CLASS Act Fiasco Highlights Obamacare’s Flaws

Republicans warned: “The CLASS Act is another classic gimmick of budgetary shenanigans.”

                                                                                 Senator Gregg, 12/2/2009

The Obama Administration promised: “This is not a budget gimmick.”

                                                                                   OMB Director Orszag, 3/4/2010    

What happened: “We have not identified a way to make CLASS work.”

                                                                                    HHS Secretary Sebelius, 10/14/2011

 

  • During the Obamacare debate, the controversial long-term care program CLASS was widely derided as a budget gimmick. Even Democrat Budget Committee Chairman Conrad called it a “Ponzi scheme of the first order.”
  • Democrats said CLASS would provide $86 billion in savings to Obamacare — 41% of the total budget savings they claimed for the law — even though many independent experts questioned the program’s viability from Day One.
  • Under Republican questioning last February, HHS Secretary Sebelius admitted that CLASS was “totally unsustainable” as written, though she claimed she could fix the program unilaterally.
  • Last Friday, the Obama Administration finally announced there was not a “viable path forward for CLASS implementation” and that it would drop the program.
  • Yesterday, CBO announced that repealing CLASS would not cost taxpayers any money, contrary to earlier claims by the law’s supporters.
  • The Administration says that CLASS collapsed because of substantial uncertainty surrounding long-term care insurance. But the forecast for the rest of Obamacare is just as uncertain.
    • The law assumes that employers will not drop health coverage, but countless studies, reports, and surveys point to large numbers of businesses cancelling health insurance.
    • If this trend continues, the cost of Obamacare could swamp the federal balance sheet and render the entire law fiscally unsustainable.
  • The next step is to repeal the CLASS Act – over President Obama’s objections if necessary – along with the rest of Obamacare, and replace them with common-sense reforms that truly lower costs.

A Review of Deficit Reduction Plans

This Wednesday’s deadline for the fiscal commission to report a deficit reduction plan provides an opportunity to examine the health care components of the three proposals that have been released thus far:

  1. The Simpson-Bowles plan, named for the co-chairs of the fiscal commission, who released their own draft recommendations just after the midterm election;
  2. The Rivlin-Domenici plan, named for former CBO Director Alice Rivlin and former Senate Budget Committee Chairman Pete Domenici (R-NM), who released their own proposal as chairs of an independent commission operating under the aegis of the Bipartisan Policy Center; and
  3. The Rivlin-Ryan plan, which Alice Rivlin and House Budget Committee Ranking Member Paul Ryan released as an alternative to the Simpson-Bowles proposal, as both Dr. Rivlin and Rep. Ryan also sit on the fiscal commission.

CBO has conducted a preliminary analysis of the Rivlin-Ryan plan (the above link includes both the plan’s summary and score), and the Simpson-Bowles plan incorporates CBO scoring estimates where available.  However, it is unclear where and how the Rilvin-Domenici plan received the scores cited for its proposals.  The timing of the plans also varies; the Rivlin-Domenici plan postpones implementation of its plan until 2012, when the authors believe the economy will be better able to sustain a major deficit reduction effort.

The following analysis examines the similarities and differences of the three plans’ health care components in both the short term and the long term.  Keep in mind however that these are DRAFT proposals, which may a) change and b) be missing significant details affecting their impact.  Note also that the summary below is not intended to serve as an endorsement or repudiation of the proposals, either in general terms or in their specifics.

Short-Term Savings

Liability Reform:  All three plans propose liability reforms, including a cap on non-economic damages.  The Rivlin-Ryan and Simpson-Bowles plans both rely on specifications outlined in CBO’s October 2009 letter to Sen. Hatch; both presume about $60 billion in savings from this approach.  The Rivlin-Domenici plan is less clear on its specifics, but discusses “a strong financial incentive to states, such as avoiding a cut in their Medicaid matching rate, to enact caps on non-economic and punitive damages.”  Rivlin-Domenici also proposes grants to states to pilot new approaches, such as health courts; overall, the plan estimates $48 billion in savings from 2012 through 2020.

Prescription Drug Rebates:  Both the Simpson-Bowles and Rivlin-Domenici plans would apply Medicaid prescription drug rebates to the Medicare Part D program.  The Simpson-Bowles plan estimates such a change would save $59 billion from 2011 through 2020, whereas the Rivlin-Domenici plan estimates this change would save $100 billion from 2012 through 2018.  The disparity in the projected scores is unclear, as both imply they would extend the rebates to all single-source drugs (i.e., those without a generic competitor) in the Part D marketplace.  The Rivlin-Ryan plan has no similar provision.

Changes to Medicare Benefit:  All three plans propose to re-structure the Medicare benefit to provide a unified deductible for Parts A and B, along with a catastrophic cap on beneficiary cost-sharing.  The Rivlin-Ryan and Simspon-Bowles plans are largely similar, and echo an earlier estimate made in CBO’s December 2008 Budget Options document (Option 83), which provided for a unified deductible for Parts A and B combined, a catastrophic cap on beneficiary cost-sharing, and new limits on first-dollar coverage by Medigap supplemental insurance (which many economists believe encourages patients to over-consume care).  Conversely, the Rivlin-Domenici proposal provides fewer specifics, does not mention a statutory restriction on Medigap first-dollar coverage, and generates smaller savings (an estimated $14 billion from 2012 through 2018, as opposed to more than $100 billion from the Rivlin-Ryan and Simpson-Bowles proposals).

Medicare Premiums:  The Rivlin-Domenici plan would increase the beneficiary share of Medicare Part B premiums from 25 percent to 35 percent, phased in over a five-year period, raising $123 billion from 2012 through 2018. (When Medicare was first established, seniors paid 50 percent of the cost of Part B program benefits; that percentage was later reduced, and has been at 25 percent since 1997.)  The Rivlin-Ryan and Simpson-Bowles plans have no similar provision.

“Doc Fix:  The Simpson-Bowles plan uses the changes discussed above (i.e., liability reform, Part D rebates, and Medicare cost-sharing), along with an additional change in Medicare physician reimbursement, to pay for a permanent “doc fix” to the sustainable growth rate (SGR) formula.  The Simpson-Bowles plan would generate the final $24 billion in savings necessary to finance a permanent “doc fix” by establishing a new value-based reimbursement system for physician reimbursement, beginning in 2015.

The introduction to the Rivlin-Domenici plan notes that it “accommodates a permanent fix” to the SGR, but the plan itself does not include specifics on how this would be achieved, nor what formula would replace the current SGR mechanism.  Likewise, the Rivlin-Ryan plan does not directly address the SGR; however, the long-term restructuring in Medicare it proposes means the issue of Medicare physician reimbursement would become a moot point over several decades.  (See below for additional details.)

Other Provisions:  The Rivlin-Domenici plan would impose an excise tax of one cent per ounce on sugar-sweetened beverages; the tax would apply beginning in 2012 and would be indexed to inflation after 2018. (This proposal was included in Option 106 of CBO’s December 2008 Budget Options paper.)  The plan estimates this option would raise $156 billion from 2012 through 2020.

The Rivlin-Domenici plan also proposes bundling diagnosis related group (DRG) payments to include post-acute care services in a way that allows hospitals to retain 20 percent of the projected savings, with the federal government recapturing 80 percent of the savings for a total deficit reduction of $5 billion from 2012 through 2018.  Finally, the Rivlin-Domenici plan proposes $5 billion in savings from 2012 through 2018 by removing barriers to enroll low-income dual eligible beneficiaries in managed care programs.

The Simpson-Bowles plan includes a laundry list of possible short-term savings (see Slide 35 of the plan for illustrative savings proposals) in addition to the savings provisions outlined above that would fund a long-term “doc fix.”  Most of the additional short-term savings proposed would come from additional reimbursement reductions (e.g., an acceleration of the DSH and home health reductions in the health care law, and reductions in spending on graduate medical education), or from proposals to increase cost-sharing (e.g., higher Medicaid co-pays, higher cost-sharing for retirees in Tricare for Life and FEHB).

Long-Term Restructuring

Employee Exclusion for Group Health Insurance:  In its discussion of tax reform, the Simpson-Bowles plan raises the possibility of capping or eliminating the current employee exclusion for employer-provided health insurance.  (The Associated Press wrote about this issue over the weekend.)  One possible option would eliminate the exclusion as part of a plan to lower income tax rates to three brackets of 8%, 14%, and 23%; however, this proposal presumes a net $80 billion per year in increased revenue per year to reduce the deficit.  The plan invokes as another option a proposal by Sens. Gregg and Wyden to cap the exclusion at the value of the FEHBP Blue Cross standard option plan, which would allow for three income tax rates of 15%, 25%, and 35%, along with a near-tripling of the standard deduction.  Separately, the Simpson-Bowles plan also proposes repealing the payroll tax exclusion for employer-provided health insurance as one potential option to extend Social Security’s solvency.

The Rivlin-Domenici plan would cap the exclusion beginning in 2018, at the same level at which the “Cadillac tax” on high-cost plans is scheduled to take effect in that year.  However, the proposal would go further than the “Cadillac tax” (which would be repealed) by phasing out the income and payroll tax exclusion entirely between 2018 and 2028.  (This proposal would also prohibit new tax deductible contributions to Health Savings Accounts, on the grounds that health care spending would no longer receive a tax preference under any form.)  Notably, the Rivlin-Domenici plan accepts that some employers might stop offering coverage from this change to the tax code, and projects some higher federal spending on Exchange insurance subsidies as a result; however, if more employers drop coverage than the authors’ model predicts, the revenue gain from this provision could be entirely outweighed by the scope of new federal spending on insurance subsidies.

Although Rep. Ryan has previously issued his “Roadmap” proposal that would repeal the employee exclusion, the Rivlin-Ryan plan does NOT address this issue.

Medicare:  The Rivlin-Domenici program would turn Medicare into a premium support program beginning in 2018.  Increases in federal spending levels would be capped at a rate equal to the average GDP growth over five years plus one percentage point.  Seniors would still be automatically enrolled in traditional (i.e., government-run) Medicare, but if spending exceeded the prescribed federal limits, seniors would pay the difference in the form of higher premiums.  Seniors could also choose plans on a Medicare Exchange (similar to today’s Medicare Advantage), with the hope that such plans “can offer beneficiaries relief from rising Medicare premiums.”

The Rivlin-Ryan proposal would turn Medicare into a voucher program beginning in 2021.  (Both the Rivlin-Domenici premium support program and the Rivlin-Ryan voucher program would convert Medicare into a defined benefit, whereby the federal contribution toward beneficiaries would be capped; the prime difference is that the premium support program would maintain traditional government-run Medicare as one option for beneficiaries to choose from with their premium dollars, whereas the Rivlin-Ryan plan would give new enrollees a choice of only private plans from which to purchase coverage.)  The amount of the voucher would increase annually at the rate of GDP growth per capita plus one percentage point – the same level as the overall cap in Medicare spending included in the health care law as part of the new IPAB.  Low-income dual eligible beneficiaries would receive an additional medical savings account contribution (to use for health expenses) in lieu of Medicaid assistance; the federal contribution to that account would also grow by GDP per capita plus one percent.

The Rivlin-Ryan plan would NOT affect seniors currently in Medicare, or those within 10 years of retirement, except for the changes in cost-sharing described in the short-term changes above.  However, for individuals under age 55, the plan would also raise the age of eligibility by two months per year, beginning in 2021, until it reached 67 by 2032.

While the Rivlin-Domenici and Rivlin-Ryan plans restructure the Medicare benefit for new enrollees to achieve long-term savings, the Simpson-Bowles plan largely relies on the health care law’s new Independent Payment Advisory Board (IPAB) to set spending targets and propose additional savings.  The Simpson-Bowles plan suggests strengthening the IPAB’s spending targets, extending the IPAB’s reach to health insurance plans in the Exchange, and allowing the IPAB to recommend changes to benefit design and cost-sharing.  The plan also suggests setting a global budget for all federal health spending (i.e., Medicare, Medicaid, exchange subsidies, etc.), and capping the growth of this global budget at GDP plus one percent – the same level that IPAB capped spending in Medicare.  If costs exceed the target, additional steps could be taken to reduce spending, including an increase in premiums and cost-sharing or a premium support option for Medicare.  The plan also suggests overhauling the fee-for-service reimbursement system, or establishing an all-payer model of reimbursement (in which all insurance carriers pay providers the same rate) if spending targets are not met.

Medicaid:  The Rivlin-Domenici plan suggests that in future, Medicaid’s excess cost growth should be reduced by one percentage point annually.  The plan implies some type of negotiation between states and the federal government over which services in the existing Medicaid program that the state should assume and fund and which services the federal government should assume and fund.  While specifics remain sparse, the overriding principle involves de-linking Medicaid financing from the open-ended federal matching relationship as a way to reduce future cost growth by one percentage point per year.

The Rivlin-Ryan plan converts the existing Medicaid program into a block grant to the states, beginning in 2013.  The size of the federal block grant would increase to reflect growth in the Medicaid population, as well as growth in GDP plus one percent.  The costs of the new Medicaid expansion would be covered according to current law through 2020; in 2021 and succeeding years, the Medicaid expansion would be rolled into the block grant.

The Simpson-Bowles plan includes conversion of Medicaid into a block grant as one option to generate additional savings; however, it does not explicitly advocate this course of action.

CLASS Act:  The Rivlin-Ryan plan would repeal the CLASS Act.  The Rivlin-Domenici and Simpson-Bowles plans do not discuss any changes to this program.  This is the ONLY provision in the three deficit reduction plans that proposes elimination of any part of the health care law’s new entitlements.

Weekend Update on Fiscal Responsibility and the “Doc Fix”

By now many of you will have heard about the President’s weekly radio address, in which he criticized Republicans for supposedly blocking a vote on passing a short-term Medicare “doc fix,” and pledged to find a “fiscally responsible” way to address the physician payment formula in the longer term.  Unfortunately, when it comes to the Medicare payment issue, the President’s rhetoric does not match the reality:

Democrats Removed the “Doc Fix” from the Health Care Bill, Creating the Current Problem:  Section 3101 of the original Reid health care bill (H.R. 3590) provided for a one-year Medicare “doc fix,” which would have prevented the sustainable growth rate (SGR) cuts from taking effect at any point during 2010.  However, Majority Leader Reid struck this provision in a manager’s amendment written behind closed doors, because the majority, rather than spending $11.3 billion to ensure seniors had access to physician care this year, wanted instead to spend yet more money on unsustainable new entitlements.

Democrats Have Not Offered a “Fiscally Responsible” Plan for the “Doc Fix”:  In his nearly 18 months in office, neither the President nor Democrats in Congress have advanced ANY type of fiscally responsible, long-term solution for Medicare physician payments the President now claims to want.  The Administration’s budget this year proposed $371 billion in new deficit spending over the next ten years – essentially making the problem go away by busting the budget.  While that proposal’s ten-year impact would be bad, the long-term impact would be even worse – an analysis by former Medicare trustee Tom Saving found that Democrats’ plans to pass a permanent “doc fix” increasing the deficit would raise Medicare’s unfunded obligations by up to $1.9 trillion over the next 75 years.

Democrats Cannot Agree Amongst Themselves on Deficit Spending and the “Doc Fix”:  The President’s budget proposal to “solve” the SGR problem through more deficit spending was effectively rejected by a bipartisan majority in the Senate last October.  At that time, 13 Democrats voted with all 40 Republicans against the consideration of a bill (S. 1776) that would have frozen physician payments for 10 years at a cost of $247 billion.  And consideration of the current “doc fix” legislation (H.R. 4213) has taken more than a month, as Blue Dog Democrats in the House and moderate Democrats in the Senate continue to bicker with their more liberal colleagues about whether or not new spending for Medicare physician payments and other so-called “emergency” spending should be offset.

Republicans Supported a Fiscally Responsible, Long-Term Solution to the “Doc Fix”:  While Democrats attempted to ignore Medicare’s funding woes during the health care debate to focus instead on creating new entitlements, Republicans offered amendments to address the physician payment issue.  Specifically, Senator Gregg offered an amendment requiring that Medicare savings be directed towards protecting and strengthening the Medicare program—through changes such as a permanent “doc fix.”  Had this amendment been adopted, the $528.9 billion in Medicare savings in the health laws would have been more than enough to pay for a permanent, fiscally sustainable “doc fix.”  Unfortunately, in both December 2009 and March 2010, Senate Democrats rejected this fiscally responsible approach to health care reform.

Republicans Have Offered Fiscally Responsible, Short-Term Solutions to the “Doc Fix”:  In recent months, Republicans have offered numerous proposals to pay for short-term extensions of Medicare physician payments and other expiring provisions, to allow Congress time to debate these issues without adding to skyrocketing budget deficits.  On March 2, Republicans offered a paid-for, one-month extension of the “doc fix” and other provisions that would have reduced the deficit by more than $13 billion; Democrats rejected this proposal.  On March 25, Republicans offered another one-month extension of the “doc fix” and other provisions, which Democrats again rejected.  And Senator Thune’s substitute to the pending legislation would provide a LONGER extension of the “doc fix” than the Democrat bill, while simultaneously reducing the deficit by $55 billion.  If President Obama is interested in fiscal responsibility, he should endorse the Thune Republican substitute and its “doc fix” provisions.

Amidst the President’s rhetoric this weekend, it’s also worth pointing out once again the mailings and other taxpayer-funded propaganda efforts the Administration has recently been using to sell its unpopular health care legislation.  Despite the rhetoric of the Medicare leaflet saying that the health law “will keep Medicare strong and solvent,” in reality the legislation ignored many of Medicare’s chronic long-term funding problems (such as the “doc fix”) to focus instead on creating unsustainable new entitlements.  And of course, the $18 million the Administration claims it spent to send out those leaflets promoting its health care law is money that WON’T be used to ensure Medicare beneficiaries have access to physician care.

As Democrats are discovering, taxpayer-funded leaflets and rhetoric regarding fiscal responsibility won’t change the reality of skyrocketing federal budget deficits and an unpopular and unsustainable health care law.  The true alternative lies in Republican proposals that would control federal deficits and put spending on a more responsible, sustainable path.

The First Missed Deadline — But Not the Last…

You may be aware that Section 1552 of the health care law – entitled “Transparency in Government” – requires the HHS Secretary to list on the Department’s website within 30 days “a list of all the authorities provided to the Secretary” under the Act.  Such a list could allow members of the public to determine what types of powers HHS will hold in the 159 new bureaucracies and programs established in the law.  Senators Grassley, Enzi, and Gregg sent a letter to Secretary Sebelius last week reminding her of her statutory obligation to issue such a list by April 23.  Yet Friday’s deadline came and went without such a list being publicly released, as the law required.

HHS’ non-compliance with its statutory requirements came during the same week in which the White House began mailing out millions of government-funded postcards touting a small business tax credit in the law and hired a political operative “to aid in selling health care” before the November mid-term elections.   So which is the Administration’s top priority: Implementing the law as required, or creating taxpayer-funded propaganda campaigns to bail out Democrats who voted for this unpopular government takeover of health care?

 

UPDATE: Several readers have pointed out that HHS has a section of its website titled “Health Reform and the Department of Health and Human Services.”  It is in fact a list, and it does include the word “authorities” at the top, but it certainly doesn’t make more transparent what explicit authorities HHS believes it has as a result of the new law.  Instead, the website just lists the law’s table of contents, and allow individuals to pore through the law’s 2,800-plus pages to attempt to decipher the statute – hardly a victory for clarity and transparency in government.

It is far from an academic exercise to ask the department charged with interpreting much of the new law to provide its views of the scope – and limits – of the statute.  For instance, does HHS believe the law gives them the authority to deny patients drugs or therapies because bureaucrats consider them too expensive?  The Administration’s nominee to head Medicare, Donald Berwick, supports using such authority to deny patients access to life-saving treatments, writing that “the decision is not whether or not we will ration care – the decision is whether we will ration with our eyes open.”  It’s worth asking whether HHS has declined to release a clearer and more definitive list of the scope and limits of its authority under the law because it intends to use that law to impose arbitrary rationing of care by government bureaucrats.

Memo on Points of Order Against Reconciliation Bill

Below please see a release from Sen. Gregg’s staff on the Budget Committee regarding Byrd rule points of order in the reconciliation bill…

 

MEMO

To:                  Budget, Economic, Health and Education Reporters

From:             Senate Budget Committee Communications Office (minority)

Re:                  Byrd Rule Points of Order Against the Reconciliation Bill

Date:               March 25, 2010

Senate Budget Committee Ranking Member Judd Gregg (R-NH) will raise a 313(b)(1)(A) point of order against two provisions in the education title of the reconciliation bill (H.R. 4872) because they do not have a budgetary impact and are therefore extraneous. The Senate Parliamentarian agrees that this point of order lies against the provisions in the bill.

The 313(b)(1)(A) point of order is under the “Byrd Rule” Section 313 of the Congressional Budget Act of 1974.  Under the Byrd Rule, any Senator may raise a point of order against (and if sustained, strike) extraneous matter that is included as part of the reconciliation bill. A provision is considered extraneous if it falls under 313(b)(1)(A): It does not produce a change in outlays or revenues. Byrd Rule card: http://budget.senate.gov/republican/analysis/2005/byrdrulecard.pdf

Both provisions are in the part of the bill that increases mandatory spending for Pell grants, under Section 2101 in Title II – Education and Health, which deals with the HELP Committee’s reconciliation instructions in the FY 2010 Budget Resolution.

One provision would tie future appropriations action on Pell grants to future changes in the level of mandatory Pell grant funding.  While that provision might mean something in a future Congress, it has no effect on the level of mandatory spending on Pell grants in this bill.  And even though the provision is struck from the bill, mandatory Pell spending in this bill remains unchanged.

The other provision would eliminate the (ratable reduction) requirement that the Secretary of Education reduce mandatory Pell grants across the board if there is insufficient funding.  But the Secretary is not expected to use this authority in the next three months.  And the bill eliminates the need for the ratable reduction requirement for future years.  Getting rid of the ratable reduction requirement would not affect anything.  Since this provision has no budgetary effect, it is extraneous and is subject to the Byrd rule.

CBO has determined that these provisions have no budgetary impact, and removing these provisions would not change the score of the reconciliation bill.

Waiving the Byrd Rule point of order requires 60 votes. If the point of order is not waived, the provision is stripped from the bill. If the Senate does not pass the exact same version of the reconciliation bill as was passed by the House on March 21, the Senate-passed version must go back to the House for another vote.

Gregg Amendment (#3651) on Sustainable Growth Rate

Senator Gregg has offered an amendment (#3651) regarding the Medicare sustainable growth rate (SGR) mechanism.
Summary
  • The amendment provides a 0% increase in Medicare physician reimbursements for the balance of 2010 and all of calendar years 2011, 2012, and 2013.  The amendment provides that the adjustments through December 2013 not be taken into account when calculating the SGR for years 2014 and beyond.
Considerations
  • The PAYGO law recently approved by Congress allows an exemption for the “doc fix” for up to five years (through the end of 2014).
  • Many may view claims the health law and reconciliation bill are “deficit neutral” stem from the fact that these pieces of legislation do NOT address the SGR mechanism, resulting in 21 percent reductions in physician payments in March 2010, and further reductions in future years.
  • To the extent that an unpaid for “doc fix” results in higher Medicare spending on physician payments, one-quarter of that spending will be reflected in higher Medicare Part B premiums.

Gregg Amendment (#3567) on Protecting Medicare Savings

Senator Gregg has offered an amendment (#3567) to prevent Medicare from being raided for new entitlements and to use Medicare savings to save Medicare.
Summary
  • The health care law and reconciliation bill cut a combined $529 billion from Medicare.  The Gregg amendment prohibits using these Medicare cuts to pay for new government spending in the underlying bill. 
  • The amendment provides that the major provisions in the underlying bill, including the subsidies and Medicaid expansion, cannot go into effect unless the Director of OMB and the CMS Actuary certify that all of the projected spending in the bill is offset with savings—but that savings shall exclude any changes to Medicare or Social Security.
  • This amendment will ensure that the savings generated from Medicare cuts in the bill do not go towards a new entitlement.
Arguments in Favor
  • Democrats have repeatedly said that they are not using Medicare savings to pay for this legislation. The Gregg amendment tests their willingness to stand by this statement. If Medicare savings really aren’t being directed towards a new health care entitlement, they should support this amendment.
  • Both the Congressional Budget Office and actuaries at the Centers for Medicare and Medicaid Services have highlighted the problem with Democrats using Medicare savings to pay for new entitlements.  CBO found that the savings “would be received by the government only once, so they cannot be set aside to pay for future Medicare spending and, at the same time, pay for current spending on other parts of the legislation or on other programs.”  Likewise, the CMS actuaries noted that “in practice, the [Medicare savings] cannot be simultaneously used to finance other Federal outlays (such as coverage expansions…) and to extend the trust fund, despite the appearance of this result from the respective accounting conventions.”
  • In December, Democrats put forward a number of amendments that say that Medicare savings should protect Medicare, but they have no teeth. For example, the Bennet amendment said that “savings generated for the Medicare program… shall extend the solvency of the Medicare trust funds… and improve or expand guaranteed Medicare benefits and protect access to Medicare providers.”  The Bennet amendment passed 100-0.  If Democrats voted for the Bennet amendment, they should support the Gregg amendment—unless they are admitting that the Bennet amendment was just for show.
  • CBO recently released a letter to Congressman Ryan indicating that if the two health care bills’ savings were dedicated solely to extending the life of the Medicare trust funds, the combined bills would RAISE the deficit by $260 billion.  It also added: “In effect, the majority of the [Medicare] savings under H.R. 3590 and the reconciliation proposal would be used to pay for other spending and therefore would not enhance the ability of the government to pay for future Medicare benefits.”  Many may view legislation which relies on these types of accounting gimmicks as fiscally irresponsible and unwise.
  • The amendment would allow the major spending provisions to go into effect if non-Medicare savings were found.  Medicare savings are needed to protect Medicare’s solvency.

A $2.6 Trillion Bill…

Sen. Gregg’s staff on the Budget Committee have a chart showing that the full cost of the Senate health (H.R. 3590) and reconciliation (H.R. 4872) bills is more than $2.6 trillion in its first ten years of full implementation (i.e. 2014-2023).  This estimate does NOT include the education spending in the reconciliation bill, which totals over $40 billion in its first ten years (i.e. 2010-2019).  It also does NOT include a Medicare “doc fix,” which would add at least $200 billion to this total, and quite possibly more

State Insurance Benefit Mandates

Background:  Since the 1960s, state legislatures have considered—and adopted—legislation requiring health insurance products sold within the state to cover various products and services.  These benefit mandates are frequently adopted at the behest of disease groups advocating for coverage of particular treatments (e.g. mammograms) or physician groups concerned that patients have access to specialists’ services (e.g. optometrists).

A recent survey by the Council for Affordable Health Insurance found that as of 2007, states had enacted a total of 1,961 mandates for benefits and services—an increase of 60 (more than one per state) when compared to the 2006 total.[1]  The number of state mandates varies from a low of 15 in Idaho to a high of 64 in Minnesota.  However, because employer-sponsored health insurance is pre-empted from state-based laws and regulations under the Employee Retirement Income Security Act of 1974 (ERISA), benefit mandates do not apply to employers who self-fund their health insurance plans; thus state mandates primarily affect policies purchased in the individual and small group markets.

Costs and Impact on Take-up Rates:  The cost and impact of benefit mandates on health insurance premiums have been the subject of several studies in recent years.  For instance, the Heritage Foundation prepared an analysis suggesting that each individual benefit mandate could raise the cost of health insurance premiums by $0.75 monthly.[2]  Although the cost of a single mandate appears small, the aggregate impact—particularly given the recent growth of benefit mandates nationwide—can be significant: For instance, Massachusetts’ 43 benefit mandates would raise the cost of health insurance by more than $30 monthly under the Heritage analysis.

In July, the Commonwealth of Massachusetts released its own study on the impact of state benefit mandates, which was compiled as a result of the health reform law enacted under Gov. Mitt Romney.  The report found that in 2004-05, spending within the Commonwealth on mandated benefits totaled $1.32 billion—or 12% of health insurance premiums—prior to the introduction of a prescription drug benefit mandate likely to increase premium costs further.[3]  Because some of these benefits (e.g. diabetes coverage) likely would have been provided even in the absence of the state mandate, the report calculated that the marginal costs of the mandates could range as high as $687 million—or more than 6% of health insurance premium costs.[4]  The report also noted that some benefit mandates, such as those requiring bone marrow transplants for breast cancer, are ineffective, in part because the mandated benefits no longer match the recommended standard of care, and went on to recommend an ongoing review of the necessity of mandated benefits.[5]

A further level of analysis on the impact of higher premium costs, specifically those associated with benefit mandates, on the number of uninsured Americans, finds some correlation between the costs related to benefit mandates and rising numbers of uninsured.  Some estimates suggest that every 1% increase in premium costs has a corresponding increase in the number of uninsured by approximately 200,000-300,000 individuals nationwide.[6]  Because rising costs are associated with the introduction of a specific new benefit, the price elasticity associated with the mandate will tend to vary based on the benefit’s perceived usefulness—for instance, a single 20-year-old would be more likely to drop coverage if an infertility benefit mandate increased premium costs than would a married couple trying to conceive.  However, based on the studies above, it is reasonable to say that likely several hundred thousand, and possibly a million or more, Americans could obtain coverage if unnecessary benefit mandates were eliminated—and millions more Americans currently with insurance could receive more cost-effective coverage.

Legislative Proposals:  Various legislative provisions introduced in current and prior Congresses attempt to reform state benefit mandates through a variety of mechanisms.  The Health Care Choice Act (H.R. 4460) by Rep. John Shadegg (R-AZ) would permit individuals to purchase health insurance plans across state lines, which would give individuals living in states where benefit mandates have driven up the cost of insurance the opportunity to purchase more affordable policies.  The legislation could have the secondary benefit of encouraging states to avoid imposing new mandates and to re-think their current mandates, so as to make their policies more affordable and attractive to the citizens of their state—who otherwise may take the new opportunity to purchase coverage elsewhere.

Other options to reform state benefit mandates include Association Health Plans (AHPs) and Individual Membership Associations (IMAs), which would allow small businesses and individuals respectively the opportunity to band together to purchase health insurance.  In so doing, the associations would be exempted from state-based laws regarding mandated coverage of particular services or diseases.  Some conservatives may believe that these types of association plans may deliver value as a result of the pre-emption of the often costly benefit mandates.

A third option, first proposed by Sen. Judd Gregg (R-NH) in a 2004 Senate report and recently drafted into legislative language by Rep. Jeff Fortenberry (R-NE) as H.R. 6280, would require states to permit insurance carriers to offer mandate-free policies alongside their existing menu of coverage options.  As a result, consumers could choose whether to purchase a plan that offers richer coverage or a plan that might offer better value by targeting the type of benefits provided.  Some states, most recently Florida, have already taken steps in this line, passing legislation permitting lower-cost policies that may not offer the full menu of mandated benefits; Massachusetts offers such policies, but only to young adults aged 19-26.

Conclusion:  Although the types of benefit mandates imposed by states can vary from the duplicative (e.g. cancer coverage already provided by virtually all plans) to the costly (e.g. in vitro fertilization) to the frivolous (e.g. hair prosthesis), some conservatives may view them collectively as a failure of government.  In some respects, behavior surrounding state benefit mandates represents a case of moral hazard, whereby benefits (to particular disease or provider groups) are privatized, while costs—in the form of higher insurance premiums—are socialized among all payers.  Although some states have acted recently to study the cost effects of imposing so many benefit mandates, or to offer mandate-free or “mandate-lite” health insurance options to their citizens, the allure of appealing to a particular constituency group—as opposed to the interests of all individuals whose premiums will increase upon imposition of a mandate—often proves too difficult for policy makers to resist.

Although well-intentioned, some conservatives may view the groups who advocate for benefit mandates as operating from fundamentally flawed logic: that individuals should go without health insurance entirely rather than purchase coverage lacking the “consumer protection” of dozens of mandates.  In addition, some conservatives note that the prospect of increasing the number of uninsured through such methods may precipitate a “crisis” surrounding the uninsured, increasing calls for a government-run health system.  In short, many conservatives may believe individuals should have the “consumer protection” to purchase the insurance plan they desire—rather than the “protection” from being a consumer by a government which seeks to define their options, and raise the cost of health insurance in the process.

 

[1] Council for Affordable Health Insurance, “Health Insurance Mandates in the States 2008” and “Health Insurance Mandates in the States 2007,” available online at http://www.cahi.org/cahi_contents/resources/pdf/HealthInsuranceMandates2008.pdf and http://www.cahi.org/cahi_contents/resources/pdf/MandatesInTheStates2007.pdf, respectively (accessed July 19, 2008).

[2] Michael New, “The Effect of State Regulations on Health Insurance Premiums: A Revised Analysis,” (Washington, Heritage Center for Data Analysis Paper CDA06-04, July 25, 2006), available online at http://www.heritage.org/Research/HealthCare/upload/CDA_06-04.pdf (accessed July 19, 2008), p. 5.

[3] Massachusetts Division of Health Care Finance and Policy, “Comprehensive Review of Mandated Benefits in Massachusetts: Report to the Legislature,” (Boston, July 7, 2008), available online at http://www.mass.gov/Eeohhs2/docs/dhcfp/r/pubs/mandates/comp_rev_mand_benefits.pdf (accessed July 19, 2008), p. 4.

[4] Ibid., pp. 5-6.

[5] Ibid., p. 6.

[6] See, for instance, Todd Gilmer and Richard Kronick, “It’s the Premiums, Stupid: Projections of the Uninsured through 2013,” Health Affairs Web Exclusive April 5, 2008, available online at http://content.healthaffairs.org/cgi/content/full/hlthaff.w5.143/DC1 (accessed July 19, 2008), and Government Accountability Office, Impact of Premium Increases on Number of Covered Individuals is Uncertain (Washington, Report GAO/HEHS-98-203R, June 11, 1999), available online at http://archive.gao.gov/paprpdf2/160930.pdf (accessed July 19, 2008), pp. 3-4.