What You Need to Know about President Trump’s Health Care Executive Order

On Thursday morning, President Trump signed an Executive Order regarding health care and health insurance. Here’s what you need to know about his action.

What Actions Did the President Take?

The Executive Order did not change regulations on its own; rather, it instructed Cabinet Departments to propose changes to regulations in the near future:

  1. Within 60 days, the Department of Labor will propose regulatory changes regarding Association Health Plans (AHPs). Regulations here will look to expand the definition of groups that can qualify as an “employer” under the federal Employee Retirement Income Security Act (ERISA). AHPs have two advantages: First, all association health plans regulated by ERISA are federally pre-empted from state benefit mandates; second, self-insured plans regulated by ERISA are exempt from several benefit mandates imposed by Obamacare—such as essential benefits and actuarial value standards.
  2. Within 60 days, the Departments of Treasury, Labor, and Health and Human Services (HHS) will propose regulatory changes regarding short-term health plans. Regulations here will likely revoke rules put into place by the Obama Administration last October. Last year, the Obama Administration limited short-term plans to 90 days in duration (down from 364 days), and prevented renewals of such coverage—because it feared that such plans, which do not have to meet any of Obamacare’s benefit requirements, were drawing people away from Exchange coverage. The Trump Administration regulations will likely modify, or eliminate entirely, those restrictions, allowing people to purchase plans not compliant with the Obamacare mandates. (For more information, see my Tuesday article on this issue.)
  3. Within 120 days, the Departments of Treasury, Labor, and HHS will propose regulatory changes regarding Health Reimbursement Arrangements (HRAs), vehicles where employers can deposit pre-tax dollars for their employees to use for health expenses. A 2013 IRS Notice prevented employers from using HRA dollars to fund employees’ individual health insurance premiums—because the Obama Administration worried that doing so would encourage employers to drop coverage. However, Section 18001 of the 21st Century Cures Act, signed into law last December, allowed employers with under 50 employees to make HRA contributions that workers could use to pay for health insurance premiums on the individual market. The Executive Order may seek to expand this exemption to all employers, by rescinding the prior IRS notice.
  4. Within six months—and every two years thereafter—the Departments of Treasury, Labor, and HHS, along with the Federal Trade Commission, will submit reports on industry consolidation within the health care sector, whether and how it is raising health care costs, and actions to mitigate the same.

How Will the Order Affect the Health Sector?

In general, however, the issues discussed by the Executive Order will:

  • Give individuals more options, and more affordable options. Premiums on the individual market have more than doubled since 2013, due to Obamacare’s regulatory mandates. AHPs would allow workers to circumvent state benefit mandates through ERISA’s federal pre-emption of state laws; self-insured AHPs would also gain exemption from several federal Obamacare mandates, as outlined above. Because virtually all of Obamacare’s mandated benefits do not apply to short-term plans, these would obtain the most regulatory relief.
  • Allow more small businesses to subsidize workers’ coverage—either through Association Health Plans, or by making contributions to HRAs, and allowing employees to use those pre-tax dollars to buy the health coverage of their choosing on the individual market.

When Will the Changes Occur?

The Executive Order directed the Departments to announce regulatory changes within 60-120 days; the Departments could of course move faster than that. If the Departments decide to release interim final rules—that is, rules that take effect prior to a notice-and-comment period—or sub-regulatory guidance, the changes could take effect prior to the 2018 plan year.

However, any changes that go through the usual regulatory process—agencies issuing proposed rules, followed by a notice-and-comment period, prior to the rules taking effect—likely would not take effect until the 2019 plan year. While the Executive Order directed the agencies to “consider and evaluate public comment on any regulations proposed” pursuant to the Order, it did not specify whether the Departments must evaluate said comments before the regulations take effect.

Does the Order Represent a Regulatory Overreach?

However, with respect to Association Health Plans, some conservatives may take a more nuanced view. Conservatives generally support allowing individuals to purchase insurance across state lines, believing that such freedom would allow consumers to buy the plans that best suit their interests.

However, AHPs accomplish this goal not through Congress’ Commerce Clause power—i.e., explicitly allowing, for instance, an individual in Maryland to buy a policy regulated in Virginia—but instead through federal pre-emption—individuals in Maryland and Virginia buying policies regulated by Washington, albeit in a less onerous manner than Obamacare’s Exchange plans. As with medical liability reform, therefore, some conservatives may support a state-based approach to achieve regulatory relief for consumers, rather than an expanded role for the federal government.

Finally, if President Trump wants to overturn his predecessor’s history of executive unilateralism, he should cease funding cost-sharing reduction payments to health insurers. The Obama Administration’s unilateral funding of these payments without an appropriation from Congress brought a sharp rebuke from a federal judge, who called the action unconstitutional. If President Trump wants to end executive overreach, he should abide by the ruling, and halt the unilateral payments to insurers.

This post was originally published at The Federalist.

The Freedom and Empowerment Plan for American Health Care

A PDF of the full health care plan is available on the America Next website.

The Problem of American Health Care

By many measures, the American system of health care is the best in the world. It is a source of incredible innovation at the cutting edge of medical science, providing high quality care to people who need it. We have some of the best doctors, nurses, researchers, and provider systems on earth. When world leaders need complex surgery and lifesaving treatment, they fly to us. It is here, in America, where treatments are discovered, methods are improved, and diseases are cured.

But by all sorts of other measures, the American system of health care is the worst of both worlds – and that was true before Obamacare. For starters, it is extraordinarily expensive. This is partly because we aren’t interested in just managing pain, but in curing diseases; partly because market-warping government policies and regulations drive costs higher and incentivize monopolization over competition; partly because Americans have a limited choice of health insurance options; and partly because patients and providers are insulated from the true costs of health care services.

Imagine for a moment if other forms of insurance worked the same way as American health insurance does today. Say you arrive home one day and find that the lightbulb on your front porch has burned out. This happens every couple of months, and it’s predictable as clockwork – or a chronic condition. But because your homeowners insurance policy works like health insurance does, you can’t just drive to a store and buy a lightbulb, oh no. Instead, you have to call and set up an appointment with a highly-paid and highly-educated expert lightbulb specialist.

You go in the waiting room wait for two hours so the specialist can spend five minutes examining the lightbulb and telling you what new one you need to buy. The specialist used to be in a small practice, but now he’s in a big group, because there are all sorts of government regulations he has to deal with, and only big systems can afford to deal with them. He also has to overcharge your private insurer for this brief visit, because he spends a third of his time seeing people on government entitlement programs who dramatically underpay for his services.

The specialist gives you a nearly illegible prescription for a new lightbulb, but you can’t buy it just anywhere – your homeowners insurance has a network of stores, and going out of network means you’ll face penalties. You have to drive across town to an in-network hardware store, and then wait for someone to get the right lightbulb out of the back. You have no idea how much the lightbulb actually costs, or if it would be cheaper at the store ten minutes away – you just have a small co-pay for it, and the rest is covered by your insurer – or how much the specialist is paid to tell you which one to buy. And in a few months when the light burns out again, you’ll have to go through all of this all over again.

When you start to think about the American health insurance system in this context, you start to understand why things are so upside down when it comes to the costs of care. At each stage, everyone is insulated from costs, and most people have no incentive to shop and compare prices and services as they do in every other market. And government policies and sweeping regulations have only served to make it worse.

Health care represents one of the most complex arenas of public policy. It was an animating interest for me from a young age, in part because it is an area that touches every American during the course of their lives in profound ways. I worked at the U.S. Department of Health and Human Services, the National Bipartisan Commission on the Future of Medicare, and the Louisiana Department of Health and Hospitals.  During my lifetime, many attempts have been made to try and fix the broken aspects of our system, some more successful than others. President Obama’s health care law is just the latest in a long line of wrongheaded steps – but it is by far the worst yet.

As someone who believes in empowering patients and using market forces to improve American health care, I oppose President Obama’s law and believe we must repeal all of it—no matter what the conventional wisdom in Washington says. But we must also enact positive reforms to move our health system in the right direction, because the status quo of American health care and insurance is simply not defensible.

What the President said in the course of selling his signature legislation actually sounded good to me – it’s what he did that was awful. The President sold his law as a path to lower premium costs, promising that he’d cut them by $2,500 by the end of his first term. He said he wanted people to be able to keep their health plans and their doctors if they liked them. He said he wanted to bend the cost trajectory down while improving quality. I’m for all of that – but unfortunately that’s not what his law does.  At best the President was horribly naïve about how our health care system works, and how to reform it.  At worst he was deliberately untrue, and sold his government-centric plan as a “conservative” proposal because he knew the American people would never accept the truth.

We want to make sure that people have access to affordable high quality healthcare. We want to create a solid safety net for the poorest of the poor and the sickest of the sick. This is, according to President Obama, what he wants, too. But from my perspective, he never stepped back and really looked at what’s wrong with our system, and asked what we want it to look like if we can tear down the existing market-warping problems and start afresh.

America needs a health care system where it is easy for the consumer to be in control, and where government won’t get in between you and your doctor. Sometimes on the right we’re blind to the fact that health care bureaucracy isn’t just Medicare and Medicaid personnel – it also could be a big insurance bureaucrat, and they’re little better. At each point, this system of bureaucracy, monopolization, and the lack of price transparency serves to drive costs higher and higher for all of us. The most fundamental question in health care policy is: do you want the patient to be in control, working with their doctor and health care provider, or do you want a bureaucrat – whether from the government or your insurer – to be in control?

The left has its answer to this question: empowering government. Instead, we should be empowering patients. How should we go about doing that? Well, there are several things that have to change, steps that will push health care in this country toward being a true competitive marketplace, and which make providers understand once again that the individual patient is their customer.

Big changes never happen organically in Washington, and many of the big stakeholders were heavily invested in Obamacare just a few years ago. But as President Obama’s monopartisan program has stumbled, it presents the opportunity for conservatives to make the case for real reform. It is now obvious to everyone that his plan simply won’t deliver on the many promises he made along the way. And that’s because, from the beginning, his approach was wrongheaded. He trusted the government to fix the problems and get everything right, instead of trusting the American people to know what’s best. We shouldn’t make that mistake twice.

A Conservative Alternative

In the debate surrounding the Patient Protection and Affordable Care Act, more commonly referred to as Obamacare, conservatives have consistently faced one myth, perpetuated by President Obama himself and his political allies: That there is no alternative to Obamacare, and that opponents of the law have offered no solutions on health care themselves.

Nothing could be further from the truth.  In November 2009, House Republicans offered their alternative to Obamacare during a debate on the House floor; not a single Democrat voted for the legislation.[1]  One more recent compilation lists more than 200 pieces of health care legislation offered by conservative Members of Congress in 2013 alone.[2]  Conservatives have consistently proposed alternatives to Obamacare, and publicly advocated on their behalf, yet the President finds it easier to peddle untruths than to engage the American people on why his unpopular law is “better” than alternative reforms.

One reason President Obama fails to recognize conservative alternatives to Obamacare lies in a fundamental dispute about the root problems plaguing the American health care system.  Conservatives believe that the best way to improve access to health insurance coverage is to make that coverage more affordable.  Many conservatives may agree with then-Senator Obama, who stated during his 2008 presidential campaign: “I believe the problem is not that folks are trying to avoid getting health care.  The problem is they can’t afford it.”[3]

Candidate Obama may have talked like a conservative in his rhetoric highlighting health costs and opposing mandates, but President Obama has governed as a liberal.  Instead of tackling the root of the health care problem, and lowering costs first, Obamacare focused on spending trillions of dollars to expand health coverage, creating massive new entitlements in the process.  Rather than making health care more affordable for all Americans, Obamacare gave America a law it can’t afford to keep.  The law is fiscally unsustainable, its tax increases economically damaging, and its enshrinement of greater government control of every aspect of health care is more dangerous than some in Washington appreciate.

For these reasons and more, any conservative health reform must start with repealing Obamacare.  But conservative health reform must not end there.  Even prior to Obamacare, the status quo was, and remains, unacceptable.  Many Americans struggle every day with the high cost of health care, and Americans with pre-existing conditions cannot access the care they need.  America’s health care system does need reforms—but it needs the right reforms.

The policy solutions put forward by America Next in this paper focus on preserving what’s right with American health care, while fixing what’s wrong.  Fixing what’s wrong involves restoring one basic American principle—freedom—that has been eroded due to Obamacare  While it is wise for any individual to have health insurance coverage, Washington cannot—and should not—attempt to compel such behavior.

After restoring those freedoms, we can enact the reforms the American health system needs.  We focus first and foremost on reducing health care costs—because while most Americans want to buy health care and health insurance, many of them struggle to afford it.  We also work to preserve and strengthen the safety net for the most vulnerable in our society, including those with pre-existing conditions.  And we focus on enhancing patient choice, removing obstacles to portability and consumer selection, including many put into place by Obamacare itself.  These principles should form the foundation for true health reform—one that puts doctors and patients, not government bureaucrats, at the heart of all policy decisions.

 

Principle #1: Lowering Health Costs

When running for President in 2008, candidate Obama promised that his health plan would lower premiums—in fact, he promised on numerous occasions that his plan would reduce costs for the average family by $2,500 per year.[4]  Unfortunately, the law President Obama signed bears little resemblance to that campaign pledge.  Obamacare moves American health care in the opposite direction—raising health costs and premiums, not lowering them.  The non-partisan Medicare actuary has concluded that Obamacare will raise total health spending by $621 billion dollars in its first decade alone.[5]  Likewise, independent analysts at the Congressional Budget Office (CBO) concluded that Obamacare would raise premiums for those buying health insurance on the individual market by an average of $2,100 per year.[6]

The higher premiums due to Obamacare are discouraging many people from enrolling in coverage under the law.  A recent survey by analysts at McKinsey found that only 27 percent of Americans selecting insurance plans were previously uninsured—the group Obamacare intended to target for expanded coverage.[7]  The same survey found that half of those individuals who shopped for insurance coverage but did not select a plan cited affordability reasons in deciding not to purchase coverage: “I could not afford to pay the premium.”[8]  For many Americans, the measure dubbed the “Affordable Care Act” has proven anything but affordable.

Obamacare is raising health costs because its mandates and regulations force customers to buy health insurance products they may not want or need, merely because a government bureaucrat tells them they must.  Conversely, true reform would provide incentives for consumers to serve as smart health care shoppers, saving money by engaging in healthy behaviors and taking control of their health care choices.

Tax Equity:  When it comes to health insurance, today’s tax code contains two notable flaws.  First, it includes a major inequity: workers can purchase employer-provided coverage using pre-tax funds, but individuals who buy coverage on their own must use after-tax dollars to do so.  Second, because cash wages provided by an employer are taxable, but health insurance benefits are not taxed, no matter how generous the benefit, the tax code currently gives a greater value to health insurance than increases in cash wages.  This disparity has resulted in employers scaling back pay raises to help fund rapidly rising health plan costs.  The Congressional Budget Office has also noted that this disparity has exacerbated the growth in health costs, and that capping the tax subsidy for employer-provided insurance would help slow cost growth.[9]  Reforms could result in employers raising cash wages if their health costs grow more slowly over time.—and slowing the growth of health care costs would yield benefits for the broader economy.

A conservative health reform would transform the existing tax exclusion for employer-provided health insurance into a standard deduction for all forms of health insurance, regardless of where they are purchased.  First proposed in 2007, this concept was also recently introduced in legislative form in the House of Representatives.[10]  This proposal would not raise taxes; following Obamacare’s repeal, total government revenues would remain at pre-Obamacare levels.  In other words, this proposal would not repeal Obamacare’s tax increases, only to replace them with other tax hikes.

Under this model, the standard deduction would grow at higher rates initially, but as the other efficiencies take effect and the growth in health spending slows, the deduction would in time rise annually according to consumer price inflation.  Much as the current exclusion for employer-provided coverage applies to both income and payroll taxes, the standard deduction would apply towards income and payroll taxes as well.

These reforms would solve several problems with our current tax code.  The standard deduction would create equity between those who buy health coverage through their employer, and those who buy health coverage on their own.  In 2007, one analysis noted this change could reduce the number of uninsured Americans by 9.2 million.[11]  Over time, this policy might encourage more individuals to buy coverage independent of their employer plans, but such a change would likely be gradual and voluntary—as opposed to the millions of Americans who lost their existing health coverage last fall, because their plan did not meet Obamacare’s bureaucratic standards.

Just as importantly, the new standard deduction would contain in-built mechanisms to slow the growth of health costs.  Individuals who purchase insurance costing less than the amount of the standard deduction would still retain the full tax benefit from it—giving them reason to act as smart health care shoppers.  In addition, the slower growth rate of the deduction would give both insurance companies and consumers a greater incentive to maximize efficiencies in the health care system.  For decades, the tax code’s perverse incentives have accelerated spiraling health costs, but creating a standard deduction will help reduce costs rather than raising them.

State Health Insurance Program:  Although millions of Americans without access to employer-sponsored health coverage will benefit from the standard deduction for health insurance, some individuals with minimal tax liability—primarily those with incomes under about 150 percent of the federal poverty level—will receive little benefit from a tax deduction.  Instead, eligible individuals should receive an explicit government subsidy to purchase affordable health insurance.

This health reform plan proposes a pool of $100 billion in federal funding over the next ten years for states to subsidize affordable health insurance for low-income individuals and individuals with pre-existing conditions.  The funding would be provided to states with minimal restrictions:

  1. States must achieve measurable reductions in average health insurance premiums in the individual and small group markets, and must ensure that individuals have access to affordable health insurance—with premiums that do not exceed a defined percentage of that state’s median income.
  2. States must establish and maintain a form of guaranteed access for individuals with pre-existing conditions—a high-risk pool, a reinsurance fund, or some other risk transfer mechanism.  States could use some of their federal allotment to help fund the costs of covering high-risk individuals.
  3. Obamacare reduced disproportionate share hospital (DSH) payments by half to finance expensive, unaffordable health coverage; this plan would instead restore that funding to help fund more affordable health insurance options. [12]  In order to access state grants, states must direct this restored funding toward covering eligible populations, reducing the amount of uncompensated care provided by instead subsidizing health insurance.  States will receive about $10 billion per year in DSH funding; re-directing some of these funds would supplement the $100 billion provided by the federal government.[13]

This reform model relies on federalism to promote innovation in health care and health insurance.  The federal government sets key goals—keeping insurance premiums affordable, and expanding access to low-income individuals and those with pre-existing conditions—and allows states to meet those goals in the manner they believe will work best for their state.  For example, if a state wants to incorporate an account-like savings mechanism to promote healthy behaviors, as Indiana has done, it can pursue that option.

Empowering states with flexibility and freedom can be a powerful tool in reducing health costs.  Analyzing a similar proposal put forward as part of the House Republican alternative to Obamacare in 2009, the non-partisan Congressional Budget Office (CBO) found that state innovation grants, coupled with liability reform and other common-sense solutions, would lower small business health insurance premiums by 7 to 10 percent, and would lower individual health insurance premiums by 5 to 8 percent.[14]  This reduction is even more stark when compared to the premium increases CBO predicted will occur (and are occurring) due to Obamacare.  Overall, estimates suggest that, when compared to Obamacare, this state-based approach could reduce premiums on the individual health insurance market by nearly $5,000 per family.[15]

Washington has tried a top-down approach to health care; it hasn’t worked.  Allowing states to serve as laboratories of innovation could slow the growth in health insurance costs and premium increases.  In addition, the $100 billion in federal funding, coupled with the matching funds from state DSH payments, would expand health care access for low-income individuals who do not benefit from the standard insurance deduction and those with pre-existing conditions.  This state-based model, not more Washington mandates and regulations, represents the best route to true health care reform.

Health Savings Accounts:  One of the innovations over the past decade that has helped slow the growth in health care costs has been Health Savings Accounts (HSAs), which couple a high-deductible health plan with a tax-free savings account.  The high deductible plans provide lower premiums for consumers, who can then deposit the savings in their HSAs to use for routine health expenses.  And because funds in an HSA accumulate from year to year tax-free, they provide motivation for consumers to serve as smart purchasers of health care.

First made available in 2004, HSAs have grown in popularity; more than 15 million Americans are now covered by HSA-eligible health plans.[16]  Many are using tools provided by these plans to take better control of their health and health spending, seeking out preventive care, using generic drugs more frequently, and utilizing plan-provided decision support tools.[17]  These plans are also saving Americans money; in 2013, the average HSA plan provided by an employer cost $1,318 less per family than non-HSA plans—even after firms placed an average of $1,150 per family into the HSA to fund health expenses.[18]  A recent study found that more widespread adoption of HSA coverage could reduce health spending by as much as $73.6 billion per year.[19]

Obamacare moves in the opposite direction by placing limits on the effectiveness of HSAs.  For example, it prohibits the use of funds from an HSA to purchase over-the-counter medications without a prescription.[20]

Conservative health reforms should build upon the success of HSAs by offering new options to make HSA plans more flexible for patients and consumers.  Congress should allow HSA funds to be used to purchase health insurance in all cases, making it easier for consumers who save to fund their health coverage.  Another possible reform would create more flexible insurance policies, linking the size of the deductible for an HSA plan to customers’ account balances, incomes, or other assets; in this way consumers with sizable savings could choose coverage with an even lower premium in exchange for a higher deductible.  These changes would further accelerate a health coverage model that has already helped slow the growth of health costs for millions of Americans.

Greater Incentives for Wellness:  One of the few areas of bipartisan agreement during the Obamacare debate was a consensus around the “Safeway model”—namely, providing financial incentives for individuals and employees to engage in healthy behaviors.[21]  At the time, employers could vary premiums by up to 20% to reward participation in various wellness programs.  However, then-Safeway CEO Steve Burd noted that a 20% premium variation did not allow the company to recoup all the higher costs associated with unhealthy behaviors like smoking.

Congress can and should do more to enhance these innovative efforts to reduce health costs.  First, it can provide explicit statutory authority for premium variations of up to 50%.  It can also allow employers (or insurance companies selling individual insurance plans) to offer any financial incentives for healthy behaviors on a tax-free basis, by placing the money in new Wellness Accounts.  As with HSAs, the money in these accounts could then be used tax-free for health expenses, or withdrawn for other purposes.  This reform would marry two proven successes—HSAs and wellness incentives—turbo-charging efforts to slow the growth in health costs by encouraging Americans to engage in healthy behaviors.

Crack Down on Fraud:  Health costs have grown at a rapid rate at least in part due to widespread fraud in government health programs.  Unfortunately, a recent case in which 49 Russian diplomats were charged with fraudulently obtained Medicaid benefits—lying about their immigration status and income on application forms, even as they purchased goods from Tiffany’s and Jimmy Choo—is not an aberration.[22]  Several years ago, the New York Times cited expert analysis that as much as 40 percent of that state’s Medicaid spending was either questionable or outright fraudulent.[23]  The Medicare program for the elderly also faces widespread fraud—$60 billion per year, according to a 60 Minutes investigation.[24]

While the private sector has a series of programs and protocols in place to combat fraud, government health programs have traditionally lagged; their focus has been on paying claims quickly, whether real or fraudulent.  In recent years, some government programs have improved their efforts to combat fraud; for instance, Louisiana’s new Bayou Health managed care model built in robust savings from fraud detection, requiring plans participating in Bayou Health to crack down on suspicious transactions or face financial penalties.  But Congress should do more to end the current “pay and chase” model, which attempts to track down fraud after-the-fact, and enhance penalties for those who steal or traffic in Medicare patient numbers and other personal health information.

Price and Quality Transparency:  In many cases, consumers who wish to serve as “smart shoppers” of health care do not have the information to do so.  For far too long, price and quality transparency data have been lacking in the health sector, meaning patients face a dearth of information when they have to make potentially life-altering decisions about their care.  The good news is that these trends are slowly changing, and that transparency has provided consumers with useful, and powerful, information:

There is emerging evidence that when hospitals publish prices for surgical procedures, costs decrease without a loss of quality.  The Surgery Center of Oklahoma, for example, has been publishing its prices for various procedures for the past four years.  Because the center’s prices tend to be lower than those of other hospitals, patients started coming from all over the country for treatment.  In order to compete, other hospitals in Oklahoma began listing surgical prices; patients were able to comparison shop, and hospitals lowered their prices.[25]

Further efforts at transparency could help to reduce an estimated $105 billion paid in health costs annually due to uncompetitive pricing levels by medical providers.[26]  Just as importantly, patients could have more objective sources of information about doctors and medical treatments than recommendations from friends or acquaintances.  Online posting of price and quality data can easily lead to new Consumer Reports-type rating systems, which will empower patients with trusted data and provide providers an greater incentive to improve their quality practices.

 

Principle #2: Protect the Most Vulnerable

In trying to provide all Americans with health insurance, Obamacare may actually detract from efforts to protect those who need health care most.  The law provides a more sizable federal match for states to expand their Medicaid programs to childless adults than it does for states to cover their disabled populations.[27]  At a time when more than half a million disabled Americans are on state lists waiting to qualify for long-term supports and services, it is both uncompassionate and unfair for the Administration instead to focus on covering childless adults, most of whom are able to work or prepare for work.[28]

True health reform would focus first and foremost on targeting government resources to the most vulnerable in our society—protecting the safety net rather than stretching it past its breaking point.  These reforms would help individuals with pre-existing conditions, senior citizens, the disabled, and the unborn.  Making these populations the centerpiece of coverage efforts would meet one of Obamacare’s core goals—providing access for individuals with pre-existing conditions—without necessitating the upheaval caused by the President’s 2,700-page health law.

Guaranteed Access for Pre-Existing Conditions:  Obamacare was sold as a way to address the very real problem of Americans with pre-existing conditions—but the size of the problem did not warrant such a massive overhaul.  One estimate found that approximately 2-4 million individuals under age 65 may face difficulties purchasing health insurance.[29]  The Obama Administration has attempted to claim that up to 129 million Americans “could be denied coverage” due to pre-existing conditions.[30]   But when Obamacare created a high-risk pool to provide temporary coverage for those with pre-existing conditions, under 150,000 Americans ever enrolled in it[31]—far fewer than the 600,000-700,000 originally projected to seek enrollment in the program.[32]

Ironically enough, Obamacare has failed to deliver on its promise for individuals with pre-existing conditions.  The Administration froze enrollment in the law’s high-risk pools due to funding constraints,[33] and the unintended consequences of over-regulation meant that 17 states lost access to child-only health insurance plans.[34]  Some patients have also found that their Obamacare plans don’t include the specialists or hospitals they need; for instance, many plans do not offer access to advanced cancer centers.[35]

Conversely, conservative health reform would ensure that states have the incentive of funding to provide guaranteed access for Americans with pre-existing conditions.  Many states use various vehicles to cover these individuals—whether high-risk pools, reinsurance programs, or some other risk transfer mechanism.[36]  The incentive pool of federal dollars would allow states to determine the best mechanism for providing access to those with pre-existing conditions, and a stable source of funding for those endeavors.

Much of the case for Obamacare was made on the basis of an issue which effects a small portion of consumers: the challenge of pre-existing conditions. Since 1996, federal law included a requirement of guaranteed renewability in the individual health insurance market—so long as you paid for your policy, you were guaranteed the ability to renew your plan.  Policy cancellations—also called rescissions—were rare, and nearly always due to fraud, impacting according to some measures just four-tenths of one percent of the private individual market (which is itself just 10 percent of the insured marketplace).[37]  Though relatively small in number, the issue of pre-existing conditions raised concerns for many Americans—who feared that they, or someone they knew, would be affected if they developed an illness that made them uninsurable.

Obamacare was supposed to solve the problem of pre-existing conditions, but in many respects, the law actually made things worse.  It took away the coverage renewability guarantee, by forcing insurance companies to cancel the policies of millions of Americans. Even as they made the case that if you liked your plan you could keep it, those who favored the president’s legislation knew they were about to repeal the existing guaranteed renewability for millions of Americans. By doing this, Obamacare has completely disrupted the individual market, forcing many people who were satisfied with their coverage and the access they had to doctors and specialists being dumped into more costly and less comprehensive insurance simply because of Obamacare.

This lie should not be allowed to stand. Guaranteed renewability should ensure that patients have the ability to renew their coverage, regardless of their health status, so long as they have not committed fraud. Thus, people who maintain continuous coverage should be protected from premium spikes and have confidence their insurance will be there when they need it.

The central irony of Obamacare is that it hurt the very people it was supposed to help. For Americans signing up for new insurance, guaranteed renewability should offer peace of mind that their insurer cannot drop them merely for getting sick. For those Americans for whom access to guaranteed renewability contracts has been destroyed by Obamacare, the incentive pool of state dollars for more innovative approaches, coupled with greater flexibility for individuals leaving employer plans, will be there to help them get the coverage they need in a post-Obamacare system.

Premium Support:  Medicare faces a dire financial predicament.  According to the annual report by the program’s trustees—including members of the Obama Administration—the Part A trust fund financing hospital care will be insolvent by 2026.  In the short term, the program has taken a hit from the recession and slow economic recovery; the Medicare trust fund ran $105.6 billion in deficits during the years 2008-12.[38]  In the longer term, the outlook is even worse: Medicare faces 75-year unfunded obligations of at least $27.3 trillion, and even this estimate may understate the program’s liabilities, due to various budgetary and accounting gimmicks.[39]

Among the biggest gimmicks understating Medicare’s financial shortfalls is Obamacare itself.  In October 2011, Nancy Pelosi admitted what all Americans realize Democrats did as part of Obamacare: “We took a half a trillion dollars out of Medicare in…the health care bill,” to pay for that law’s new entitlements.[40]  Yet the Obama Administration utilized an “only-in-Washington” logic to argue otherwise, citing trust fund accounting to assert that the Medicare provisions in the law could be used both to “save Medicare” and to “fund health care reform.”[41]  There are two kinds of people in politics—those that want to fix Medicare and those who want to use it to score political points.  Sadly, Obamacare followed the latter course.  Current and future generations of seniors deserve better—they deserve true reform that makes Medicare more sustainable.

One bipartisan solution to Medicare’s fiscal shortfalls would give seniors a choice of plans, with the federal government providing a generous subsidy to purchase coverage.  This premium support concept was developed, and endorsed, by a bipartisan majority in a commission created by Congress and President Clinton, whose Executive Director was Bobby Jindal.[42]  The commission’s work was in turn endorsed by the Democratic Leadership Council.[43]  More recently, Rep. Paul Ryan, the Republican Chairman of the House Budget Committee, and Sen. Ron Wyden, the Democratic Chairman of the Senate Finance Committee, submitted a bipartisan health reform plan that included a premium support proposal for Medicare beneficiaries.[44]

The key feature of a premium support proposal is the ability of competition among health plans to bring down costs and provide better care to America’s seniors.  Former Clinton Administration official Alice Rivlin testified before Congress in 2012 that nearly nine in ten seniors live in areas where private health plans have costs lower than traditional, fee-for-service Medicare; under a premium support proposal, these seniors could save money by choosing to enroll in a private plan.[45]  Likewise, the Congressional Budget Office recently analyzed one premium support proposal, and found that it could reduce Medicare spending by $15 billion dollars annually, while also reducing overall out-of-pocket spending by beneficiaries by an average of 6 percent.[46]

As part of the transition to premium support, the traditional Medicare benefit itself should be modernized.  For the first time ever, Medicare should provide a catastrophic cap on out-of-pocket expenses—so that seniors would know their spending.  At the same time, Medigap insurance, which provides supplemental coverage of co-payments and deductibles for some seniors, should also be reformed, so that seniors would no longer be pre-paying their health coverage by over-paying to insurance companies.

Under Medigap reform, seniors’ premium costs would fall substantially.  A 2011 study by the Kaiser Family Foundation found that under one version of reform, Medigap premiums would plummet by an average of over 60%, from nearly $2,000 per year to only $731.[47]  Because less money from Medigap policy-holders would be diverted to administrative overhead, seniors would be able to keep their own money to finance their own health care.

Medigap reform not only lowers seniors’ premiums, it also lowers their overall health costs.  A 2011 Kaiser Family Foundation study concluded that “the savings for the average beneficiary” under Medigap reform “would be sufficient to more than offset his or her new direct outlays for Medicare cost sharing.”[48]  According to Kaiser, nearly four in five Medigap policy-holders would receive a net financial benefit from this reform – with those savings averaging $415 per senior each year.[49]

What’s more, modernizing traditional Medicare and Medigap would drive greater efficiency within the health care system.  The Congressional Budget Office estimates that this reform would make Medicare more sustainable for future generations, by as much as $114 billion in its first decade alone.[50]  As with premium support, this package of proposals represents a true “win-win:” Current seniors would save on their health expenses, while seniors-to-be would have greater confidence that the promises made to them can be kept when they prepare to join Medicare themselves.

For all these reasons and others, this modernization of Medicare carries broad support from across the political spectrum.  Bipartisan endorsers of Medigap reform include the Simpson-Bowles Commission,[51] the Rivlin-Domenici commission on debt and deficits,[52] Sen. Tom Coburn (R-OK) and former Sen. Joe Lieberman (D-CT),[53] and even President Obama’s most recent budget.[54]

Seniors deserve the potential savings and better care these reforms can provide.  Seniors’ plan choices would include some of the same options available to Americans under age 65, along with the traditional, government-run fee-for-service model, updated with new and more flexible options.  Likewise, future generations deserve the peace-of-mind that comes from knowing Medicare has been placed on a more sustainable path.  It is long past time for Washington to enact true Medicare reform.

Medicaid Reforms:  Despite Obamacare’s massive new regulations, some states have already acted to reform their Medicaid programs.  For instance, Rhode Island’s global compact waiver—in which the state received additional regulatory flexibility from the federal government in exchange for a cap on its Medicaid budget—has successfully slowed the growth of health costs in that state.  A 2011 Lewin Group report found that the global compact waiver “generated significant savings”—more than $50 million from the small state’s Medicaid budget—and did so not by reducing care, but by improving it:

The mandatory enrollment of disabled members in care management program [sic] reduced expenditures for this population while at the same time generally resulting in improved access to physician services.[55]

Since the Lewin study in 2011, Rhode Island’s success in managing its Medicaid program has continued.  The state has reduced its per capita Medicaid spending by more than five percent over the past three fiscal years, resulting in three straight years of minimal expenditure growth,  even as the state’s Medicaid caseload increased.[56]

These remarkable accomplishments come despite the Obama Administration’s efforts, not because of them.  The 2011 Lewin report notes that passage of Obamacare and the “stimulus” bill, both of which imposed new restrictions on state Medicaid programs, “had a profound impact” on the Rhode Island waiver, because “the flexibility sought did not always materialize.”  For instance, the original waiver gave Rhode Island the authority to assess modest premium charges for some beneficiaries, but the Obamacare mandates took this flexibility away.[57]

Other states have also acted to reform their Medicaid programs.  Louisiana has transitioned its Medicaid program toward a managed care model, named Bayou Health.  The program has furthered the goals of the Birth Outcomes Initiative, claims data for which reveal a reduction of 23,000 in statewide neonatal intensive care unit days paid by Medicaid—meaning more babies were carried to full term.

The Hoosier State’s Healthy Indiana Plan includes a personal responsibility component, and provides incentives to engage in wellness screenings, and imposes co-payments on beneficiaries who make non-urgent visits to the emergency room.  The plan also requires participants to make modest contributions to an account to fund their health needs, ensuring patients have incentives to manage their health spending and health care.  The financial requirements are not onerous; approximately 70% of beneficiaries consider the required account contributions just the right amount, and 94% of members report being satisfied or highly satisfied with their coverage.[58]  Yet, Obamacare could put this innovative plan out of business entirely, due to its Washington-imposed mandates on state Medicaid programs.[59]

Because the federal government provides states with at least a 1:1 match on their Medicaid expenses, states have a built-in incentive to spend more on Medicaid when compared to other state priorities like education, transportation, and corrections.  This open-ended entitlement drastically reduces states’ incentives to make efficient choices in managing their health care systems.  A more conservative approach should better align incentives to focus states’ efforts on improving care and reducing costs, instead of merely “gaming the system.”

Medicaid is not merely a fiscal failure, however. The error of Obamacare’s Medicaid expansion was to double down on a program whose health outcomes range from the marginal to the horrendous—the result of paying doctors pennies on the dollar and cramming Medicaid recipients into already overburdened systems. Compared to both those patients with private insurance and those without any insurance at all, Medicaid patients stay in the hospital longer, cost more while they are there, and yet are significantly more likely to die before they leave.[60] The recent Oregon Medicaid study, which offered real-world examples of Medicaid recipients compared to those who were not on the program, answered questions about just how significant the benefits of modern Medicaid are.[61] The study authors found that after two years, Medicaid “had no significant effect” on physical health outcomes compared to being uninsured.[62] Spending nearly half a trillion dollars a year on a program which is so ineffective is unacceptable and immoral.

More than two years ago, Republican governors presented a report laying out common-sense reforms to the Medicaid program—from modernizing benefit design to simplifying accountability to eliminating unnecessary requirements.[63]  While the Obama Administration has not implemented most of the report’s 31 separate suggestions, they represent a good place to start when it comes to updating this important program and prioritizing the actual health care of those who need a safety net.

The best way to reform Medicaid lies in a global grant approach, which empowers states with maximum flexibility in exchange for a fixed funding allotment from the federal government.  The allotment would be adjusted annually for inflation and eligible population growth, and could be adjusted if a state receives a sudden increase in its disabled population.  Rhode Island’s innovative waiver demonstrates how it can be done—and further illustrates that indexing the grant to inflation can be achieved without cutting benefits, or harming beneficiaries’ access to care.

States should have additional flexibility to manage their Medicaid programs in a manner that they believe best meets the needs of their citizens—while facing clear and simple accountability metrics from the federal government.  Rather than focusing on managing processes and completing forms, state Medicaid programs should emphasize improving outcomes.  In return, the federal government should revamp its accountability process to hold states to these higher standards.  Those who want to micro-manage states do so because they do not trust the people and their locally elected leaders.

Pro-Life Protections:  Among its many other flaws, Obamacare represents an intrusion on the moral values many Americans hold dear.  Contrary to prior practice, the law has seen federal tax dollars flow to fund health insurance plans that cover abortions.[64]  The law also forces many Americans to choose between violating the law and violating their consciences, imposing mandates on non-profit and other institutions that violate their deeply-held religious beliefs.  As a result, literally dozens of institutions nationwide have taken Obamacare’s anti-conscience mandate to court; the Supreme Court is scheduled to rule on the issue later this summer.[65]

Repeal of Obamacare will remove the law’s anti-conscience mandates, and the funding of plans that cover abortions.  But true health reform should go further, instituting conscience protections for businesses and medical providers, as well as a permanent ban on federal funding of abortions, consistent with the Hyde Amendment protections passed by Congress every year since 1976.[66]  There is much in health care about which Americans disagree, but protecting all Americans’ religious liberty should be one principle that warrants bipartisan support. The government should not force religious people to abandon their faiths in order to keep their doors open.

 

Principle #3: Portability and Choice

In an address to Congress in September 2009, President Obama attempted to sell Obamacare as offering consumers “competition and choice.”[67]  At least 4.7 million Americans—those who have already received cancellation notices due to the law—would beg to differ with the President.[68]  While the President offered a short-term concession—unilaterally waiving portions of Obamacare, and permitting some who lost health coverage to keep their plan until the 2016 presidential election—the cancellation notices are likely to continue for some time.  A 2010 Administration document admitted that more than half of all workers, and up to four in five employees in small businesses, would lose their pre-Obamacare health coverage.[69]

Obamacare undermines choice by dictating what type of insurance health plans must offer—and then dictating to firms that they must offer, and individuals that they must buy, this type of coverage.  Conversely, true health reform would smooth the problems of portability that occurred prior to the law’s enactment, while offering more personalized choices so consumers can buy the plan they want, not the plan a government bureaucrat tells them to purchase.

State Reforms to Expand Access:  For many decades, many states have held laws on their books that block access to care.  At least 36 states have certificate of need (CON) requirements, which force organizations to obtain clearance from the state before building new health care facilities.  In addition to the offensive nature of this approach—entities must ask government bureaucrats for permission to create a facility that will help patients—CON requirements have proven ineffective at their stated goal of reducing costs.  One recent analysis noted that states without CON requirements have significantly lower health costs than those states with certificate of need mandates.[70]  Congress repealed the law that created CON requirements nearly three decades ago; states can follow suit.[71]

Similarly, state licensing requirements can impose unnecessary burdens on medical practitioners, also limiting access to health care.  Given that the supply of doctors is not expected to keep up with projected demand, policy-makers should allow other medical professionals to utilize more of their expertise to provide more affordable and convenient care for patients.[72]  In 2011, the Institute of Medicine recommended that all professionals should be empowered to practice to the full scope of their professional training.[73]  States should modify their licensing requirements to remove artificial barriers impeding the ability to provide high-quality care.  States must also act prudently to protect patient quality and maintain high standards.  Doing so would expand access to care, allowing Minute Clinics and other similar entities to treat patients quickly and at lower cost than hospital emergency rooms or other sources of care.

Both certificate of need and artificial scope of practice restrictions sometimes prioritize the interests of incumbent members of the health system over the needs of patients.  In 2008, the Justice Department testified that CON laws “create barriers to entry and expansion to the detriment of health care competition and consumers.  They undercut consumer choice, stifle innovation, and weaken markets’ ability to contain health care costs.”[74]  Likewise, a seminal 2004 report on competition in health care by the Federal Trade Commission and Justice Department noted that scope of practice laws create anticompetitive risks, have raised costs, and limited mobility of medical providers, all for unclear benefits to health care quality.[75]  At a time when health costs remain high and access for vulnerable populations limited, states should act in both these key areas, initiating reforms that have the potential to reduce costs while simultaneously increasing access to needed care.

Better Access for Individuals Changing Employers:  The fact that so many Americans currently receive health insurance coverage through their employers means that individual health insurance plans have traditionally occupied a smaller segment of the marketplace.[76]  As a result, most individuals transition from one employer plan to another when they switch jobs.  However, moving from employer coverage to an individual plan can often prove more difficult and costly.

While not undermining the employer coverage that many Americans currently have and enjoy, conservative health reforms should also encourage policies that promote greater personal ownership of health insurance.  One key reform would allow individuals who maintain continuous coverage to purchase an individual health insurance plan of their choosing, eliminating the requirement that such individuals first exhaust COBRA coverage before accessing an individual plan.  These and other similar reforms will encourage Americans to purchase coverage they can take with them from job to job.

Cross-State Insurance Purchasing:  Because health insurance is regulated at the state level, many health insurance markets face two major problems.  First, in many states, one or a handful of insurers control most of the market for coverage, and these oligopolies tend to raise premiums.  Obamacare has not helped this trend, and in fact may have worsened it.  According to the New York Times, more than half of all counties in the United States have only one or two health plans participating in their states’ insurance Exchanges.[77]

Second, benefit mandates imposed by state legislatures force individuals to purchase more insurance coverage than they may need or want.  According to the Council for Affordable Health Insurance, states have imposed an average of 44 benefit mandates, each of which raises health costs.[78]  Individually, the mandates may not appear to raise premiums by a significant amount, but estimates suggest that collectively, benefit mandates impose hundreds of dollars in added costs to consumers every year.[79]

One solution to both these problems rests in Congress enacting legislation allowing consumers to purchase health insurance across state lines.  Consumers purchasing insurance across state lines would receive clear disclosures that their health coverage would be regulated by another state with respect to benefit mandates, solvency standards, and other similar requirements.  By using its constitutional authority to regulate interstate commerce, Congress could give consumers the power—a power they currently lack—to buy the health insurance plan that best meets their needs, regardless of the state in which that plan is offered.  Such a measure would give power from insurance company cartels back to consumers, make health insurance portable across state lines, and reduce the growth of premiums.

Pooling Mechanisms:  In addition to allowing the purchase of health insurance across state lines, Congress should also provide clear protections, similar to those provided in the Employee Retirement Income Security Act of 1974 (ERISA), for organizations that wish to establish multi-state insurance pools.  These organizations could be churches, fraternal organizations, trade groups for small businesses, alumni groups, or any other type of group with a common interest.  These groups should be permitted to band together and purchase health insurance for their members, providing coverage that fits members’ distinct needs while potentially reducing administrative costs.  Just as importantly, coverage obtained through these pools, unlike employer coverage, would be portable: Individuals would have and own their personal health policy, and would not need to change plans when they change jobs.

Lawsuit Reform:  In many states, medical liability problems present several problems for patients.  First, defensive medicine practices—doctors performing unnecessary tests due to fear of litigation—raise health costs, according to some estimates by more than $100 billion annually.[80]  Second, the seeming randomness of the legal system—in which some frivolous claims receive large awards, but some legitimate claims are dismissed—frustrates patients.  Finally, at a time when America already faces expected physician shortages, the legal climate discourages prospective doctors from pursuing medicine as a career choice.[81]  A recent study found that physicians spend more than 10% of their careers with an outstanding malpractice claim lingering over their practice.[82]  More than three in five physicians claim they or one of their colleagues may retire in the next three years due to frustration with the health care system—a fact likely exacerbated by an overly litigious culture.[83]

Enacting lawsuit reforms—including a cap on non-economic damages, restrictions on attorney contingency fees, discouraging frivolous lawsuits, and other common-sense changes—would reduce health care costs.  Because nearly half of all health spending is controlled by government, largely through the Medicaid and Medicare programs, Congress should take the lead in enacting lawsuit reforms in instances where the federal government is a payer of health services.[84]  If enacted, these changes could have a salutary effect on America’s physicians, just as the passage of tort reform in Texas encouraged more doctors to move to that state.[85]

Freedom for Seniors to Choose:  The doctor-patient relationship is the foundation on which our health care system should be based.  Unfortunately, government requirements often impede the ability for patients to choose the best option for their own care.  For instance, one law dictates that senior citizens may not make their own financial arrangements with their doctors if those arrangements contradict Medicare’s payment rates; any physician who does so is prohibited from receiving any reimbursements from Medicare for two years.[86]

Congress should restore the doctor-patient relationship by repealing this onerous requirement.  It should also restore the ability of Medicare patients to buy procedures on their own, provided seniors receive full disclosure from their physicians and medical providers for the costs of their care.  The Wall Street Journal reported that the number of doctors dropping out of Medicare nearly tripled between 2009 and 2012. [87]  Senior citizens should not have access to the physician of their own choosing—or to procedures their doctors recommend for them—violated due to arbitrary restraints imposed by federal bureaucrats.

 

Taken together, this package of reforms would accomplish the objectives the American people are looking for in their health care system—the objectives President Obama said his legislation would bring, but which Obamacare has not delivered.  Enacting policies that get the incentives right can reduce costs, even while protecting the most vulnerable and enhancing portability and choice for consumers.

The American people deserve true health reform—one that puts patients and doctors first, not government bureaucrats.  After repealing Obamacare, enacting America Next’s plan would point America’s health system in the right direction.

 

 

[1] Vote on Boehner Substitute Amendment to H.R. 3962, Affordable Health Care for America Act, House Roll Call Vote 885, 111th Congress, November 7, 2009, http://clerk.house.gov/evs/2009/roll885.xml.

[2] “Republican Study Committee Policy Brief: Members’ Health Care Initiatives in the 113th Congress,” November 25, 2013, http://rsc.scalise.house.gov/uploadedfiles/113th_112513_rsc_healthcare_menu.pdf.

[3] Remarks in Democratic presidential debate sponsored by CNN and Congressional Black Caucus Institute, January 21, 2008, http://www.cnn.com/2008/POLITICS/01/21/debate.transcript2/index.html.

[4] A video compilation of candidate Obama’s remarks on this issue from the 2008 campaign is available at http://freedomeden.blogspot.com/2010/03/obama-20-promises-for-2500.html.

[5] Gigi A. Cuckler, et al., “National Health Expenditure Projections: Slow Growth Until Coverage Expands and Economy Improves,” Health Affairs October 2013, http://content.healthaffairs.org/content/32/10/1820.

[6] Congressional Budget Office, Letter to Sen. Evan Bayh regarding premium effects of the Patient Protection and Affordable Care Act, November 30, 2009, http://cbo.gov/sites/default/files/cbofiles/ftpdocs/107xx/doc10781/11-30-premiums.pdf.

[7] Amit Bhardwaj, et al., “Individual Market Enrollment: Updated View,” McKinsey Center for U.S. Health System Reform, March 2014, http://healthcare.mckinsey.com/sites/default/files/Individual-Market-Enrollment.pdf.

[8] Ibid.

[9] Congressional Budget Office, Key Issues in Analyzing Major Health Insurance Proposals, December 2008, http://www.cbo.gov/sites/default/files/cbofiles/ftpdocs/99xx/doc9924/12-18-keyissues.pdf, pp. 84–87.

[10] The White House, “Affordable, Accessible, and Flexible Health Coverage,” January 2007, http://georgewbush-whitehouse.archives.gov/stateoftheunion/2007/initiatives/healthcare.html; Republican Study Committee, “The American Health Care Reform Act,” September 18, 2013, http://rsc.scalise.house.gov/solutions/rsc-betterway.htm.

[11] John Sheils and Randy Haught, “President Bush’s Health Care Tax Deduction Proposal: Coverage, Cost, and Distributional Impacts,” The Lewin Group, January 28, 2007, http://www.lewin.com/~/media/Lewin/Site_Sections/PressReleases/BushHealthCarePlanAnalysisRev.pdf.

[12] Patient Protection and Affordable Care Act (P.L 111-148), Section 2551.

[13] Congressional Budget Office, Medicaid baseline, May 2013, http://cbo.gov/sites/default/files/cbofiles/attachments/44204_Medicaid.pdf.

[14] Congressional Budget Office, analysis of House Republican substitute amendment to H.R. 3962, November 4, 2009, http://cbo.gov/sites/default/files/cbofiles/ftpdocs/107xx/doc10705/hr3962amendmentboehner.pdf.

[15] Press release by House Ways and Means Committee Ranking Member Dave Camp, November 5, 2009, http://waysandmeans.house.gov/news/documentsingle.aspx?DocumentID=153186.

[16] America’s Health Insurance Plans, Center for Policy and Research, “January 2013 Census Shows 15.5 Million People Covered by Health Savings Account/High-Deductible Health Plans (HSA/HDHPs),” June 2013, http://www.ahip.org/HSACensus2013PDF/.

[17] America’s Health Insurance Plans, Center for Policy and Research, “Health Savings Accounts and Account-Based Health Plans: Research Highlights,” July 2012, http://www.ahip.org/HSAHighlightsReport072012/.

[18] Kaiser Family Foundation and Health Research and Educational Trust, “Employer Health Benefits: 2013 Annual Survey,” August 2013, http://kaiserfamilyfoundation.files.wordpress.com/2013/08/8465-employer-health-benefits-20132.pdf, Exhibit 8.8, p. 140.

[19] Amelia M. Haviland, M. Susan Marquis, Roland D. McDevitt, and Neeraj Sood, “Growth of Consumer-Directed Health Plans to One-Half of All Employer-Sponsored Insurance Could Save $57 Billion Annually,” Health Affairs, May 2012, http://content.healthaffairs.org/content/31/5/1009.abstract.

[20] Patient Protection and Affordable Care Act (P.L. 111-148), Section 9003.

[21] Steven A. Burd, “How Safeway Is Cutting Health Costs,” Wall Street Journal June 12, 2009, http://online.wsj.com/news/articles/SB124476804026308603.

[22] Christopher Matthews, “U.S. Accuses Russian Diplomats of Medicaid Fraud,” Wall Street Journal December 5, 2013, http://online.wsj.com/news/articles/SB10001424052702303497804579240163174732486.

[23] Clifford Levy and Michael Luo, “New York Medicaid Fraud May Reach into Billions,” The New York Times, July 18, 2005, http://www.nytimes.com/2005/07/18/nyregion/18medicaid.html.

[24] CBS News, “Medicare Fraud: A $60 Billion Crime,” 60 Minutes, September 5, 2010, http://www.cbsnews.com/8301-18560_162-5414390.html.

[25] Lisa Rosenbaum, “The Problem with Knowing How Much Your Health Care Costs,” The New Yorker December 23, 2013, http://www.newyorker.com/online/blogs/elements/2013/12/price-transparency-health-care-costs.html.

[26] Institute of Medicine, The Health Care Imperative: Lowering Costs and Improving Outcomes—Workshop Summary, February 2011, http://www.iom.edu/reports/2011/the-healthcare-imperative-lowering-costs-and-improving-outcomes.aspx.

[27] Chris Jacobs, “How Obamacare Undermines American Values: Penalizing Work, Marriage, Citizenship, and the Disabled,” Heritage Foundation Backgrounder No. 2862, November 21, 2013, http://www.heritage.org/research/reports/2013/11/how-obamacare-undermines-american-values-penalizing-work-marriage-citizenship-and-the-disabled.

[28] Kaiser Family Foundation, “Waiting Lists for Medicaid Section 1915(c) Home and Community-Based Services (HCBS) Waivers,” December 2012, http://kff.org/medicaid/state-indicator/waiting-lists-for-hcbs-waivers-2010/#table.

[29] James C. Capretta and Tom Miller, “How to Cover Pre-Existing Conditions,” National Affairs Summer 2010, http://www.nationalaffairs.com/doclib/20100614_CaprettaMiller_Web.pdf, pp. 114-15.

[30] U.S. Department of Health and Human Services, Office of Planning and Evaluation, “At Risk: Pre-Existing Conditions Could Affect 1 in 2 Americans,” November 2011, http://aspe.hhs.gov/health/reports/2012/pre-existing/index.shtml.

[31] Centers for Medicare and Medicaid Services, Center for Consumer Information and Insurance Oversight, “Covering People with Pre-Existing Conditions: Report on the Implementation and Operation of the Pre-Existing Condition Insurance Plan Program,” January 31, 2013, http://www.cms.gov/CCIIO/Resources/Files/Downloads/pcip_annual_report_01312013.pdf.

[32] Congressional Budget Office, letter to Senator Mike Enzi (R–WY), June 21, 2010, http://cbo.gov/sites/default/files/cbofiles/ftpdocs/115xx/doc11572/06-21-high-risk_insurance_pools.pdf.

[33] Department of Health and Human Services, Pre-Existing Condition Insurance Plan, notice of enrollment suspension, February 15, 2013, https://www.pcip.gov/Notifications/021513-ENROLLMENT_SUSPEND.html.

[34] Report by Senate Health, Education, Labor, and Pensions Committee Ranking Member Mike Enzi, “Health Care Reform’s Impact on Child-Only Health Insurance Policies,” August 2, 2011, http://www.help.senate.gov/imo/media/doc/Child-Only%20Health%20Insurance%20Report%20Aug%202,%202011.pdf.

[35] Ricardo Alonso-Zaldivar, “Concerns about Cancer Centers under Health Law,” Associated Press March 18, 2014, http://hosted2.ap.org/apdefault/3d281c11a96b4ad082fe88aa0db04305/Article_2014-03-18-Health%20Overhaul-Top%20Cancer%20Centers/id-d5acff9619ec4bc6aa875800d96fc270.

[36] Information on various state plans for covering high-risk individuals can be found on the website of the National Association of State Comprehensive Health Insurance Plans, www.naschip.org.

[37] John C. Goodman, “Rescissions: Much Ado About Nothing,” Kaiser Health News, May 13, 2010,    http://www.kaiserhealthnews.org/Columns/2010/May/051310Goodman.aspx.

[38] Centers for Medicare and Medicaid Services, 2013 Medicare trustees report, May 31, 2013, http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/ReportsTrustFunds/Downloads/TR2013.pdf, TableII.B4, p. 58.

[39] Suzanne Codespote, memo from Office of the Actuary, Centers for Medicare and Medicaid Services, to Senate Budget Committee Ranking Member Jeff Sessions, June 3, 2013.

[40] Maria Bartiromo, “One-on-One with Nancy Pelosi,” CNBC interview, October 28, 2011, http://video.cnbc.com/gallery/?video=3000054002.

[41] Kathleen Sebelius, testimony before the House Energy and Commerce Committee hearing on “Fiscal Year 2012 HHS Budget,” March 4, 2011, video available at http://archives.republicans.energycommerce.house.gov/hearings/hearingdetail.aspx?NewsID=8281.

[42] The National Bipartisan Commission on the Future of Medicare was chaired by Sen. John Breaux (D-LA) and Rep. Bill Thomas (R-CA); its work can be found at http://medicare.commission.gov/medicare/index.html.

[43] Testimony of David Kendall, Progressive Policy Institute Senior Analyst for Health Policy, before Senate Finance Committee hearing on “Modernizing Medicare,” May 26, 1999, http://dlc.org/ndol_ci04fb-2.html?kaid=111&subid=141&contentid=1790.

[44] Sen. Ron Wyden and Rep. Paul Ryan, “Guaranteed Choices to Strengthen Medicare and Health Security for All: Bipartisan Options for the Future,” December 15, 2011, http://budget.house.gov/uploadedfiles/wydenryan.pdf.

[45] Alice Rivlin, testimony before the House Ways and Means Health Subcommittee on “A Bipartisan Approach to Reforming Medicare,” April 27, 2012, http://waysandmeans.house.gov/uploadedfiles/rivlin_testimony_final_4-27-2012.pdf, p. 4.

[46] Congressional Budget Office, “A Premium Support System for Medicare: Analysis of Illustrative Options,” September 2013, http://www.cbo.gov/sites/default/files/cbofiles/attachments/09-18-PremiumSupport.pdf.

[47] Kaiser Family Foundation, “Medigap Reforms: Potential Effects of Benefit Restrictions on Medicare Spending and Beneficiary Costs,” July 2011, http://www.kff.org/medicare/upload/8208.pdf, Exhibit 2, p. 6.

[48] Ibid., p. 8.

[49] Ibid., p. 8.

[50] Congressional Budget Office, “Options for Reducing the Deficit: 2014 to 2023,” November 13, 2013, http://cbo.gov/sites/default/files/cbofiles/attachments/44715-OptionsForReducingDeficit-2_1.pdf, Health Option 7, p. 211.

[51] The Moment of Truth, report of the National Commission on Fiscal Responsibility and Reform, December 2010, http://www.fiscalcommission.gov/sites/fiscalcommission.gov/files/documents/TheMomentofTruth12_1_2010.pdf, p. 39.

[52] Restoring America’s Future, report of the Bipartisan Policy Center’s Debt Reduction Tax Force, November 2010, http://bipartisanpolicy.org/sites/default/files/BPC%20FINAL%20REPORT%20FOR%20PRINTER%2002%2028%2011.pdf, pp. 52-53.

[53] Overview of Coburn/Lieberman Medicare reform proposal, June 2011, http://www.coburn.senate.gov/public/index.cfm?a=Files.Serve&File_id=1ea8e116-6d15-46ba-b2e0-731258583305

[54] Office of Management and Budget, Fiscal Year 2015 Budget, March 4, 2014, http://www.whitehouse.gov/sites/default/files/omb/budget/fy2015/assets/budget.pdf, pp. 31-32.

[55] Lewin Group, “An Independent Evaluation of Rhode Island’s Global Waiver,” December 6, 2011, http://www.ohhs.ri.gov/documents/documents11/Lewin_report_12_6_11.pdf.

[56] Testimony of Gary Alexander before the Congressional Commission on Long-Term Care, August 1, 2013, http://ltccommission.lmp01.lucidus.net/wp-content/uploads/2013/12/Garo-Alexander.pdf.

[57] Lewin Group, “An Independent Evaluation,” pp. 11-12.

[58] Indiana Family and Social Services Administration, Healthy Indiana Plan 1115 Waiver Extension Application, February 13, 2013, http://www.in.gov/fssa/hip/files/HIP_WaiverforPosting.pdf, pp. 19, 6.

[59] Mitch Daniels, “We Good Europeans,” The Wall Street Journal March 26, 2010, http://online.wsj.com/article/SB10001424052748704094104575144362968408640.html.

[60] Avik Roy, “The Medicaid Mess: How Obamacare Makes It Worse,” The Manhattan Institute, March 2012,  http://www.manhattan-institute.org/html/ir_8.htm

[61] Katherine Baicker, Sarah Taubman, Heidi Allen, Mira Bernstein, Jonathan Gruber, Joseph P. Newhouse, Eric Schneider, Bill Wright, Alan Zaslavsky, Amy Finkelstein, and the Oregon Health Study Group, “The Oregon Experiment – Effects of Medicaid on Clinical Outcomes” New England Journal of Medicine, May 2013, http://www.nejm.org/doi/full/10.1056/NEJMsa1212321

[62] The Oregon Health Insurance Experiment, http://www.nber.org/oregon/

[63] Republican Governors Public Policy Committee Health Care Task Force, “A New Medicaid: A Flexible, Innovative, and Accountable Future,” August 30, 2011, http://www.scribd.com/doc/63596104/RGPPC-Medicaid-Report.

[64] Sarah Torre, “Obamacare’s Many Loopholes: Forcing Individuals and Taxpayers to Fund Elective Abortion Coverage,” Heritage Foundation Backgrounder No. 2872, January 13, 2014, http://www.heritage.org/research/reports/2014/01/obamacares-many-loopholes-forcing-individuals-and-taxpayers-to-fund-elective-abortion-coverage.

[65] A full list of the court cases, and further information regarding them, can be found through the Becket Fund for Religious Liberty, http://www.becketfund.org/hhsinformationcentral/.

[66] Chuck Donovan, “Obamacare: Impact on Taxpayer Funding of Abortion,” Heritage Foundation WebMemo No. 2872, April 19, 2010, http://www.heritage.org/research/reports/2010/04/obamacare-impact-on-taxpayer-funding-of-abortion.

[67] President Barack Obama, remarks to a Joint Session of Congress on Health Care, September 9, 2009, http://www.whitehouse.gov/the_press_office/Remarks-by-the-President-to-a-Joint-Session-of-Congress-on-Health-Care.

[68] Associated Press, “Policy Notifications and Current Status, by State,” December 26, 2013, http://money.msn.com/business-news/article.aspx?feed=AP&date=20131226&id=17219856.

[69] Interim final rule by Departments of Labor, Treasury, and Health and Human Services regarding grandfathered health insurance status, released June 14, 2010, http://www.federalregister.gov/OFRUpload/OFRData/2010-14488_PI.pdf Table 3, p. 54.

[70] Jordan Bruneau, “The Great Healthcare CON,” Foundation for Economic Education, January 15, 2014, http://www.fee.org/the_freeman/detail/the-great-healthcare-con#axzz2qbUCvcC2.

[71] There may need to be some very targeted consideration given to specific health care markets so dependent on government programs that taxpayers end up paying for unused capacity.

[72] Association of American Medical Colleges, Center for Workforce Studies, “Recent Studies and Reports on Physician Shortages in the U.S.,” October 2012, https://www.aamc.org/download/100598/data/.

[73] Institute of Medicine, “The Future of Nursing: Focus on Scope of Practice,” Report Brief, October 2010, http://www.iom.edu/~/media/Files/Report%20Files/2010/The-Future-of-Nursing/Nursing%20Scope%20of%20Practice%202010%20Brief.pdf.

[74] Joint Statement of the Antitrust Division of the U.S. Department of Justice and the Federal Trade Commission before the Illinois Task Force on Health Planning Reform, September 15, 2008, http://www.justice.gov/atr/public/comments/237351.pdf, pp. 1-2.

[75] Federal Trade Commission and Department of Justice, Improving Health Care: A Dose of Competition, July 2004, http://www.justice.gov/atr/public/health_care/204694.pdf, pp. 25-28.

[76] According to the U.S. Census Bureau, in 2012 170.9 million Americans were covered by employer-based insurance, compared with 30.6 million Americans covered by direct-purchase insurance (including various forms of supplemental coverage).  Carmen DeNavas-Walt, Bernadette D. Proctor, and Jessica C. Smith, Income, Poverty, and Health Insurance Coverage in the United States: 2012, U.S. Census Bureau, September 2013, http://www.census.gov/prod/2013pubs/p60-245.pdf, Table C-1, p. 67.

[77] Reed Abelson, Katie Thomas, and Jo Craven McGinty, “Health Care Law Fails to Lower Prices for Rural Areas,” New York Times October 24, 2013, http://www.nytimes.com/2013/10/24/business/health-law-fails-to-keep-prices-low-in-rural-areas.html.

[78] CAHI found a total of 2,271 benefit mandates enacted in 50 states and the District of Columbia.  Council for Affordable Health Insurance, “Health Insurance Mandates in the States 2012: Executive Summary,” April 9, 2013, http://www.cahi.org/cahi_contents/resources/pdf/Mandatesinthestates2012Execsumm.pdf.

[79] One study found that benefit mandates raise premiums by an average of $0.75 per month, or $9 per year.  A state with the national average of 44 benefit mandates would therefore have raised premiums by an average of $396 annually.  See Michael J. New, “The Effect of State Regulations on Health Insurance Premiums: A Revised Analysis,” Heritage Foundation Center for Data Analysis Report No. 06-04, July 25, 2006, http://www.heritage.org/research/reports/2006/07/the-effect-of-state-regulations-on-health-insurance-premiums-a-revised-analysis, p. 5.

[80] U.S. Department of Health and Human Services, Office of the Assistant Secretary for Planning and Evaluation, “Addressing the New Health Care Crisis: Reforming the Medical Litigation System to Improve the Quality of Health Care,” March 2003, http://aspe.hhs.gov/daltcp/reports/medliab.pdf, p. 16.

[81] Association of American Medical Colleges, “Recent Studies on Physician Shortages.”

[82] Seth A. Seabury, et al., “On Average, Physicians Spend Nearly 11 Percent of their 40-Year Careers with an Open, Unresolved Malpractice Claim,” Health Affairs January 2014, http://content.healthaffairs.org/content/32/1/111.full.pdf+html.

[83] Deloitte Center for Health Solutions, “Deloitte 2013 Survey of U.S. Physicians,” March 18, 2013, http://www.deloitte.com/assets/Dcom-UnitedStates/Local%20Assets/Documents/us_chs_2013SurveyofUSPhysicians_031813.pdf, p. 3.

[84] Gigi A. Cuckler, et al., “National Health Expenditure Projections.”

[85] Joseph Nixon, “Why Doctors Are Heading for Texas,” Wall Street Journal May 17, 2008, http://online.wsj.com/news/articles/SB121097874071799863.

[86] Section 4507 of the Balanced Budget Act of 1997, P.L. 105-33.

[87] Melinda Beck, “More Doctors Steer Clear of Medicare,” Wall Street Journal July 30, 2013, http://online.wsj.com/news/articles/SB10001424127887323971204578626151017241898.

How Obamacare — And Big Hospitals — Will Raise Health Costs

The New York Times published a column highlighting one way Obamacare will raise health costs: by promoting hospital industry consolidation that will force prices higher.

The Times highlighted the case of two Chicago-area hospital systems whose merger was investigated by the Federal Trade Commission in 2000. The article notes that one hospital CEO “had told his board that the deal would ‘increase our leverage, limited as it might be,’ the investigation found, and ‘help our negotiating posture’ with managed care organizations.”

The other hospital’s CEO said that “it would be real tough for any of the Fortune 40 companies in this area…to walk from [the merged hospital group] and 1,700 of their doctors.” The end result of the merger:

It was a great deal for the hospitals. The fees they charged to insurers soared. One insurer, UniCare, said it had to accept a jump of 7 to 30 percent for its health maintenance organizations and 80 percent for its preferred provider organizations.

Aetna said it swallowed price increases of 45 to 47 percent over a three-year period. “There probably would have been a walkaway point with the two independently,” testified Robert Mendonsa, an Aetna general manager for sales and network contracting. “But with the two together, that was a different conversation.”

And who was left holding the bag? Not the shareholders of UniCare or Aetna. It was the people who bought their policies, who either paid higher premiums directly or whose wages grew more slowly to compensate for the rising cost of their company health plans.

Industry mergers give hospitals more market clout to raise prices—and those higher, “take it or leave it” prices are passed on to all Americans in the form of higher insurance premiums.

What has Obamacare done to solve this problem? It’s made it worse. The Times quotes Martin Gaynor, an expert on industry consolidation, about this “potentially troubling” aspect of the law:

Professor Gaynor, for instance, worries that accountable care organizations may prove anticompetitive. Merger activity has jumped in anticipation of the law’s coming fully into effect.

“Hospitals want to maintain their revenue streams and enhance their bargaining leverage,” said Professor Gaynor. “This [i.e., Obamacare] is a way to do so.”

Obamacare as a way for hospitals to “enhance their bargaining leverage”? No wonder they endorsed the law. However, the American people will be paying the price—quite literally—for years to come.

This post was originally published at The Daily Signal.

Yet Another Way the Health Care Law Will Raise Costs

The New York Times had a story on Sunday outlining how “the health care law could worsen some of the very problems it was meant to solve – by reducing competition, driving up costs, and creating incentives for doctors and hospitals to stint on care, in order to retain their cost-saving bonuses.”  The front-page article outlines how the new law has sparked “a growing frenzy of mergers involving hospitals, clinics, and doctor groups eager to share costs and savings, and cash in on the incentives.”  Consumer advocates and others fear that the newly merged entities will use their market clout to demand higher prices; the article also interviews the chairman of the Federal Trade Commission about the potential antitrust implications of the new law.

The article concludes that the increase in mergers, and potential increase in prices for consumers, is largely a direct result of government involvement in health care brought on by the new law, yet several of the quotes in the piece imply that the “solution” to the problem is…yet more government involvement, through antitrust enforcement and regulations.  Some may find it baffling that government can solve problems its own perverse incentives and myriad regulations have created.  For instance, Kansas insurance commissioner Sandy Praeger recently noted that that as a result of new regulations on insurance companies, “There will be some companies that I think will decide, they have a very small book of business in a state and they’ll decide maybe it’s not worthwhile to stay in the state.”  Such a development will give LESS choice to consumers, resulting in higher premiums for insurance.

Creating a few large group medical practices and hospitals organized under the aegis of accountable care organizations to negotiate with a few select insurers who will remain once the law’s new regulations have taken effect is not a recipe for competition and lower costs, as the Administration asserts.  It’s a recipe for higher costs and less market choice for individuals and businesses alike – and it’s yet another reason why the health care law falls short of its promises.

Legislative Bulletin: Amendments to H.R. 3962, Pelosi Health Care Bill

The House is scheduled to consider H.R. 3692, the Pelosi health care bill, later today.  The bill will be considered under a modified closed rule, making in order only selected Democrat amendments and a Republican substitute amendment.  The rule provides that the manager’s amendment—as modified by the Rules Committee—shall be considered as adopted upon enactment of the resolution.  An updated summary of amendments made in order follows.

Amendments Made in Order

Rep. Dingell (D-MI):  The modifications to the Manager’s Amendment narrow the scope of the biofuel tax credit that only “black liquor”—a by-product of the pulp-making process—shall be excluded from eligibility for the credit.  The Manager’s Amendment as originally introduced would have made additional products ineligible for the credit.

The modified Manager’s Amendment also establishes two new public health grant programs—one related to the development of medical schools in health professional shortage areas, and the other a demonstration program permitting the National Health Service Corps to offer incentive payments to members assigned to “a health professional shortage area with extreme need.”

Finally, the modified Manager’s Amendment modifies Federal Trade Commission patent enforcement authority with respect to the new restrictions on generic drug makers’ patent settlements with brand name manufacturers.

Rep. Dingell (D-MI):  The 42-page Manager’s Amendment makes several technical and substantive changes to the bill.  With respect to the high-risk pool program established effective in January 2010, the amendment allows individuals with employer-based retiree coverage to buy into the pool if that coverage’s premiums exceeds “such excessive percentage as the Secretary shall specify.”  The amendment also extends the citizenship verification provisions required for insurance affordability credits in the bill—the same citizenship verification regime based upon that enacted in this year’s SCHIP reauthorization (P.L. 111-3).  However, many may be concerned that the provisions as drafted would not require individuals to verify their identity when confirming eligibility for subsidies—encouraging identity fraud while still permitting undocumented immigrants and other ineligible individuals from obtaining taxpayer-subsidized benefits.

Insurance Price Controls:  The amendment creates “a process for the annual review, beginning with 2010…of increases in premiums for health insurance coverage,” requiring carriers to submit justifications to States for any premium increases, and providing $1 billion for a five-year program of grants to States to facilitate such ends, beginning in 2010.  The amendment requires States to make recommendations to the Commissioner “about whether particular health insurance issuers should be excluded from participation in the Health Insurance Exchange based on a pattern of excessive or unjustified premium increases.”  Many may be concerned first that this provision would further increase the role of State and federal bureaucrats in micro-managing private insurance companies, and second would permit bureaucrats to deny all private plans access to the Exchange for the mere reason that an Administration desires to enroll all Americans in the government-run health plan.  Many may further question how a government-run plan will promote “competition” if the government itself will permit which plans are able to “compete.”

Other Insurance Changes:  The amendment permits the Commissioner to permit “direct primary care medical home plans” to meet the bill’s definition of a qualified plan.  Some may view this provision as an authorizing earmark intended to benefit Democrat lawmakers in specific locations.

With respect to the partial repeal of insurers’ anti-trust exemption, the amendment exempts State medical malpractice laws from the bill’s impact, removes an exemption in the bill allowing insurance companies to coordinate actions with respect to “information gathering and rate setting,” and makes other technical changes.  The amendment applies provisions of the Government Performance and Results Act to the bill, and requires reports every three years by executive agencies on “the quality of customer service provided.”  The amendment requires the development of standards for interstate insurance compacts by January 2014, and makes other technical changes to those provisions.  The amendment makes adjustments in reimbursements by the government-run health plan for States operating a cost-containment waiver for providers under provisions in the Medicare statute.

Tax Changes:  The amendment delays for two years (from 2011 to 2013) provisions withdrawing the tax-free status of subsidies provided to employers providing retiree prescription drug coverage, per provisions of the Medicare Modernization Act (P.L. 108-173).  The amendment repeals—rather than delaying until 2019—the application of worldwide interest allocation provisions first enacted into law (but never implemented) in 2004.  The amendment also includes a new provision making adjustments to the existing second generation biofuel producer credit, designed to exclude “black liquor”—a byproduct of the pulp-making process—from eligibility for the credit.

Medicare and Medicaid Provisions:  The amendment delays the application (from January 2010 to April 2010) of certain payment rules related to skilled nursing facilities, and expands the number of physician-owned specialty hospitals permitted to expand their facilities. (The bill would prohibit most physician-owned facilities from expanding.)  As the bill includes a “special rule for a high Medicaid facility,” many may view these provisions as an authorizing earmark intended to protect physician-owned specialty hospitals located in Democrat Members’ districts.

The amendment allows States to (within limits) reimburse nursing facilities for the cost of conducting background checks and screening required in the bill, and requires the Secretary to develop new quality measures for the care of individuals with Alzheimer’s disease.  The amendment allows the Centers for Medicare and Medicaid Services (CMS) to withhold payments for durable medical equipment for 90 days if CMS finds “a significant risk of fraudulent activity” within the program, and inserts provisions requiring disclosure of a toll-free fraud hotline number on Medicare beneficiaries’ explanation of benefits.

The amendment clarifies that all individuals under age 19 with family incomes under 150 percent qualify for Medicaid under the bill’s expansion, and adds sense of Congress language regarding States adding coverage of home- and community-based services to their long-term care programs under Medicaid.

Public Health Provisions:  The amendment provides that funding provided from the new Public Health Investment Fund may be spent “only if…the amounts specified…are equal to or greater than the amounts” spent during Fiscal Year 2008.  The amendment clarifies that the bill’s language regarding liability reform grants shall not pre-empt existing State laws imposing caps on damages or attorneys’ fees, and makes States with such caps eligible for grant payments—provided that the new laws enacted by States to receive incentive payments do not include such caps on attorneys’ fees or damages.

The amendment includes a new grant program for mental health and substance abuse screening in primary care settings, establishes additional Offices of Minority Health in the Centers for Disease Control, the Substance Abuse and Mental Health Services Administration, the Agency for Healthcare Research and Quality, the Health Resources and Services Administration, and the Food and Drug Administration, and imposes requirements related to diabetes screening and outreach and collection of vital statistics data.  The amendment includes a study on duplicative grant programs within the Public Health Service Act, and authority for the Secretary to streamline any programs found unnecessarily duplicative—provisions which many may view as ironic, given the 111 new bureaucracies, boards, and programs established in the bill itself.

Rep. Stupak (D-MI):  The Stupak amendment as modified strikes language requiring the government-run plan to pay for abortion services, and prohibits any federal funds authorized or appropriated by the bill—including those of the Indian Health Service—except in case of rape, incest, or to save the life of the mother.  The amendment further provides that nothing shall prohibit “any nonfederal entity (including an individual or a State and local government) from purchasing separate supplemental coverage for abortions” for which federal funding is prohibited.  Such supplemental coverage must be “paid for entirely using only funds not authorized or appropriated” by the bill, and may not be paid for by “individual premium payments required for a[n] Exchange-participating health benefits plan towards which an affordability credit is applied.”  Likewise, non-federal health plan offering entities (i.e., plans in the Exchange except the government-run plan) can offer separate supplemental abortion coverage.

Boehner (R-OH): The Republican substitute includes a total of $25 billion in mandatory funding for State-based high-risk pools, which provide coverage to individuals with pre-existing conditions.  The substitute provides that, in order to receive risk pool grants, States must ensure all individuals verify both citizenship and identity, under a regime established in the Deficit Reduction Act (P.L. 109-171).
Insurance Reforms:  The substitute eliminates a current-law requirement that individuals must exhaust their COBRA benefits (if eligible for same) before becoming eligible for guaranteed-issue individual coverage under the Health Insurance Portability and Accountability Act (HIPAA).  The substitute eliminates lifetime or annual limits on insurance benefits, and prohibits insurance companies from canceling policies except in cases of demonstrated fraud, further requiring third-party external review of any insurer’s decision to rescind a policy.
The substitute provides a total $35 billion in State innovation grants for States whose insurance reforms result in lower premium costs to individuals.  States would receive the maximum grant for reducing premiums by 8.5 percent over three years, 11 percent over six years, and 13.5 percent over nine years. (Smaller grant amounts would be available for States that achieve premium reductions slightly below the above levels.)  The program also includes bonus grants for States that reduce their percentage of uninsured individuals by 10 percent within five years, 15 percent within seven years, and 20 percent within nine years, with smaller amounts available for States that reduce their percentage of uninsured individuals at levels below the benchmark amounts above.  The substitute includes language encouraging the development of State-based health plan finders, and provisions for the administrative simplification of health insurance claim processing.
The substitute provides for the establishment of Association Health Plans, allowing small businesses to band together across state lines for the purposes of purchasing health insurance.  The substitute permits dependents under age 25 to remain on their parents’ health insurance policies, and prohibits States from enacting laws prohibiting employers from auto-enrolling their employees in group insurance coverage.  The substitute also permits individuals to purchase coverage across State lines.
Health Savings Accounts:  The substitute makes contributions to Health Savings Accounts (HSAs) eligible for the current-law saver’s credit, permits individuals to pay for high-deductible health plan premiums with funds from the HSA account, and includes other clarifying language regarding the coordination of high-deductible health plan enrollment and the establishment of the HSA itself.
Doctor-Patient Relationship: The substitute includes medical liability reforms, imposing caps on non-economic damages of $250,000, caps on punitive damages, restrictions on attorney contingency fees, and restrictions on the liability statute of limitations and collateral source damages.  The substitute includes language clarifying that “nothing in this Act shall be construed to interfere with the doctor-patient relationship or the practice of medicine,” and repeals the Federal Coordinating Council for Comparative Effectiveness Research established in the “stimulus” bill.
Wellness and Other Provisions:  The substitute expands current-law incentives for prevention and wellness, extending to 50 percent from 20 percent the maximum variation in insurance premiums for individuals’ compliance with healthy behaviors and wellness initiatives.  The substitute incorporates anti-fraud provisions, including full funding for the Obama Administration’s request for anti-fraud funding for activities within the Department of Health and Human Services.
Finally, the substitute includes a pathway for Food and Drug Administration approval for follow-on biologics, providing a period of patent exclusivity 12 years, with a six-month extension possible in cases where a manufacturer agrees to an FDA request for pediatric studies.  The substitute gives FDA the authority to issue general or specific guidance documents (subject to a notice-and-comment period) regarding product classifications.
Pro-Life Protections:  Finally, the substitute includes prohibitions on federal funding for abortions, and extends the current-law Hyde Amendment to prohibit federal subsidies being “expended for a health benefits plan that includes coverage of abortion,” except in cases of rape, incest, or to save the life of the mother.  The substitute also includes conscience protections prohibiting discrimination against any “health care entity that does not provide, pay for, provide coverage of, or refer for abortions.”
Score:  The Congressional Budget Office, in its analysis of the Boehner substitute, found that the provisions contained therein would reduce the deficit by $68 billion over the 2010-2019 period, and by similar amounts in future years.  CBO also concluded that 3 million more individuals would have access to insurance coverage than under current law.  Notably, CBO concluded that on average premiums would decline for all forms of health insurance under the Boehner substitute—by about 5-8 percent in the individual market, up to 3 percent in the large group market, and by up to 10 percent in the small group market.  Many may note that President Obama promised the American people that, “For those who have insurance now, nothing will change under the Obama plan—except that you will pay less;” the Boehner substitute meets the President’s own criteria.

Legislative Bulletin: H.R. 1256, Family Smoking Prevention and Tobacco Control Act

Order of Business: H.R. 1256 is being considered under a structured rule making in order certain amendments.  The legislation was introduced by Rep. Henry Waxman (D-CA) on March 3, 2009, and was referred to the Committee on Energy and Commerce, which on March 4, 2009, reported the bill by a 39-13 vote.

Under new PAYGO rules in the 111th Congress, savings from prior bills passed by the House may count towards meeting PAYGO requirements.  Because the Congressional Budget Office projects a $955 million revenue loss over ten years associated with H.R. 1256’s provisions regulating tobacco due to a 2% reduction in adult smoking after ten years, the majority intends to pass H.R. 1804 under suspension of the rules to offset this lost tax revenue prior to the consideration of H.R. 1256.  The rule for consideration of H.R. 1256 provides that, at the time of engrossment, the Clerk will add the text of H.R. 1804 to the end of H.R. 1256, in order to meet PAYGO.

Summary: H.R. 1256 would grant the Food and Drug Administration (FDA) the authority to regulate tobacco products—financed through a tax on tobacco companies—and increase federal regulation of tobacco advertising and marketing.  Highlights of the legislation include the following:

FDA Authority:  The bill grants the federal government authority to regulate tobacco products through a new Center for Tobacco Products created as part of the FDA; however, the bill limits FDA’s authority to the manufacture of tobacco products, as opposed to the growth of tobacco itself.  Some Members may be concerned by the implications of giving an agency charged with approving the safety of food and drugs the authority to regulate an inherently unsafe product, echoing the concerns of then-FDA Commissioner Andrew von Eschenbach, who in a statement to the Energy and Commerce Committee in 2007 stated that regulating tobacco products would dramatically alter the FDA’s mission, and not for the better: “Associating any agency whose mission is to promote public health with the approval of inherently dangerous products would undermine its mission and likely have perverse incentive effects.”

Some Members may also note the statements from many Congressional Democrats that the salmonella and other crises demonstrate that the FDA is not undertaking its current mission effectively, and question whether now is the appropriate time to be burdening the FDA with imposing a sizable new regulatory regime.  In addition, some Members may be concerned that the bill’s provisions expressly retaining the Federal Trade Commission’s authority to regulate the sale of tobacco products may result in duplicate and/or conflicting regulatory regimes at the federal level.

The bill contains definitions related to tobacco products.  Under the bill, an “adulterated” tobacco product consists of materials “injurious to health.”  Using this definition, some Members may question how the FDA will be able to distinguish adulterated from un-adulterated tobacco products, given that tobacco is inherently injurious to human health.

Labeling and Branding Disclosure:  H.R. 1256 places numerous restrictions on tobacco products to prevent their “misbranding.”  Under the bill language, tobacco products will be considered misbranded if (among other things) “any word, statement, or other information required…to appear on the label…is not prominently placed thereon with such conspicuousness…as to render it likely to be read and understood by the ordinary individual” or if the label excludes “a full description of the components of such tobacco product or the formula showing quantitatively each ingredient of such tobacco product.”  The bill also grants the FDA the authority to require prior approval of statements on tobacco labels.  Despite language in the bill prohibiting tobacco companies from making such claims, some Members may be concerned that members of the public may construe FDA regulation of tobacco products as the federal government’s “approval” of a product now deemed safe, when in reality tobacco products are inherently unhealthy.

H.R. 1256 requires tobacco manufacturers to disclose to FDA “a listing of all ingredients…substances, compounds, and additives that are…added by the manufacturer,” as well as “any or all documents (including underlying scientific information) relating to research activities, and research findings, conducted, supported, or possessed by the manufacturer” regarding tobacco products, their health risks (including any adverse events), and tobacco marketing.  The bill also requires FDA to compile publicly searchable databases of additives and potentially harmful components with respect to each brand of tobacco product.

Registration and Inspection:  The bill requires tobacco manufacturers to register their establishments with FDA and provides for inspections every two years to each registered establishment—including those located overseas.

Scope of Regulations:  The bill grants FDA the authority to impose restrictions “on the sale and distribution of a tobacco product” where the agency “determines that such regulation would be appropriate for the protection of the public health,” and also permits restrictions on tobacco advertising and promotion.  Specifically, the bill requires FDA to promulgate regulations regarding remote (i.e. not face-to-face) sales of tobacco products, and regarding good manufacturing standards “to ensure the public health is protected.”

Product Standards; Menthol Loophole:  The bill prohibits most flavor additives in tobacco products following enactment, and gives the FDA the authority to adopt additional standards for tobacco products through a notice-and-comment process.  However, the bill expressly prohibits FDA from banning whole classes of tobacco products, or “requiring the reduction of nicotine yields of a tobacco product to zero…because of the importance” of such decision.

As noted above, the bill prohibits most tobacco flavor additives but expressly excludes menthol as the only “FDA approved” additive permitted to remain in tobacco products.  Some Members may echo the concerns of then-Health and Human Services Secretary Mike Leavitt, who last year pointed out that this provision—by prohibiting the sale of clove and other flavored cigarettes manufactured overseas, while permitting the continued sale of menthol cigarettes manufactured in the United States—could violate international trade commitments, potentially sparking trade disputes and retaliatory action during a recession.

Studies confirm that African-Americans and other racial minorities comprise a disproportionate number of menthol smokers; Centers for Disease Control data indicate that 75% of African-American smokers use menthol cigarettes.  Some Members may also note that seven former Health and Human Services Secretaries wrote to Congress to criticize a menthol “loophole” that “caves to the financial interests of tobacco companies” by “send[ing] a message that African-American youngsters are valued less than white youngsters.”

Notification and Recalls:  The bill grants the FDA authority to make public notifications about tobacco products—through public service announcements and other means—if FDA believes the product “presents an unreasonable risk of substantial harm to the public health,” and further grants FDA authority to recall defective tobacco products, subject to an informal hearing.

Pre-Approval of New Products:  The bill requires any new tobacco products introduced after February 15, 2007, or any substantially modifications of existing tobacco products, to complete a pre-approval process prior to their commercial introduction, and also grants FDA the authority to withdraw and/or suspend a prior issued approval of such new products on the basis of new information or non-compliance with the regulatory regime put in place by the bill.  H.R. 1256 also prohibits FDA to approve any new products if “there is a lack of a showing that permitting such tobacco product to be marketed would be appropriate for the protection of the public health.”

Modified Risk Products:  H.R. 1256 prohibits the sale of “modified risk” tobacco products—defined as those advertised as “less harmful than…other commercially marketed tobacco products,” including those labeled as “light” or “mild”—unless where expressly approved by the FDA.  The bill permits the commercial sale of modified risk products only where the FDA finds said products will “significantly reduce harm…to individual tobacco users; and benefit the health of the population as a whole.”  In cases where long-term epidemiological studies have yet to be conducted on modified risk products, the bill permits the FDA to grant authority to approve the products’ sale for a fixed but renewable term of up to five years, provided certain other requirements are met.  Some Members may be concerned that these burdensome restrictions—which effectively prohibit modified risk products unless expressly approved by federal authorities—may hinder the introduction and development of tobacco products that could reduce (but not eliminate) the adverse health consequences associated with tobacco consumption.

The bill also imposes additional marketing restrictions on modified risk products approved for sale, specifically regarding the quantitative comparisons of reduced levels of substances, and requires post-market surveillance of modified risk products—which relate to the FDA’s requirement to revoke approval in cases where additional research finds that the statements of modified risk no longer apply.

State and Local Authority; “Indian Country” Loophole:  The bill provides limited federal pre-emption of state and local laws with respect to product standards, labeling and branding, federal registration, and modified risk products; however, state and local governments retain authority in all other areas regarding “the sale, distribution, possession, exposure to, access to, advertising and promotion of or use of” tobacco products.

The bill requires FDA to contract with the states to carry out inspection of retailers to enforce its provisions.  However, the bill prohibits FDA from having its state contractors carry out inspections on Indian country lands “without the express written consent of the Indian tribe involved.”

Other Provisions:  The bill establishes a Tobacco Products Scientific Advisory Committee to evaluate technical evidence and make recommendations with respect to tobacco products and their effects.  The bill also contains provisions designed to accelerate the regulatory approval of certain smoking cessation and nicotine replacement products, and includes delays of up to five years in regulatory compliance and testing requirements for small tobacco product manufacturers (defined as those employing fewer than 350 employees).

“User Fees”:  H.R. 1256 imposes “user fees” on tobacco companies to finance the new Center for Tobacco Products within FDA.  Fees would total nearly $5.4 billion over ten years: $235 million in Fiscal Year 2010, rising to $712 million in Fiscal 2019 and all subsequent years.  Fees would be assessed to classes of tobacco products (i.e. cigarettes, cigars, etc.), and to individual companies within each class, in the same percentages applied to tobacco buyout legislation previously passed by Congress (P.L. 108-357) in October 2004.

Some Members may consider this “user fee” a tax on the tobacco industry, which manufacturers will pass on to their customers.  Some Members may also be concerned that tobacco taxes are among the most regressive forms of taxation, and that raising tobacco taxes still higher—on top of the 62-cent per-pack increase in taxes used to finance children’s health insurance legislation (P.L. 111-3)—will place additional burdens on working families during a recession.

Final Rule:  The bill would require the FDA to re-issue a 1996 rule (struck down by the Supreme Court as exceeding the agency’s authority in 2000) and would make several amendments to said final rule.  The original regulations would restrict tobacco advertising by, among other things, prohibiting billboards within 1,000 feet of schools and permitting only black-and-white advertising.  The amendments would prohibit the distribution of free tobacco products at all sporting or entertainment events, and would permit free samples only in a “qualified adult-only facility;” such facilities are specifically defined, and must include “a temporary structure…enclosed by a barrier that is constructed of, or covered with, an opaque material…[and] extends from no more than 12 inches above the ground or floor…to at least 8 feet above the ground or floor.”  However, the bill expressly strikes the preambles and findings to several FDA rules promulgated in 1995 and 1996 designed to regulate nicotine as a drug, and tobacco as a nicotine delivery device.  Some Members may be concerned at the level of prescriptive detail being written into law by these provisions—particularly as H.R. 1256 exempts the entire final rule from the provisions of the Congressional Review Act.

Retail Penalties:  The bill permits FDA to issue “no tobacco sale” orders against retailers that repeatedly violate the federal regulatory regime, subject to a hearing, and also imposes federal penalties for violations by retailers with respect to tobacco purchases.  A first offense would not be subject to a fine, provided the retailer has an “approved training program” in place; however, penalties would increase for additional incidents, such that a sixth (and subsequent) offense within a four-year period would warrant a fine of $10,000, regardless of whether the retailer participates in a training program.  The bill requires FDA to “consider” applicable state penalties for purposes of mitigating federal sanctions, but does not automatically reduce or eliminate federal sanctions where states have imposed their own (potentially higher) fines.

Advertising Warnings:  The bill imposes numerous new requirements on advertising for cigarettes and smokeless tobacco, and prohibits the sale or advertisement of any product not meeting the restrictions. Specifically, the bill requires labels carrying warnings in at least 17-point font or that comprise 70% of the label area, and requires advertisements to carry warnings of at least 20% of the total area (or, in the case of newspaper advertisements, a specific size font related to the overall size of the advertisement).  The bill gives the FDA the authority to change required statements through a notice-and-comment rulemaking process, pre-empts state or local activities only with respect to the content of tobacco advertising—permitting more stringent state and local regulations on the “time, place, and manner” of advertisements—and imposes a prohibition on television or radio advertisements for smokeless tobacco.

Some Members may be concerned that these prescriptive requirements exceed the voluntary restrictions that tobacco companies imposed upon themselves as part of the 1998 Master Settlement Agreement with state attorneys general, infringing on companies’ First Amendment rights to promote a product which H.R. 1256 would expressly keep legal.  Some Members may also be concerned that the lack of federal pre-emption would permit states and localities to impose more onerous, and potentially conflicting, restrictions on companies’ constitutional right to market their products.

Trade in Tobacco Products:  The bill requires tobacco manufacturers to label their products as “sale only allowed in the United States,” and requires federal regulations related to record-keeping, tracking, and tracing tobacco products in order to combat illicit activities.

Cost: According to the Congressional Budget Office, H.R. 1256 would cost the FDA $2.1 billion to implement over five years and nearly $5.4 billion over ten.  These costs would be offset by “user fees” assessed on tobacco companies.

CBO also projects a $955 million revenue loss over ten years associated with H.R. 1256’s provisions regulating tobacco, as the budget estimate assumes a 2% reduction in adult smoking after ten years.

Under new PAYGO rules in the 111th Congress, savings from prior bills passed by the House may count towards meeting PAYGO requirements.  Because the Congressional Budget Office projects a $955 million revenue loss over ten years associated with H.R. 1256’s provisions regulating tobacco due to a 2% reduction in adult smoking after ten years, the majority intends to pass H.R. 1804 under suspension of the rules to offset this lost tax revenue.

Lastly, CBO notes that the “user fees” imposed on tobacco companies by H.R. 1256 would constitute a private-sector mandate for the purposes of the Unfunded Mandates Reform Act (UMRA), and that other provisions associated with limited pre-emption of state tobacco laws would constitute an intergovernmental mandate under UMRA.  Some Members may be concerned by the impact of the billions of dollars in unfunded mandates placed on tobacco companies amount to a tax that will be passed on to consumers.

Amendment Made in Order Under the Rule:

Buyer (R-IN) Substitute:   Keeps FDA’s focus on its current mission by establishing a Tobacco Harm Reduction Center within the Department of Health and Human Services (but outside of FDA) to regulate tobacco products.  Requires Administrator of the new Center to assess the impact of proposed regulations having an economic impact greater than $50 million.  Pre-empts new state and local laws conflicting with the regulatory regime, and prohibits private rights of action.  Statutorily requires reduction in tar levels included in tobacco products, but defers prohibition of flavor additives or other chemicals to medical experts within the new Tobacco Harm Reduction Center.

Permits the introduction (without fixed-term time limits) of modified risk products, provided such products result in “measurable and substantial reductions in morbidity and mortality among individual tobacco users.”   Requires disclosure of tobacco product ingredients on product packaging.

Focuses tobacco efforts on youth smoking by reducing state substance abuse block grants by up to 40% in the case of states which have not enacted laws imposing civil penalties on sale or distribution of tobacco products to underage minors and restricting certain sales practices (e.g. self-service displays, licensing of tobacco vendors, etc.) to prevent the improper sale of tobacco products to minors.  Imposes penalties of up to one year imprisonment for willful violations of regulatory regime.  Reduces state substance abuse block grants by up to 40% for states which do not spend at least 20% of their Master Settlement Agreement funds on tobacco control programs.

Legislative Bulletin: Health Provisions of H.R. 1, American Recovery and Reinvestment Act

Order of Business: During the week of January 26, 2009, the House is expected to consider H.R. 1 under a likely structured rule. The legislation was introduced by Rep. Dave Obey (D-WI) on January 26, 2009. The bill was referred to the House Committees on Appropriations and Budget, but was never considered; however, the House Energy and Commerce Committee and other relevant committees marked up provisions within their jurisdiction the week of January 19, 2009.

Summary of Health Provisions: The legislation contains several sections of major health care provisions, including expansions of health care subsidies for the unemployed, a bailout of state Medicaid programs, and new spending on health information technology. Provisions of these titles include:

Health Provisions Affecting Unemployed Workers

Temporary COBRA Premium Subsidy: Provisions of the Consolidated Omnibus Reconciliation Act of 1985 (COBRA) provide for separated employees and their dependents to remain on their previous employer’s group policy for 18 months, or up to 36 months in some cases. Employers are permitted to charge former workers electing COBRA coverage the full cost of their group insurance premiums, plus a 2% fee to cover administrative costs.

The bill would provide a 65% premium subsidy to employers to cover the costs of individuals electing COBRA coverage, provided such election comes as a result of the individual’s involuntarily termination from employment during the period from September 1, 2008 to December 31, 2009. The subsidy would continue for a maximum of 12 months, but would terminate once the individual becomes eligible for other employer-based coverage or Medicare.

The bill re-opens the COBRA election period for certain individuals, who had previously declined COBRA coverage, to allow them to accept continuation coverage in light of the new federal subsidy. Any pre-existing condition exclusions as a result of the temporary lapse in coverage would be waived if the former employee chooses to accept the COBRA coverage with the new federal subsidy. The bill imposes various notification requirements on employers to inform their separated workers about the COBRA subsidy program.

The bill includes a 110% penalty for individuals who lose eligibility for the COBRA premium subsidy (due to eligibility for other group coverage), but fail to report their changed status. However, because the reporting mechanism for individuals to report their changed status lacks transparency (i.e. employers may not know their former employees have obtained another job, or whether that job includes an offer of group health insurance), some Members may be concerned that the premium subsidy program could be ripe for abuse by individuals who could obtain a “better deal” by remaining on the COBRA subsidy.

According to the Joint Committee on Taxation (JCT), this provision would cost the federal government $28.7 billion in reduced revenue over five and ten years, as the subsidy would be paid to employers in the form of a reduction or rebate of taxes (both income and payroll) withheld. JCT estimates that 7 million individuals would receive COBRA subsidies at some point during calendar year 2009.

Permanent COBRA Expansion: The bill also includes a permanent expansion of COBRA in the case of “older or long-term employees.” Specifically, the bill would permit former employees over age 55, or those with at least 10 years of service with the employer, to remain on COBRA until becoming eligible for Medicare. These provisions are similar to language inserted by the House Rules Committee into H.R. 3920, the Trade Adjustment Assistance (TAA) Reauthorization Act, which passed the House by a by a 264-157 vote on October 31, 2007, but was never considered by the Senate.

Particularly as a 2006 study found that employers’ costs for administering the COBRA plan are already double the 2% maximum administrative fee permitted under the statute, some Members may be concerned that permitting former employees to remain on COBRA for decades could result in even higher administrative costs for firms due to the expanded requirements of the unfunded federal mandate.

Because the COBRA statute requires former employees to pay the full cost of their group health insurance, the individuals most likely to elect continuation coverage would be those for whom the coverage has value despite its high cost—i.e. those with significant expected medical expenses. Consistent with this premise, the 2006 employer study also found that workers electing COBRA coverage had overall health costs 45% greater than the active workers employed by the reporting firms. Some Members may be concerned that allowing workers to retain COBRA coverage would further exacerbate these adverse selection concerns, raising costs for all the participants in the group plan and potentially encouraging some employers to drop coverage altogether rather than absorbing these higher costs.

Medicaid Coverage for Unemployed: The bill provides a state option to cover unemployed workers through their Medicaid programs—with the federal government paying 100% of the cost of such coverage. Eligible individuals would include:

  • Individuals currently receiving unemployment compensation;
  • Individuals formerly receiving unemployment compensation whose benefits were exhausted after July 1, 2008;
  • Individuals who were involuntarily separated from employment between September 2008 and January 2011, whose gross family income remains below 200% of the federal poverty level (FPL, $42,400 for a family of four in 2008);
  • Individuals are eligible for food stamp assistance; and
  • Spouses and dependent children under age 19 of the individuals listed above.

The bill states that (except for the income-based criteria for the third group listed above) “no income or resources test shall be applied with respect to” any of the eligible groups. Some Members may be concerned that this provision would therefore allow fired CEOs formerly making millions of dollars in compensation to obtain free health care benefits from the federal government.

The bill makes eligible for Medicaid assistance all individuals in the groups listed above who are “not otherwise covered under creditable coverage.” Some Members may be concerned that because the bill language prohibits participation in the program only for individuals actually covered by another policy—as opposed to all those eligible for other coverage, as with the COBRA premium subsidy listed above—the bill provides eligible individuals with a perverse incentive to remain on federal health insurance rolls and obtain free health insurance, rather than switch to a group plan where higher premiums and co-pays likely would apply.

According to the Congressional Budget Office (CBO), the temporary Medicaid coverage provision would cost $10.8 billion over five and ten years. CBO estimates that in 2009, 1.2 million individuals (including spouses and children) would obtain health care coverage through this provision.

As noted above, the bill provides a 100% subsidy to states for Medicaid coverage of eligible individuals through January 1, 2011. Some Members may be concerned that having the federal government pay for the entire cost of covering unemployed individuals through Medicaid provides no incentive for states to police fraud and abuse of the program by these populations. Moreover, because the bill does not sunset the program to cover unemployed workers, only the 100% federal match, some Members may be concerned about the implications of a significant expansion of government’s role in providing health care under the guise of a “temporary” stimulus provision.

Health Care Aid to the States

Increase in Federal Medicaid Match: The federal share of spending on states’ Medicaid programs is determined through the Federal Medical Assistance Percentage (FMAP). Based on a formula that compares a state’s per capita income to per capita income nationwide—a mechanism designed to gauge a state’s relative wealth—the FMAP can range from a low of 50% to a maximum of 83%.

The bill would provide an across-the-board FMAP increase of 4.9% for a total of nine calendar quarters—from October 1, 2008 through December 31, 2010. The bill also includes language providing that no state’s FMAP percentage (exclusive of the 4.9% increase) shall decline during the nine calendar quarter period. Both the scope and the length of the FMAP increase exceed the 2.95% increase in the federal match rate for five fiscal quarters passed to help states during the last economic downturn as part of tax and budget reconciliation legislation (P.L. 108-27).

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

The bill includes “maintenance of effort” provisions such that states wishing to receive the FMAP increases may not impose more restrictive eligibility standards than those in effect on July 1, 2008 (unless the states retroactively remove such restrictions) and may not deposit any amounts “directly or indirectly” into a state’s rainy day fund or reserve account.

CBO scores the entire FMAP increase package as costing $87.7 billion over five and ten years.

Some Members may have concerns about this increase in FMAP funding, included but not limited to:

  • An increase in the federal Medicaid match by definition provides no “stimulus,” instead substituting federal expenditures for state spending.
  • The provisions as drafted could result in a FMAP rate for some states approaching 100%, meaning that the federal government would be paying nearly the full share of a state’s Medicaid expenses—a significant alteration of the traditional state-federal Medicaid partnership, and one which would give states a strong incentive to shift additional costs (whether directly health related or not) on to the federal government’s books.
  • An increase in the federal Medicaid match provides no incentive for states to reform their Medicaid programs to improve the quality of beneficiary care while reducing the growth in health costs—and by providing additional federal dollars, may provide states with a perverse incentive not to accelerate reform.
  • An FMAP increase will not halt states from expanding their Medicaid programs at an unsustainable rate, as evidenced by one study’s findings that state Medicaid expenditures during the economic “boom years” of 1994-2000 outpaced both state GDP growth and states’ revenue growth.
  • Increasing the federal Medicaid match does nothing to reform the flawed FMAP formula itself. The Congressional Budget Office in its December 2008 Budget Options report noted that the 50% minimum FMAP level results in nearly a dozen wealthy states receiving match rates significantly higher than they otherwise would have received; in one case, a state’s FMAP level would be 12% absent the statutory minimum percentage. Members may therefore be concerned that increasing the federal Medicaid match would not reform a system where studies have indicated that wealthier states spend more on Medicaid than poorer ones—exactly the opposite of FMAP’s intended goal.

Moratoria on Anti-Fraud Regulations: The bill would extend by three months—from April 1, 2009 to July 1, 2009—moratoria on the Centers for Medicare and Medicaid Services (CMS) from issuing six Medicaid regulations designed to bolster the fiscal integrity of the program. The regulations cover intergovernmental transfers, graduate medical education, school-based administrative and transportation services, rehabilitation services, targeted case management, and provider taxes. In addition, the bill extends the moratoria to cover a seventh regulation, relating to the definition of outpatient hospital services. Under a previous agreement between President Bush and Congressional Democrats negotiated in relation to the 2008 wartime supplemental appropriations act (P.L. 110-252), six of the proposed regulations were to be placed under the moratoria, while the outpatient hospital services regulation was to be implemented in full; this provision attempts to undo that agreement. CBO scores these moratoria as costing $200 million over five and ten years.

Some Members may be concerned by attempts to repeal regulations that respond to various state abuses within the Medicaid program that have been documented by the Government Accountability Office (GAO) in reports dating back well over a decade. Some Members may also note that even the liberal Center for Budget and Policy Priorities has published a report noting that several of the abuses—specifically, intergovernmental transfers and provider taxes, which constitute the majority of the projected $42 billion in 10-year taxpayer savings associated with the regulations—are often “designed primarily to provide a windfall for state governments.” Therefore, some Members may agree with the need to restore the Medicaid program’s fiscal integrity, and be concerned by Democrats’ frequent attempts—including the third extension of these “temporary” moratoria—to undermine regulations that would affect less than 1% of the total Medicaid spending of nearly $5 trillion over the next decade.

Transitional Medical Assistance: The bill extends for 18 months—through December 31, 2010—the Transitional Medical Assistance (TMA) program that provides Medicaid benefits for low-income families transitioning from welfare to work. Traditionally, the TMA provisions have been coupled with an extension of Title V abstinence education funding during the passage of health care bills. However, the Title V funds were excluded from the bill language, and will expire on July 1, 2009 absent further action. CBO scores the TMA extension as costing $1.3 billion over five and ten years.

Particularly given the Obama Administration’s desire for bipartisan agreement on economic stimulus provisions, some Members may be concerned at the removal of the Title V abstinence education funding and the potential end of this worthwhile program. Some Members may also question whether an extension of TMA funding—which has been included in Medicare and related health bills for several years—constitutes economic “stimulus,” or instead represents additional domestic spending that Democrats simply do not wish to pay for under regular order.

Family Planning Services: The bill includes several provisions related to family planning services. Specifically, the bill would amend the definition of a “benchmark state Medicaid plan” to require family planning services for individuals with incomes up to the highest Medicaid income threshold in each state. The bill also permits states to establish “presumptive eligibility” programs for family planning services, which would allow Medicaid-eligible entities—including Planned Parenthood clinics—to enroll individuals in family planning services and “medical diagnosis and treatment services” connected with a family planning service, subject to a later determination of eligibility. CBO scores this provision as costing $200 million over five years, and $700 million over ten.

Some Members may be concerned that these changes would, by altering the definition of a benchmark plan, undermine the flexibility that Republicans established in the Deficit Reduction Act to allow states to determine the design of their Medicaid plans, and would expand the federal government’s role in financing family planning services. Some Members may also be concerned that the presumptive eligibility provisions would enable wealthy individuals to obtain free family planning services—and potentially other health care benefits—financed by the federal government, based on a certification by Planned Parenthood or other clinics. Lastly, some Members may question the “stimulus” behind this family planning expansion, the effects of which on economic growth and recovery would be minimal at best.

Other Provisions: The bill also includes provisions prohibiting Medicaid cost-sharing for Indians receiving care through the Indian Health Service, and related provisions regarding Indians’ eligibility for Medicaid. Some Members may question whether and how these provisions constitute necessary economic stimulus.

The bill includes a 2.5% increase in Medicaid Disproportionate Share Hospital (DSH) payments for those hospitals treating a large percentage of low-income individuals. The increase covers Fiscal Years 2009 and 2010, and sunsets thereafter.

Health Information Technology

The bill contains language amending the Public Health Service Act and the Social Security Act designed to accelerate the adoption of health information technology, including the following:

Federal Office and Standards: The bill codifies the Office of the National Coordinator for Health Information Technology (ONCHIT) within the Department of Health and Human Services (HHS), which had previously been established by Executive Order. The Coordinator will be charged with updating the federal government’s health IT strategic plan and developing a program for voluntary certification of health information technology, among other duties.

The bill establishes a Policy Committee and a Standards Committee to make recommendations to the Coordinator on national strategy and health IT standards. The Policy Committee will determine which areas require federal standards and certification criteria, and the Standards Committee will recommend to the Coordinator specific standards and criteria in the areas highlighted by the Policy Committee. The National Institute for Standards and Technology (NIST) will assist the standards committee in testing implementation specifications to ensure their appropriate use, and develop a program of grants to institutions of higher education to establish multidisciplinary centers for health care information integration.

The bill provides the Department with a 90-day window to adopt or reject the standards proposed by the Standards Committee, and requires the Department to establish an initial set of standards and certification criteria by December 31, 2009. The bill also requires federal agencies and federal contractors to utilize information technology systems and standards consistent with those promulgated by the Department. The bill authorizes $250 million in appropriations for ONCHIT for Fiscal Year 2009.

The bill requires the Coordinator to “support the development, routine updating, and provision” of electronic health record technology, “unless the Secretary determines that the needs and demands of providers are being substantially and adequately met through the marketplace,” and permits the Coordinator to “impose a nominal fee” for providers choosing to use systems so developed. Some Members may be concerned that this provision may permit undue intervention by the federal government in the marketplace for health information technology.

Grant and Loan Funding: The bill would establish new programs designed to fund the implementation of health information technology, and authorizes such sums as may be necessary to carry out the programs for Fiscal Years 2009 through 2013. The bill would require the Department to “invest in the infrastructure necessary” to promote health IT nationwide, including IT architecture, electronic health records, training on best practices, and interoperability, including $300 million for regional efforts to support health information exchange.

The bill creates a Health Information Technology Research Center to provide technical assistance and develop best practices on IT adoption and utilization, as well as additional regional centers affiliated with non-profit organizations that would receive financial assistance from the federal government for up to four years to supplement the national efforts. The bill provides that federal financial support may not exceed 50% of any applying organization’s annual budget, except under certain circumstances.

The bill establishes a grant program for states and other state-designated non-profit entities to “facilitate and expand the electronic movement” of health records, subject to state matching contributions of no more than $1 for every $3 in federal funding. The bill creates another grant program for states or Indian tribes to loan money to providers for adoption of, or training for the use of, electronic health records, and requires that entities receiving grants under this program contribute at least $1 for every $5 in federal funding. Finally, the bill creates two grant programs—one for schools of medicine, the other for institutions of higher education—to develop curricula that integrate electronic health records into clinical training and education, subject to a match by the schools of at least 50%.

Some Members may be concerned that the spending authorized by these various grant and loan programs, coupled with the matching requirements that will result in the federal government shouldering half (and in several cases more than half) the financial cost of projects, will increase the federal deficit to support projects that may hold marginal value. Given the speed with which the private sector has adopted information technology in other industries, some Members may question the need for an intrusive and costly federal role in health IT over and above the establishment of nationwide standards.

Medicare Payments: The bill establishes a system of incentives and penalties related to Medicare reimbursement for providers to encourage the adoption of electronic health records. For physicians not working in a hospital setting, the bill provides for a bonus payment of 75% of Medicare billed claims, subject to total limitations of $41,000, paid out over five years. Incentives will begin in 2011, will be reduced for providers adopting health IT beginning after 2013, and will be eliminated entirely after 2015. The bill makes eligible for bonus payments all physicians receiving Medicare reimbursement, including physicians participating in Medicare Advantage Health Maintenance Organizations.

The bill requires that providers receiving incentives be “meaningful users” of electronic health records, based on a self-attestation by the provider and reporting any various clinical quality measures the Secretary may require, but includes no requirement that such meaningful users bill claims to Medicare on a regular basis. Payment incentives will not be taken into account when calculating the sustainable growth rate (SGR) for Medicare physician payment reimbursement, and limits judicial review of the Secretary’s decisions regarding the enhanced payments.

The bill provides for reductions for non-adopters of health information technology, beginning with a 1% fee reduction in 2016, and continuing with a 2% reduction in 2017, a 3% reduction in 2018, and reductions of up to 5% 2019 and subsequent years. The Secretary may grant limited exceptions from the Medicare penalties for up to five years.

For hospitals (including those affiliated with Medicare Advantage Health Maintenance Organizations), the bill provides a base incentive payment of $2 million for health IT adoption, coupled with a per-discharge payment of $200. Incentive payments (base and per-patient discharge) may total up to $6.37 million per hospital for the first year. (Note that this is an increase of nearly 50% in the maximum per-hospital payment from the originally introduced package.) Payments will be adjusted based on the percentage of Medicare patients treated by the hospital, and phased out entirely over four years, such that the maximum payment a hospital could receive would total more than $15.9 million. Payments would begin in Fiscal Year 2011, but that hospitals who fail to convert to electronic health records by 2016 shall not be eligible for the bonus payments.

The bill further provides for adjustments to the annual “market-basket” hospital update, beginning in 2016. Hospitals who do not adopt electronic health records will see their payments reduced by 0.5% in 2016, 1% in 2017, and 1.5% in 2018 and subsequent years, unless the Secretary grants a limited five-year exception.

The bill provides that the bonus payments outlined above shall not be taken into account when calculating beneficiaries’ premiums under Medicare Parts A and B.

The bill amends the Medicare Improvement Fund to shift funds from Fiscal Years 2016-2018 into Fiscal Years 2014 and 2015. While the Congressional Budget Office has written that this provision is budget-neutral, some Members may consider this timing shift a budgetary gimmick designed primarily to make future legislation compliant with five year PAYGO requirements under House rules. Some Members may therefore question this provision’s relevance in a measure designed to spur economic growth and recovery.

The bill authorizes and appropriates a total of $540 million—$60 million for each of Fiscal Years 2009 through 2015, and $30 million per year from 2016 through 2019—to allow the Centers for Medicare and Medicaid Services (CMS) to implement the IT incentive provisions. Some Members may be concerned that the nearly $1 billion in direct spending given to CMS to implement the Medicare and Medicaid provisions of the health IT title may “stimulate” nothing more than the growth of federal bureaucracy.

Some Members may believe that the size and scope of spending contemplated—up to $41,000 for every eligible physician, including practitioners who bill Medicare infrequently, such as chiropractors, and as much as $10.9 million per hospital—represent an inefficient use of government spending, particularly given widespread IT adoption in other industries without such heavy government subsidies. The Congressional Budget Office projects that passage of the bill’s provisions will increase implementation of health IT by only 25%—from the 65% rate of physician adoption in 2019 under current law to 90%, and has stated that it “anticipates near-universal adoption of health IT within the next quarter-century even without legislative action.” Some Members may therefore find the expenditure of $30 billion to achieve this marginal improvement in health IT adoption inefficient, particularly as it would not target subsidies to those providers who otherwise would not have adopted electronic health records.

Some Members may also be concerned that the bill provisions, by including various “carrots and sticks” related to health IT adoption by providers, would further increase the federal government’s role in patient-provider relations, and could encourage providers nearing retirement age to abandon their practices entirely rather than comply with the bill’s requirements. Lastly, some Members may believe that tying the physician payment bonus to the level of billed claims, coupled with the current fee-for-service model of reimbursement, may encourage providers only to increase the amount and intensity of services billed in order to raise their reimbursement levels, resulting in high and inefficient levels of government spending.

Medicaid Funding: The bill includes provides for a 100% federal FMAP match for certain Medicaid providers related to electronic health records technology, and a 90% match for administrative expenses associated with. In order to qualify for the enhanced federal match, providers’ Medicaid patients must exceed 30% of their overall patient load; children’s hospitals, acute care hospitals with at least a 10% Medicaid patient load, and federally qualified health centers with a 30% or greater Medicaid patient load will also qualify for the Medicaid payments. Payments under these provisions may not exceed a total of $75,000—$25,000 for the purchase of electronic health record technology, and up to $10,000 per year for five years for operation and maintenance. Providers receiving Medicaid funds would have to pay 15% of the cost of any electronic health records technology they acquire.

The bill provides that incentives under the Medicaid formula shall not exceed those provided under the Medicare formula established above, except that a provider’s Medicaid patient load may be substituted for its Medicare patient load in determining a higher payment level. However, in order to receive Medicaid funding, providers must decline to accept the Medicare health IT bonus payments discussed above.

The bill authorizes and appropriates a total of $360 million—$40 million for each of Fiscal Years 2009 through 2015, and $20 million per year from 2016 through 2019—to allow CMS to implement the Medicaid incentive provisions. Some Members may be concerned that the nearly $1 billion in direct spending given to CMS to implement the Medicare and Medicaid provisions of the health IT title may “stimulate” nothing more than the growth of federal bureaucracy.

CBO estimates that both the Medicare and Medicaid bonus payments will total $30 billion over ten years—$17.7 billion for Medicare and $12.4 billion for Medicaid—along with $900 million in mandatory administrative funding for CMS. However, CBO estimates that increased IT adoption will yield baseline savings in Medicare, Medicaid, and the Federal Employee Health Benefits Program (FEHBP) totaling $12.3 billion over ten years. CBO also estimates that revenues will increase under the health IT provisions, as slightly lower health costs will result in individuals excluding slightly less of their salaries from payroll and income taxes through the exclusion for employer-provided health insurance. Thus CBO scores the net cost of the Medicare and Medicaid bonus payment provisions as $17.1 billion over ten years.

Privacy: The bill extends the privacy and security provisions included in the Health Insurance Portability and Accountability Act (HIPAA, P.L. 104-191), as well as the civil and criminal penalties established in such legislation, from “covered entities”—health plans and other providers who transmit electronic health information—to the “business associates” of those entities. In general, the Privacy Rule requires covered entities to obtain consent for the disclosure of protected health information—defined as health information that identifies the individual, or can reasonably be expected to identify the individual—except when related to “treatment, payment, or health care operations.”[1] The regulations include several exceptions to the pre-disclosure consent requirement, including public health surveillance, activities related to law enforcement, scientific research, and serious threats to health and safety.[2] The HIPAA Security Rule requires covered entities and their business associates to safeguard protected health information held electronically, including administrative, physical, and technical safeguards that covered entities must follow.[3] Some Members may be concerned about the expansion of the full HIPAA privacy and security requirements to business associates, particularly given the additional unfunded mandates placed on businesses elsewhere in the bill.

In general, the bill includes four general categories of privacy provisions:

  1. Breach Notification: The bill requires covered entities holding unsecured personal health information to “notify each individual whose unsecured protected health information has been, or is reasonably believed by the covered entity to have been” disclosed as a result of an information breach within 60 days, and requires business associates of covered entities to notify those entities as a result of a breach of unsecured information. Notification is not linked to a security threat assessment—in other words, the same notification must occur in all instances, regardless of whether the potential for harm is significant or minimal. In cases where more than 500 individuals are believe to have been affected, notice must be provided to appropriate media outlets—a requirement which, coupled with the blanket notification provisions outlined above, some Members may consider unreasonable, costly to businesses, and likely to cause undue public alarm or confusion.

The bill places the burden of proof on the covered entity or business associate to demonstrate that required notifications were made; some Members may be concerned by such a burden of proof lying with the business entity. The bill also creates an education initiative within HHS to advise businesses and the public on their health privacy rights and responsibilities.

The bill establishes a temporary breach notification process for vendors of personal health records and other firms not classified as HIPAA covered entities. Entities must notify “each individual,” as well as the Federal Trade Commission (FTC), when information that does not meet security standards approved by the Secretary is breached; third party vendors must notify the entity to whom they provide their services. Failure to notify will be classified as a “unfair and deceptive act or practice” under the Federal Trade Commission Act for purposes of enforcement. The provision will expire when either HHS or the FTC publish standards for entities that are not covered entities to report data breaches. Some Members may be concerned that the bill would impose onerous penalties on entities, particularly as the bill language contains no link between a threat of harm and required notification.

  1. Disclosure: The bill places new restrictions on disclosures of health information related to insurance payment if an individual so requests that the covered entity (in this case, an insurance carrier) not disclose information and instead pays for the service out-of-pocket and in full. The bill requires that entities disclose the minimum amount of personally identifiable information necessary “to accomplish the intended purpose of such disclosure,” and requires entities to compile—and make available to individuals—an accounting of disclosures made with respect to protected information in an electronic health record. Some Members may be concerned that the ongoing compilation of disclosures (as opposed to providing them solely upon an individual’s request) constitutes a burdensome requirement on business, and also note that, because the disclosure requirements apply solely to those entities using electronic health records, this provision could actually discourage entities from adopting health IT.
  2. Operations and Marketing: The bill prohibits the sale of protected health information by entities and business associates without individuals’ express consent to allow entities to sell such information. Certain exceptions to this general prohibition would remain, including treatment of the individual or public health research where the price charged reflects the costs of transmitting the relevant data and ongoing business relationships between a covered entity and business associates. The bill also prohibits the use of personal health information for fundraising, or for paid marketing purposes without an individual’s express written consent, and instructs HHS to compile a list of health care activities “that can reasonably and efficiently be conducted through the use of information that is de-identified,” and remove these activities from the list of health care operations exempt from the HIPAA privacy rule. Some Members may be concerned that these provisions would hinder the ability of covered entities to provide information to individuals about products and services—for instance, cheaper generic drugs or affinity discounts at health clubs—that may be of value to them.
  3. Enforcement and Penalties: The bill includes privacy enforcement provisions, including a clarification that individuals who obtain personal health information from a covered entity, and then discloses said information, will be subject to current law civil and criminal penalties under the HIPAA statute. The bill also creates penalties for non-compliance due to willful neglect, “for which the Secretary is required to impose a penalty.” Penalties obtained due to a general failure to comply with requirements and standards will be transferred to HHS’ Office of Civil Rights for the purposes of enhanced enforcement, except that a certain percentage of penalties may be paid to individuals harmed by the offenses in question—a provision which some Members may view as providing monetary incentives for individuals to join class action lawsuits related to HIPAA non-compliance.

The bill establishes new higher, tiered penalties for failure to comply with HIPAA requirements, up to a maximum of $50,000 per violation, and $1,500,000 per year, due to willful neglect that is not corrected. Current law provides for penalties of up to $100 per violation and $25,000 per year. Some Members may be concerned that this 6000% increase in maximum fines for business could have a chilling effect on applicable entities, potentially lessening health IT adoption.

The bill would permit state attorneys general to bring action against companies “in any case in which the attorney general…has reason to believe that an interest of one or more residents of that state has been or is threatened or adversely affected by any person.” Attorneys general may file actions “in a district court of the United States of appropriate jurisdiction” seeking either an injunction or civil penalties for a general failure to comply with standards. State attorneys general must first notify the Secretary of intent to file such action, and may not bring actions against relevant persons if and when the Secretary has a separate action pending. Some Members may be concerned that these provisions, particularly when coupled with the provisions permitting affected individuals to receive a portion of penalties awarded, could lead to a proliferation of lawsuits against applicable individuals and entities for real or perceived security violations, which could discourage the adoption of health information technology that the bill is intended to promote.

The bill maintains current law pre-emption provisions with respect to the HIPAA statute, and includes various study and reporting requirements, including an FTC study on the implications of extending HIPAA’s privacy and security requirements to entities that are not covered entities or business associates under current law. The bill also provides a general exemption for pharmacists to communicate with their patients to improve patient safety and reduce medical errors, provided the pharmacists accepts no additional remuneration (over and above the amount paid for relevant prescriptions).

Other Medicare Provisions: The bill places a one-year moratorium on CMS’ introduction of a wage adjustment related to hospice reimbursement, and halts for one year a phase-out of capital costs paid to certain teaching hospitals in the form of a capital indirect medical education (IME) payment. Some Members may believe that these provisions have little to do with promoting economic recovery and therefore do not belong in a “stimulus” measure.

Lastly, the bill makes certain “technical corrections” regarding long-term care hospitals, specifically as it relates to implementation of a rule for referrals from non co-located facilities. According to CMS, at least one of these “corrections” will affect only three hospitals—two located in North Dakota, and one located in Connecticut. Some Members may believe this provision constitutes an authorizing earmark, and therefore believe its inclusion is inconsistent with President Obama’s pledge that economic recovery legislation should not include any “pork-barrel” spending.

 

[1] Definitions of protected health information and individually identifiable health information can be found at 45 C.F.R. 160.103; permitted use for “treatment, payment, or health care operations” can be found at 45 C.F.R. 164.506.

[2] The full list can be found at 45 C.F.R. 164.512.

[3] The safeguards are found at 45 C.F.R. 164.308, 164.310, and 164.312, respectively.

Information Alert: H.R. 1108, Tobacco Regulation Bill

Today the House will consider H. R. 1108, the Family Smoking Prevention and Tobacco Control Act, which would provide authority for the Food and Drug Administration (FDA) to regulate tobacco products.
  • The White House, in its Statement of Administration Policy on H.R. 1108, issued a veto threat against the bill on the grounds that it would increase taxes and “undermine one of the nation’s premier public health and regulatory institutions and potentially lead the public to mistakenly conclude some tobacco products are safe.”
  • The Club for Growth is also scoring a NO vote on H.R. 1108, objecting to a bill that “gives sweeping control of the tobacco market to FDA” and imposes over $5 billion in new tax increases.
  • The bill includes more than $5 billion in taxes on tobacco companies, ostensibly termed “user fees,” to finance the FDA’s work regulating tobacco products.  CBO notes that these provisions greatly exceed the thresholds established in the Unfunded Mandates Reform Act (UMRA).
  • H.R. 1108 places stringent restrictions on the introduction and marketing of new products that would reduce or modify the inherent risks associated with the consumption of tobacco.  Some conservatives may be concerned that such onerous restrictions on the introduction of reduced risk tobacco products could inhibit the use of products reducing the risks associated with tobacco consumption while potentially serving as a barrier to entry for new market competitors.
  • The Food and Drug Administration has publicly stated it does not want the authority to regulate tobacco products granted in H.R. 1108, as it would contradict its mission to promote and protect the public health.  In the Commissioner’s opinion, “Associating any agency whose mission is to promote public health with the approval of inherently dangerous products would undermine its mission and likely have perverse incentive effects.”
  • This morning, Energy and Commerce Chairman Dingell, discussing the recent salmonella outbreak, was quoted in The Wall Street Journal as saying that “there’s a total inability of FDA to carry out its mission.”  On top of questions which Democrats themselves have raised regarding FDA’s competence, some conservatives may question whether the food safety concerns that have arisen recently make now an appropriate time to expand the agency’s regulatory remit and mission.
  • While establishing FDA authority to regulate tobacco products, H.R. 1108 would also retain the FTC’s authority to regulate tobacco advertising and distribution on the federal level, and would provide only limited pre-emption of state laws, allowing more stringent state restrictions on tobacco advertising and promotion.  Some conservatives may be concerned that these multiple layers of regulation will impose undue bureaucratic and logistical difficulties on tobacco manufacturers—even though H.R. 1108 would explicitly retain tobacco as a lawful product.
  • Because the bill bans clove and other flavored cigarettes—many of which are manufactured in foreign countries—while expressly permitting production of menthol cigarettes, Indonesia or other foreign governments could file complaints at the World Trade Organization claiming discrimination against their products.  Some conservatives may be concerned that passage of H.R. 1108 could ultimately result in retaliatory measures being taken against American-made products—and could lead to trade disputes with a negative effect on economic growth.
  • Some conservatives may be concerned that a 190-page bill seeking to establish new federal authority to regulate a multi-billion dollar industry is being considered under expedited procedures on the suspension calendar.

Legislative Bulletin: H.R. 1108, Family Smoking Prevention and Tobacco Control Act

Order of Business:  The bill is scheduled to be considered under suspension of the rules on Wednesday, July 30, 2008.

Summary of Changes Made:  The latest draft text would make several substantive changes to the bill.  First, the revised text would require the Secretary of Health and Human Services to contract with states to enforce the FDA-promulgated regulations with respect to tobacco products.  However, the bill would also prohibit the Secretary from contracting with states to enforce the tobacco regulations on Indian tribal lands—or directly engage in enforcement activity on tribal lands—without the express written consent of the tribe involved.  This last change was made to resolve a jurisdictional issue raised by the Natural Resources Committee, which has jurisdiction over Indian tribal matters.

Some conservatives may note that the language discussed above creates a significant loophole in the enforcement mechanism for tobacco products—namely, that Indian tribal areas could represent a “no-man’s land” with respect to tobacco enforcement.  Some conservatives may question whether this loophole could allow unregulated products to be bought and sold on tribal lands, effectively undermining the entire regulatory regime for tobacco products which H.R. 1108 is intended to establish.

The bill includes two new offsets to pay for federal tax revenue lost as a result of the projected 2% reduction in tobacco use, which the Congressional Budget Office (CBO) estimates would cost $114 million over five years, and $446 over ten.  To offset this foregone revenue, the bill would incorporate the text of a measure (H.R. 6500) making changes to the Thrift Savings Plan (TSP) for federal workers.  That bill would require auto-enrollment of workers in the TSP, costing $225 million over five years, and $736 million over ten, due to revenue loss associated with additional employees making pre-tax TSP contributions.  However, H.R. 6500 (as incorporated into H.R. 1108) would result in a net revenue gain, due to an additional provision establishing an after-tax savings component (similar to the Roth IRA or Roth 401(k) options) in the TSP, which CBO estimates would generate $382 million in revenue over five years, and $2.0 billion over ten, resulting from employees substituting pre-tax TSP contributions with after-tax ones.

The second offset for the lost tobacco tax revenue would come from the elimination of unused sick leave in the calculation of survivors’ annuity benefits for participants in the Federal Employees Retirement System (FERS).

Press reports indicate that further language may be added to the bill requiring a study of the so-called “menthol loophole;” however, such language was not available at press time.

Summary:  H.R. 1108 would amend the Federal Food, Drug, and Cosmetic Act to grant new authority to the Food and Drug Administration (FDA) to regulate tobacco products and advertising, and amend the Federal Cigarette Labeling and Advertising Act to impose new restrictions on tobacco product labels and disclosure.  Specific bill provisions include the following:

Findings and Purpose.  The bill contains 13 pages of findings purporting the need to regulate tobacco products to protect the public health, and language designed to ensure that the bill does not affect the authorities of the Secretaries of Agriculture or Treasury.  The bill also includes severability language providing that judicial invalidation of one or more sections of the legislation will not result in the nullification of the entire regulatory regime proposed by the bill.

Regulatory Authority.  H.R. 1108 gives FDA the authority to regulate tobacco products, which are defined as “any product made or derived from tobacco that is intended for human consumption, including any component, part, or accessory of a tobacco product” and establishes a new Center for Tobacco Products within the FDA to exercise regulatory authority.  The bill states that tobacco does not qualify as a drug or medical device for purposes of FDA regulation, and limits the FDA’s regulatory authority to tobacco leaf in the possession of tobacco manufacturers (thus excluding tobacco growers).

Adulterated and Misbranded Products.  The bill defines adulterated and misbranded tobacco products, defining the former to include products that “consists in whole or in part of any filthy, putrid, or decomposed substance,” and defining misbranded products to include those that are “false or misleading,” as well as those which do not adhere to the registration, labeling, and other regulatory regimes established under the bill.  The bill grants the FDA, through the Secretary of Health and Human Services, the right to pre-approve statements made on tobacco product labels.

Information Disclosure.  The bill requires all tobacco manufacturers to disclose to the Secretary the names and descriptions of all ingredients, components, and compounds in tobacco products, including the nicotine content of same.  The bill grants authority to the Secretary to obtain information from tobacco companies on the health effects of smoking and requires the Secretary to publish “a list of harmful and potentially harmful constituents” in tobacco products by brand.

Registration and Inspection.  H.R. 1108 requires all tobacco manufacturers to register their names and places of business with the Secretary and requires the Secretary to make such information public.  The bill also requires inspection of every domestic tobacco manufacturing establishment at least once every two years, and a requirement that overseas tobacco manufacturing establishments have “adequate and effective means” for the Secretary to ensure that tobacco products manufactured overseas should be refused entry into the United States.

General Authority.  The bill would permit the Secretary to restrict by regulation the sale, distribution, and advertising of tobacco products “if the secretary determines that such regulation would be appropriate for the protection of the public health.”  In exercising this authority, the Secretary may not 1) “prohibit the sale of any tobacco product in face-to-face transactions by a specific category of retail outlets;” 2) set an age limit on the sale of tobacco products higher than 18 years of age; or 3) require use of a physician’s prescription in order to obtain tobacco products.  However, the bill does require the Secretary to promulgate regulations addressing the sale, distribution, and marketing of tobacco products remotely so as to discourage the purchase of tobacco products by underage individuals.

Product Standards.  H.R. 1108 would ban all “artificial or natural flavors” except for menthol, and requires all tobacco products to meet domestic standards with respect to pesticide use.  The bill permits the Secretary to impose further restrictions should the regulations be in the interest of the public health.  However, “because of the importance of a decision of the Secretary to issue a regulation” banning all cigarettes or reducing the level of nicotine permitted in tobacco products to zero, the bill explicitly prohibits the Secretary from taking either action.

Notification and Recalls.  The bill grants the Secretary the authority to order notification to the public, through public service announcements or other means, of tobacco products that “present an unreasonable risk of substantial harm to the public health…and no more practicable means is available…to eliminate such risk.”  The bill also authorizes the Secretary to order recalls in the event that “there is a reasonable probability that a tobacco product contains a manufacturing or other defect not ordinarily contained in other tobacco products on the market that would cause serious, adverse health consequences or death.”

Record-Keeping.  H.R. 1108 requires tobacco companies to create and preserve records, as established by regulation, designed to determine that tobacco products are not adulterated or misbranded and to protect the public health, and to provide reports of any corrective action taken by tobacco manufacturers to remove products from the market for health reasons.  The bill language states that identities of any patients discussed in applicable records should remain confidential, unless disclosure is necessary “to determine risks to public health of a tobacco product.”

Review of New Tobacco Products.  The bill requires pre-market review for all new tobacco products introduced after February 15, 2007, unless the product is “substantially equivalent” to existing products.  The application for pre-market review requires full disclosure of the products’ components, and research of the health effects of same.  The bill would require the Secretary to reject such new tobacco products if “there is a lack of a showing that permitting such tobacco products to be marketed would be appropriate for the protection of the public health,” among other conditions necessary for approval.  The bill also permits the Secretary to withdraw pre-market approval, due to a company’s non-compliance with regulations or new information on the public health effects of a product, effectively removing the product from the marketplace.

Modified Risk Tobacco Products.  H.R. 1108 places restrictions on the introduction or marketing of modified risk tobacco products.  Specifically, the bill requires that any product marketed as modified risk must “significantly reduce harm and the risk of tobacco-related disease to individual tobacco users” and “benefit the health of the population as a whole,” including both tobacco users and non-users.  In the event that the Secretary cannot make such a determination without long-term epidemiological data that is not available, the Secretary may issue a temporary approval of not more than five years for the marketing of modified risk products, provided that “the reasonably likely overall impact of use of the product remains a substantial and measurable reduction in overall morbidity and mortality among individual tobacco users,” and the product is subject to annual post-market surveillance review.  The bill also places additional restrictions on the marketing, advertising, and comparative claims presented by modified risk tobacco products.

Judicial Review.  The bill provides a process for individuals adversely affected by regulations issued pursuant to the bill, or whose application for pre-market approval was denied, to seek judicial review with the U.S. Court of Appeals for the circuit in which the party resides or has a principal place of business, subject to review by the Supreme Court.

Regulatory Requirements.  H.R. 1108 requires the Secretary to issue regulations within three years of enactment regarding tobacco product testing and disclosure of product constituents, and permits the Secretary to require label or advertising disclosure of tobacco product constituents.  The bill provides for delays of regulatory and testing requirements for “small tobacco product manufacturers,” defined as those employing fewer than 350 individuals.  The bill also clarifies that none of its provisions prohibit the Federal Trade Commission (FTC) from regulating tobacco advertising or sales.

Limited Pre-Emption.  H.R. 1108 pre-empts state laws relating to tobacco product standards, mis-labeling, adulteration, labeling, and related product standards; according to the Congressional Budget Office (CBO), this pre-emption language constitutes an intergovernmental mandate as defined in the Unfunded Mandates Reform Act.  However, the bill retains states’ ability to enact more stringent standards with respect to tobacco advertising and promotion.

Scientific Advisory Committee.  The bill establishes the Tobacco Products Scientific Advisory Committee to provide technical expertise and recommendations to the Secretary regarding the regulation of tobacco products.

Smoking Cessation.  The bill requires the Secretary to consider approving the extended use of nicotine replacement products “for the treatment of tobacco dependence.”

User Fee.  The bill assesses user fees on tobacco companies and funds FDA regulation of tobacco activities in the amount of $85 million in Fiscal Year 2008, increasing each year until reaching $712 million in Fiscal Year 2018 and each subsequent year.  The bill assesses user fees by class of tobacco products (e.g. cigarettes, cigars, etc.), and allocates them to companies within a class of tobacco products, based on the percentages outlined in tobacco buyout legislation (P.L. 108-357) passed in October 2004.

Restores 1996 Rule on Tobacco Advertising.  The bill requires the Secretary to publish within 180 days of the bill’s enactment a final rule on regulation of tobacco identical to regulations published on October 28, 1996, with an effective date of one year following the bill’s enactment.  The original regulations would restrict tobacco advertising by, among other things, prohibiting billboards within 1,000 feet of schools and permitting only black-and-white advertising.  The bill would modify the original regulation to permit the free distribution of smokeless tobacco only, and only in quantities of fewer than 15 grams (0.53 ounces) in certain “qualified adult-only facilities.”  The bill exempts the final rule, as modified, from review under the Congressional Review Act.

Nullifies Earlier Documents.  H.R. 1108 would nullify the precedent of certain documents issued by FDA during 1995-96 as they relate to a prior attempt to classify nicotine in tobacco products as a drug for purposes of FDA regulation. (H.R. 1108 would make tobacco subject to FDA regulation, but as a “tobacco product,” not a drug or medical device.)

New Penalties.  The bill would add failure to comply with the bill’s requirements as grounds for imposition of fines and/or criminal penalties, along with other offenses relating to counterfeiting tobacco products or “the charitable distribution of tobacco products.”  The bill also gives the Secretary the authority to impose a “no-tobacco sale order” against retail outlets and establishes a new system of federal fines against retail establishments selling tobacco products improperly, authorizing fines of up to $10,000 for establishments with six or more violations within a four-year period.

Studies.  The bill would require the Government Accountability Office to submit studies regarding youth smoking as well as cross-border trade and counterfeiting in tobacco products, and requires a specific study by HHS on raising the minimum age to purchase tobacco products, as well as an FTC report on concentration within the tobacco industry.

Labeling Requirements.  The bill requires all cigarettes and smokeless tobacco sold in the United States to bear clear warnings about the risks associated with tobacco use and prescribes the wording, typeface, and font size associated with such warnings. (Tobacco products manufactured domestically for international use are exempt from this requirement.)  H.R. 1108 further requires that all advertising, including matchbooks, contain language from the warning labels, and prescribes the proportions by which such labeling warning must relate to the overall size of the advertisement.  The bill gives the Secretary of HHS the authority to alter or increase the size of the labeling requirements, permits states to further regulate the type and manner, but not the content, of cigarette advertising, and extends a prohibition on television and radio advertising to smokeless tobacco products subject to the jurisdiction of the Federal Communications Commission.

Tar and Nicotine Disclosure.  The bill gives the Secretary the authority to conduct a rulemaking process to determine whether to require the disclosure of tar, nicotine, and other constituent levels in tobacco advertising, subject to a memorandum of understanding with the Federal Trade Commission.

Shipping Requirements.  H.R. 1108 requires that all packaging and shipping containers shall bear statements stating “sale only allowed in the United States” and requires the Secretary to issue regulations regarding the maintenance of records by entities manufacturing, transporting, or distributing tobacco products.  The bill also requires tobacco manufacturers and distributors to notify the Attorney General and the Secretary of the Treasury upon obtaining information “which reasonably supports the conclusion” that tobacco products formerly held by the entity have circumvented payment of applicable taxes or “diverted for possible illicit marketing.”

Cost to Taxpayers:  According to the Congressional Budget Office (CBO), H.R. 1108 would result in $2.1 billion in mandatory spending over five years, and $5.3 billion over ten, related to the Food and Drug Administration’s regulation of tobacco.  The bill would offset these costs by imposing a “fee” on tobacco companies to finance the FDA regulation.

CBO also estimates a decline in revenues of $114 million over five years, and $446 million over ten, related to a 2% reduction in overall smoking levels due to tobacco regulation, and loss of commensurate tobacco tax revenue.  In order to pay for this reduced revenue, H.R. 1108 incorporates provisions relating to the federal Thrift Savings Plan (TSP).  The bill would establish a system of auto-enrollment in TSP for all federal employees, causing a minor revenue loss, but would on balance generate additional tax revenue by establishing a new plan to permit after-tax TSP contributions, similar to a Roth IRA or the recently-established Roth 401(k) option.

Finally, CBO estimates a five-year increase in spending subject to appropriation of $3 million as a result of H.R. 1108’s enactment.

Committee Action:  The bill was introduced on February 15, 2007, and referred to the Energy and Commerce, which held a hearing and, on April 2, 2008, reported the bill as amended by a 38-12 vote.

Possible Conservative Concerns:  Numerous aspects of H.R. 1108 may raise concerns for conservatives, including, but not necessarily limited to, the following:

  • Process.  Some conservatives may be concerned that a 190-page bill seeking to establish new federal authority to regulate a multi-billion dollar industry is being considered under expedited procedures on the suspension calendar.
  • User Fee as Tax Increase.  The bill includes more than $5 billion in assessments on tobacco companies, ostensibly termed “user fees,” to finance the FDA’s work regulating tobacco products.
  • Restricts Free Speech Rights.  In addition to codifying federal restrictions, which tobacco companies agreed to in their 1998 settlement with state Attorneys General, H.R. 1108 places additional federal restrictions on tobacco advertising.  Some of the federal restrictions on advertising content in H.R. 1108 include the following specifications for the size of warning labels on tobacco products:

The text of such label statements shall be in a typeface pro rata to the following requirements: 45-point type for a whole-page broadsheet newspaper advertisement; 39-point type for a half-page broadsheet newspaper advertisement; 39-point type for a whole-page tabloid newspaper advertisement; 27-point type for a half-page tabloid newspaper advertisement; 31.5-point type for a double page spread magazine or whole-page magazine advertisement; 22.5-point type for a 28 centimeter by 3 column advertisement; and 15-point type for a 20 centimeter by 2 column advertisement.

Some conservatives may be concerned that the highly prescriptive restrictions described above, and elsewhere in H.R. 1108, constitute an undue intrusion on companies’ constitutional free speech rights to advertise a product that most Americans already know is unhealthy.

  • Hinders Introduction of Reduced Risk Tobacco Products.  H.R. 1108 places stringent restrictions on the introduction and marketing of new products that would reduce or modify the inherent risks associated with the consumption of tobacco.  The bill states that a reduced risk product may be marketed only if the product will “significantly reduce harm and the risk of tobacco-related disease to individual tobacco users” and also will “benefit the population as a whole,” including persons who do not consume tobacco products.  Some conservatives may be concerned that such onerous restrictions on the introduction of reduced risk tobacco products could have the effect of inhibiting the use of products that could reduce the risks associated with tobacco consumption while potentially serving as a barrier to entry for new market competitors.
  • FDA Improper Agency to Regulate Tobacco.  As FDA Commissioner Andrew von Eschenbach testified before the House Energy and Commerce Committee in October 2007, the FDA has heretofore been structured as an agency to promote and protect the public health.  In the Commissioner’s opinion, requiring FDA to “approve” tobacco products as a result of H.R. 1108 would dramatically change the agency’s focus: “Associating any agency whose mission is to promote public health with the approval of inherently dangerous products would undermine its mission and likely have perverse incentive effects.”

  • Other Important Priorities for FDA.  Energy and Commerce Oversight Subcommittee Chairman Bart Stupak (D-MI), in holding a hearing on FDA’s decision to approve an antibiotic despite receiving false clinical trial data, called the incident “a microcosm of the failure by all FDA stakeholders—FDA, pharmaceutical sponsors, and third-party monitors—to ensure the integrity of clinical trials used to support the safety and approval of new drug applications.”  On top of questions which Democrats themselves have raised regarding FDA’s competence, some conservatives may question whether the food safety concerns that have arisen in recent months make now an appropriate time significantly to expand the agency’s regulatory remit and mission.
  • Multiple Layers of Regulation.  While establishing FDA authority to regulate tobacco products, H.R. 1108 would also retain the FTC’s authority to regulate tobacco advertising and distribution on the federal level, and would provide only limited pre-emption of state laws, allowing more stringent state restrictions on tobacco advertising and promotion.  Some conservatives may be concerned that these multiple layers of regulation will impose undue bureaucratic and logistical difficulties on tobacco manufacturers—even though H.R. 1108 would explicitly retain tobacco as a lawful product.
  • Little Impact on Tobacco Use.  The CBO estimate of H.R. 1108 notes that under its budgetary model, smoking by adults would decline by only 2% after 10 years.  Some conservatives may question whether this marginal reduction in smoking levels warrants the significant intrusion on free speech rights and government-run regulatory bureaucracy that would be created under the legislation.
  • Billions in Unfunded Mandates; UMRA Point of Order.  The Congressional Budget Office, in its score of H.R. 1108, calculates that the fee imposed in the bill would constitute an unfunded mandate on tobacco companies of $249.1 million in Fiscal Year 2009, and more than $2.3 billion over five years, greatly exceeding the threshold established in the Unfunded Mandates Reform Act ($136 million in 2008, adjusted annually for inflation).   CBO also notes that the bill includes several unfunded mandates that would both pre-empt existing state tobacco regulations and require tribal governments manufacturing or distributing tobacco products to comply with the new federal regulatory regime.
  • Violates Trade Agreements.  HHS Secretary Leavitt, writing to Energy and Commerce Committee Ranking Member Barton on H.R. 1108, noted that the legislation could be viewed by foreign governments as a hostile trade action.  Because the bill bans clove and other flavored cigarettes—many of which are manufactured in foreign countries—while expressly permitting production of menthol cigarettes, Indonesia or other foreign governments could file complaints at the World Trade Organization claiming discrimination against their products.  Some conservatives may be concerned that passage of H.R. 1108 could ultimately result in retaliatory measures being taken against American-made products—and could lead to trade disputes with a negative effect on economic growth.
  • Menthol Loophole.  As noted above, H.R. 1108 would prohibit the use of all “artificial or natural” cigarette flavorings—with the exception of menthol, which is permitted under the bill.  Because data from the Centers for Disease Control indicate that 75% of African-American smokers consume menthol cigarettes, seven former Secretaries of Health and Human Services, representing both political parties, wrote to Congress to criticize a menthol “loophole” that “caves to the financial interests of tobacco companies” by “send[ing] a message that African-American youngsters are valued less than white youngsters.”

Because the bill is being considered under suspension of the rules, no amendments addressing the menthol issue can be considered.  Some conservatives may note that the House Democrat leadership would apparently rather retain the support of the major tobacco company (Philip Morris) supporting the legislation than permit a vote on amendments that seven former HHS Secretaries believe are in the best interests of African-Americans.

Administration Position:  Although a formal Statement of Administration Policy (SAP) was unavailable at press time, a letter from Health and Human Services Secretary Leavitt to Energy and Commerce Ranking Member Barton indicated that the Administration “strongly opposes” H.R. 1108.

Does the Bill Expand the Size and Scope of the Federal Government?:  Yes, the bill would grant new authority to the Food and Drug Administration to regulate tobacco products.

Does the Bill Contain Any New State-Government, Local-Government, or Private-Sector Mandates?:  Yes, the bill imposes new fees on tobacco companies, which CBO estimates would total $235 million in Fiscal Year 2009, $2.1 billion over five years, and nearly $5.4 billion over ten years, all greatly exceeding the thresholds established in the Unfunded Mandates Reform Act ($136 million in 2008, adjusted annually for inflation).

Does the Bill Comply with House Rules Regarding Earmarks/Limited Tax Benefits/Limited Tariff Benefits?:  The Committee on Energy and Commerce, in House Report 110-762, reports that “H.R. 1108 does not contain any congressional earmarks, limited tax benefits, or limited tariff benefits as defined in clause 9(d), 9(e) or 9(f) of rule XXI.”

Constitutional Authority:  The Committee on Energy and Commerce, in House Report 110-762, cites constitutional authority under Article I, Section 8, Clause 3 (relating to the regulation of interstate commerce) and Article I, Section 8, Clause 1 (relating to legislation promoting the general welfare of the United States).

Weekly Newsletter: July 28, 2008

Tobacco Bill Coming Soon

This week the House could consider legislation (H.R. 1108) granting the Food and Drug Administration (FDA) the authority to regulate tobacco, possibly under suspension of the rules. The bill would establish a new center within FDA to regulate tobacco products and assess tobacco companies more than $5 billion in “user fees” over the next ten years to pay for this regulation.

Some conservatives may be concerned by the regulatory regime the bill would establish, which would require an agency charged with promoting food and drug safety to regulate a product inherently unsafe and unhealthy. Some conservatives may also object to the multiple layers of regulation the bill would create, by leaving intact the Federal Trade Commission’s ability to regulate tobacco advertising and distribution and providing only limited pre-emption against additional state-based regulations and restrictions. Some conservatives may question whether the highly prescriptive restrictions in the bill— including advertising limitations on the use of color advertising and regulation of the font size of tobacco disclaimer warnings, all of which raise significant constitutional questions about their free-speech implications—constitute good public policy, particularly as the Congressional Budget Office estimates that H.R. 1108 will reduce smoking levels by only 2% over 10 years.

Lastly, some conservatives may object to provisions in the bill that could prompt an international trade dispute. Last week, HHS Secretary Leavitt wrote to Energy and Commerce Committee Ranking Member Barton about H.R. 1108, observing that, because the bill prohibits all tobacco flavorings except menthol, foreign countries which manufacture clove or other flavored cigarettes may take action against the United States for providing unfair and disparate treatment for a particular type of manufactured cigarette. As press reports indicate that H.R. 1108 may be considered under suspension of the rules, some conservatives may be concerned by the lack of procedural opportunities available to address this disparity, such that the United States can live up to its obligations under international free-trade agreements.

A Policy Brief on H.R. 1108 (as reported by the Energy and Commerce Committee) can be found here.

Democrats Ignore Medicare Funding Warning

Last week Democrats responded to the Medicare trustees’ finding that the Medicare program faces significant future funding shortfalls—by resolving to ignore the problem. The resolution concerned a provision inserted into the Medicare Modernization Act at the behest of the RSC, which provided for the President to submit, and Congress to consider under expedited procedures, legislation to remedy Medicare’s funding problems when the program is projected to consume more than 45% of its funding from general revenues (as opposed to the Medicare payroll tax and beneficiary premiums). The Democrat majority’s action turned off this funding “trigger” for the balance of the 110th Congress, preventing those who believe in entitlement reform from taking action to force a House floor vote on Medicare reform legislation.

Many conservatives may be disappointed by the actions of Congressional Democrats, which prevented the President’s reasonable and modest proposals for Medicare reform—means testing that would make wealthier individuals like Warren Buffett and George Soros pay $2 per day more in Part D prescription drug premiums and liability reform to reduce the costs associated with defensive medicine practices— from receiving a vote in Congress. Many conservatives may believe that solving Medicare’s $86 trillion in unfunded obligations—and a Hospital Trust Fund scheduled to be exhausted in little more than a decade—will not be helped by Democrats’ apparent eagerness to ignore the problem. However, when Democrats like Florida’s Alcee Hastings note that “the perceived problem with Medicare funding has already been addressed,” many conservatives may be concerned that this lack of awareness will only hasten the day when Medicare’s funding shortfalls jeopardize the viability of the program—and wonder what policy-makers will tell their senior constituents when it does.

There are RSC Policy Briefs related to the Medicare trigger: Legislative Background; Talking Points on Trigger; Questions for House Democrats; Size of Medicare Program; White House Trigger Bill; Medicare Trustees Report

Article of Note: Fuzzy Math

Last Wednesday the New York Times reported on the many financial discrepancies surrounding the health care plan of Sen. Barack Obama (D-IL). While Sen. Obama has been consistent in saying that his health plan would save every American family $2,500 per year, many observers have come to question the factual basis for a “best guess” assertion by his advisers early last year. Independent estimates, including those by the Congressional Budget Office, have questioned whether the savings from such initiatives as health information technology and chronic care management will materialize, particularly in the four-year timeline Sen. Obama has promised—such that even a statement by Obama’s own advisers backtracked from any assertions that the purported savings would materialize by a date certain.

Many conservatives may be skeptical of Sen. Obama’s claims, particularly as the liberal Commonwealth Fund released a report in December with a menu of options for savings that would by their estimates achieve a total reduction in spending of only 6% in 10 years. Some conservatives may also be concerned that, in an attempt to reduce health care costs—whether by 8%, 6%, or some lesser amount— Sen. Obama would rely first and foremost on imposing price controls on physicians, pharmaceutical manufacturers, and insurance companies, along with rationing care through a government-controlled comparative effectiveness institute. Many conservatives may believe that such bureaucratic restrictions would in the long run prove far more effective at growing the size of government than slowing the growth of health care costs.

Read the article here: New York Times: “Health Plan from Obama Sparks Debate