reduce Medicare spending by $60.5 billion. The reconciliation bill and the Senate bill impose Medicare Advantage cuts totaling $202.3 billion. Tax increases include $25 billion in additional revenue from the employer mandate, $23.6 billion from removing “black liquor” from the cellulosic biofuels tax credit, $123.4 billion from the new Medicare taxes on investment income—all offset by a $119 billion reduction in revenue from the “Cadillac tax” delay. The bill also includes $67 billion in savings from the abolition of the FFEL program, which is channeled into $41 billion in new education spending and $19 billion in new health care mandatory spending.

Summary of Health Provisions in Next Reid “Jobs” Package

As you may have seen, Senator Baucus just offered a substitute amendment to the jobs bill on the floor.  Language of this package is attached, and includes a couple of changes to the summary sent around last Wednesday:

  • The COBRA language is modified to include additional provisions allowing those who do not initially accept COBRA coverage will be eligible to enroll in the program again once they become eligible for subsidies (i.e. once the subsidy program, which expired today, is renewed);
  • The language permits all sole community hospitals to become eligible for the outpatient hold harmless provision – previously there had been a 100-bed limitation; and
  • The gainsharing demonstration program is extended for an additional 21 months.

My summary document, as updated to reflect the latest changes, is below.

 

As you may know, Senators Reid released draft language on a jobs bill earlier today; the language is attached.  Note that this is NOT the Reid jobs bill that passed the Senate earlier today and includes no health provisions.  It is also NOT the one-month series of extensions (H.R. 1586) currently on the Senate hotline, that includes extensions through March of the “doc fix,” COBRA subsidies, and therapy caps ONLY.  However, the Senate is expected to consider this legislation in the near future.

The health related provisions of the latest Reid bill largely match the Baucus-Grassley jobs bill language released prior to the recess, with two significant exceptions – the Reid bill extends COBRA subsidies for ten months (through the end of calendar 2010) instead of one, and includes a six-month extension (through July 2011) of the federal Medicaid increase included in the “stimulus” not in the Baucus-Grassley proposal.  CBO has previously scored the FMAP provision as costing approximately $23.5 billion.  Section 701 of the bill exempts Sections 201 (unemployment extension), 211 (COBRA subsidy extension), and 232 (FMAP increase extension) from statutory PAYGO under the emergency designation provision.

The remaining package of health provisions are paid for by a draw-down of $8 billion from the Medicare Improvement Fund.  Health-related provisions in the bill include the following:

COBRA Subsidies:  Extends eligibility for subsidies to those laid off through December 31, 2010—a ten month extension of the current deadline of February 28, 2010.  Subsidies would last for up to 15 months (this was extended from nine months in the Department of Defense appropriations bill, P.L. 111-118, in December.)  The bill also clarifies that individuals whose hours were reduced prior to being laid off entirely would become eligible for COBRA subsidies upon loss of employment.

“Doc Fix:”  Extends the current Sustainable Growth Rate (SGR) fix through September 30, 2010—a seven month extension.  Note that as the bill amends the Department of Defense appropriations bill, it also therefore incorporates the DoD bill’s funding “cliff,” such that this year’s fix will be disregarded for the purposes of determining payment levels beyond October 1, 2010.  This provision would therefore result in a payment cut of at least 21% as of October 1 absent further Congressional action.

The bill also addresses various “Medicare extenders” that (unlike the doc fix and COBRA subsidies) were not included in the DoD appropriations package back in December, and therefore expired effective January 1.  These include:

Therapy Caps:   Provides a full-year extension to the Medicare therapy caps exception process, through December 31, 2010.

Durable Medical Equipment:  Waives accreditation requirements through January 2011 for certain pharmacies, and provides an alternative form of accreditation for pharmacies whose sales of DME constitute less than 5% of overall revenues. (A three-month waiver of the accreditation requirements was enacted in October as P.L. 111-72 and expired on January 1, 2010.)

One Year Medicare Payment Extensions (all of which would expire at the end of December 2010 unless otherwise noted):

  • Mental health reimbursements (5% increase);
  • Reimbursement raises for ambulance services;
  • Geographic floor for work;
  • Technical component of certain physician pathology services;
  • Outpatient hold harmless provision, and extension to all sole community hospitals;
  • Reimbursement for Part B services provided at Indian hospitals and clinics;
  • Payment rules for long-term care services through July 2011 (and a moratorium on the establishment of facilities);
  • Rural hospital flexibility program (expires at the end of Fiscal Year 2011);
  • Section 508 hospital reclassifications (expires at the end of Fiscal Year 2010);
  • Medicare Advantage plans for special needs individuals;
  • Reasonable cost contracts; and
  • Gainsharing demonstration.

Other Provisions:  The bill includes clarifications to the definition of electronic health records, amending the “stimulus” bill’s language to allow clinic-based physicians who bill through hospitals to receive bonus payments.  The bill includes technical corrections related to critical access hospitals and the waiver policy for employer group Medicare Advantage plans.  The bill extends the continuing care retirement community program and family-to-family health information centers through 2011, and provides several million dollars of additional funding related to low-income programs, as well as another $100 million to CMS to implement the legislation.

Summary of Health Provisions in “Jobs” Package

As you may know, Senators Baucus and Grassley released draft language on a jobs bill earlier today, the text of which can be found online here.  A CBO score is not yet available, but will be forthcoming.

In addition to the jobs provisions, the bill includes several health and Medicare-related provisions.  The package of health provisions are paid for by a draw-down of $8 billion from the Medicare Improvement Fund.  Health-related provisions in the bill include the following:

COBRA Subsidies:  Extends eligibility for subsidies to those laid off through May 31, 2010—a three month extension of the current deadline of February 28, 2010.  Subsidies would last for up to 15 months (this was extended from nine months in the Department of Defense appropriations bill, P.L. 111-118, in December.)  The bill also clarifies that individuals whose hours were reduced prior to being laid off entirely would become eligible for COBRA subsidies upon loss of employment.

“Doc Fix:”  Extends the current Sustainable Growth Rate (SGR) fix through September 30, 2010—a seven month extension.  Note that as the bill amends the Department of Defense appropriations bill, it also therefore incorporates the DoD bill’s funding “cliff,” such that this year’s fix will be disregarded for the purposes of determining payment levels beyond October 1, 2010.  This provision would therefore result in a payment cut of at least 21% as of October 1 absent further Congressional action.

The bill also addresses various “Medicare extenders” that (unlike the doc fix and COBRA subsidies) were not included in the DoD appropriations package back in December, and therefore expired effective January 1.  These include:

Therapy Caps:   Provides a full-year extension to the Medicare therapy caps exception process, through December 31, 2010.

Durable Medical Equipment:  Waives accreditation requirements through January 2011 for certain pharmacies, and provides an alternative form of accreditation for pharmacies whose sales of DME constitute less than 5% of overall revenues. (A three-month waiver of the accreditation requirements was enacted in October as P.L. 111-72 and expired on January 1, 2010.)

One Year Medicare Payment Extensions (all of which would expire at the end of December 2010 unless otherwise noted):

  • Mental health reimbursements (5% increase);
  • Reimbursement raises for ambulance services;
  • Geographic floor for work;
  • Technical component of certain physician pathology services;
  • Outpatient hold harmless provision;
  • Reimbursement for Part B services provided at Indian hospitals and clinics;
  • Payment rules for long-term care services through July 2011 (and a moratorium on the establishment of facilities);
  • Rural hospital flexibility program (expires at the end of Fiscal Year 2011);
  • Section 508 hospital reclassifications (expires at the end of Fiscal Year 2010);
  • Medicare Advantage plans for special needs individuals; and
  • Reasonable cost contracts.

Other Provisions:  The bill includes clarifications to the definition of electronic health records, amending the “stimulus” bill’s language to allow clinic-based physicians who bill through hospitals to receive bonus payments.  The bill includes technical corrections related to critical access hospitals and the waiver policy for employer group Medicare Advantage plans.  The bill extends the continuing care retirement community program and family-to-family health information centers through 2011, and provides several million dollars of additional funding related to low-income programs, as well as another $100 million to CMS to implement the legislation.