Medicaid’s Blue State Bailout

In discussing future coronavirus legislation, Senate Majority Leader Mitch McConnell (R-Ky.) has taken a skeptical view towards additional subsidies to states, including a potential “blue state bailout.” But current law already includes just such a mechanism, giving wealthy states an overly generous federal Medicaid match that results in bloated program spending by New York and other blue states.

Section 1905(b) of the Social Security Act establishes Federal Medical Assistance Percentages, the matching rate each state receives from the federal government under Medicaid. The statutory formula compares each state’s per capita income to the national average, calculated over a rolling three-year period. Poorer states receive a higher federal match, while richer states receive a lower match.

However, federal law sets a minimum Medicaid match of 50 percent, and a maximum match of 83 percent. No poor states come close to hitting the 83 percent maximum rate, but a total of 14 wealthy states would have a federal match below 50 percent absent the statutory minimum. (In March, Congress temporarily raised the federal match rate for all states by 6.2 percentage points for the duration of the coronavirus emergency.)

Absent the statutory floor, Connecticut would receive a match rate of 11.69 percent in the current fiscal year, according to Federal Funds Information Service, a state-centered think-tank. At that lower federal match, Connecticut would receive approximately one federal dollar for every eight the state spends on Medicaid, rather than the one-for-one ratio under current law.

Federal taxpayers pay greatly because the overly generous match rate for wealthy states leads to additional Medicaid spending. In fiscal year 2018, Connecticut spent far more on its traditional Medicaid program ($6.5 billion in combined state and federal funds) than similarly sized states like Oklahoma ($4.9 billion) and Utah ($2.5 billion). Those totals exclude the dollars Connecticut received from Obamacare, which guarantees all states a 90 percent Medicaid match for covering able-bodied adults.

The budget crisis in New York that preceded the pandemic stems in large part from Washington’s overly generous match for wealthy states. Absent the statutory floor, the state would receive a Medicaid match of 34.49 percent this fiscal year, meaning it would have to spend approximately two dollars to receive an additional federal dollar.

But the one-to-one Medicaid match guaranteed under federal law led New York to expand its program well beyond most states’. At more than $77 billion in 2018, New York Medicaid cost taxpayers more than three times the $23.4 billion spent by the larger state of Florida. And a federal audit last summer concluded that New York Medicaid spent $1.8 billion on more than 600,000 ineligible enrollees in just a six-month period. Little wonder that Gov. Andrew Cuomo in January called the state’s fiscal situation “unsustainable” after the state announced a $6 billion budget deficit, most of which came from Medicaid.

To his credit, Cuomo proposed changes to crack down on Medicaid fraud and enact other program reforms. He also criticized Congress when it passed legislation to block New York and other states from changing their Medicaid programs during the pandemic. But he has not acknowledged the underlying flaws in federal law that, by encouraging profligate blue state spending, created the problem in the first place.

Of the 14 wealthy states that benefit from the guaranteed 50 percent minimum Medicaid match, Hillary Clinton won 11. If the dramatic drop in oil and commodity prices in recent weeks persists, the three traditionally red states—Alaska, North Dakota, and Wyoming—that benefit from the statutory floor may no longer do so, should those states’ income decline. In the number of states affected and overall spending levels, the 50 percent minimum Medicaid match encourages overspending by blue states at the expense of federal taxpayers in red states.

In December 2018, the Congressional Budget Office estimated that removing the guaranteed 50 percent Medicaid match would save $394 billion over ten years. If McConnell and his colleagues want to tackle rising federal debt while stopping blue state bailouts, they should amend the Medicaid statute accordingly.

This post was originally published at The Federalist.

How Congress’ Coronavirus Legislation Could See Millionaires on Medicaid

Congress’ urge to legislate quickly on the coronavirus outbreak has resulted in all manner of unintended policy consequences. Numerous reports indicate that the Internal Revenue Service has sent coronavirus relief payments to deceased individualsLarge restaurant chains have received loans from the Paycheck Protection Program intended for businesses that have less access to capital, even as small businesses struggling to survive report being shut out of the PPP.

Even more worrisome than these reports: A series of Medicaid-related provisions that provide a potential steppingstone toward a single-payer health-care system. These provisions not only encourage waste, fraud, and abuse, but will also further entrench government-run health care—the left’s ultimate objective.

Maintenance of Effort Provisions

Section 6008 of pandemic relief legislation the president signed on March 18 provides states a 6.2 percent increase in the federal Medicaid match. But the funds, designed in part to offset states’ revenue loss during the economic downturn, come with a huge catch.

To receive the additional federal funding, states may not adopt more restrictive Medicaid eligibility standards, impose new premiums, or otherwise restrict benefits. These “maintenance of effort” requirements echo provisions included in the 2009 “stimulus” legislation, which also raised states’ Medicaid match. But this year’s bill went even further, prohibiting states from terminating benefits for any enrollee during the coronavirus public health emergency “unless the individual requests a voluntary termination of eligibility or the individual ceases to be a resident of the State.”

In layman’s terms, this provision prohibits state Medicaid programs from terminating the enrollment of individuals with income that exceeds state eligibility limits. For instance, following a scathing report by the state’s legislative auditor, Louisiana last year disenrolled 1,672 individuals with incomes of more than $100,000 from the state’s Medicaid program—including some with income higher than Gov. John Bel Edwards’ salary.

But the provisions Congress enacted in March now prohibit Louisiana, or any other state, from disenrolling these ineligible individuals during the coronavirus outbreak. To put it another way, an individual who enrolled in Medicaid while unemployed could take a new job making $1 million per year, and the state would have absolutely no recourse to kick that individual off of the government rolls, so long as he wants to remain enrolled in “free,” taxpayer-funded health coverage.

Pave the Way for Single Payer?

It doesn’t take a rocket scientist to see how the next president could use these provisions to empower a vast expansion of government-run care. A Biden administration could leave the public health emergency declaration in place for its entire presidency—and would have strong policy incentives to do so. By preventing states from removing ineligible beneficiaries for its entire presidency, a Biden administration could massively expand Medicaid, turning the program into something approaching liberals’ dream of a single-payer system.

The Louisiana experience also shows the direct correlation between eligibility checks, enrollment, and spending on Medicaid. State officials removed at least 30,000 individuals from the program last spring, reducing enrollment in expansion by more than 10 percent, and lowering program spending by approximately $400 million. A Biden administration that prohibits states from removing ineligible beneficiaries for four or eight years would see taxpayers spending billions of dollars funding millions of ineligible enrollees—an enrollment explosion that could prove difficult to unwind.

Don’t Bail Out the States

House Speaker Nancy Pelosi (D-Calif.) has already begun work on the next coronavirus package, with she and her fellow Democrats adamantly insisting that a bailout of states stands next on Congress’ “to-do” list.

But it seems highly disingenuous for Pelosi and Democrats to call for bailing out state budgets, even as they prohibit those same states from removing ineligible individuals from the Medicaid program. Even Gov. Andrew Cuomo (D-NY) has called the new requirements on state Medicaid programs absurd: “Why would the federal government say, ‘I’m going to trample the state’s right to redesign its Medicaid program, that it runs—that saves money?’”

Conservatives in Congress should demand that lawmakers fix the Medicaid provisions, either by allowing states to remove ineligible beneficiaries, setting a specific end-date for the increased federal matching funds, or (more preferably) both. Otherwise, by prohibiting states from purging their rolls of Medicaid enrollees who don’t belong in the program, the United States could find itself with a single-payer system by the back door.

This post was originally published at The Federalist.

Democrats in Congress Won’t Let Andrew Cuomo Fight Medicaid Fraud

Over the past several weeks, Gov. Andrew Cuomo has taken several shots at Sen. Chuck Schumer, his fellow New York Democrat, about the coronavirus “stimulus” bills passed by Congress. Cuomo has repeatedly attacked Schumer for not looking out for their home state’s interests, calling the most recent measure, which cost more than $2 trillion, “terrible” for the Empire State.

The intraparty feuding seems all the more noteworthy for one reason Cuomo found the “stimulus” terrible: It precludes New York from taking steps to right-size its Medicaid program. That senior Democrats in Congress tied the hands of a governor from their own party as he works to enact reforms, and combat fraud, in the costly program speaks to how leftists will fight tooth-and-nail to maintain every facet of the welfare state.

New York’s Medicaid Mess

Even prior to the coronavirus pandemic, New York’s state Medicaid program faced major difficulties. In fiscal year 2018, New York’s Medicaid program spent nearly as much ($74.8 billion) as California’s ($83.9 billion), even though California has more than twice the population (39.5 million vs. 19.5 million for New York).

Some of New York’s high Medicaid spending stems from rampant waste and fraud. A 2005 in-depth investigation by The New York Times quoted a former investigator as saying that 10 percent of all Medicaid spending constituted outright fraud, with another 20-30 percent representing “unnecessary spending that might not be criminal.”

New York’s Medicaid program also spends disproportionate sums on institutional care for individuals with disabilities. The state spends more than twice as much on nursing home care ($5.5 billion) as California ($2.5 billion), despite having less than half the population. New York also exceeds California’s spending on intermediate care facilities for the intellectually disabled.

Smart reforms to Medicaid would attempt to keep individuals in their own homes wherever possible. Paying for home and community-based services would save taxpayers money. More importantly, it would also treat patients in the location the vast majority of patients prefer: Their own homes. Changes to move in this direction, coupled with efforts to fight waste and fraud, would bring long-overdue reform to Medicaid in New York.

Cuomo Tried to Fix the Problem

Prior to the pandemic, New York faced a $6 billion budget shortfall that Cuomo blamed (correctly) on the Medicaid mess. He asked a commission to recommend reforms, and the commission came back with a series of proposals that would save more than $1.6 billion in state dollars during the coming fiscal year, and additional sums thereafter. (Because the federal government provides at least a 50 percent Medicaid match to New York, the changes would save federal taxpayers at least as much as they would save state taxpayers.)

While the recommendations do include across-the-board reductions in provider payment levels, changes to long-term care represent the largest amount of savings ($715 million of the $1.65 billion total). The package includes a focus on home- and community-based services, tightens restrictions on households who attempt to hide assets to have Medicaid cover their long-term care costs, and includes reforms to program integrity as well.

Did Schumer Stop Reform?

As New York’s Democrat governor proposed a Medicaid reform package, what did New York’s senior senator do? By one account he worked to ensure that his fellow Democrat could not enact the needed changes.

As I previously noted, the second “stimulus” bill included a Medicaid bailout for states, coupled with maintenance of effort provisions. These provisions prohibit states from making any changes to eligibility or benefits in exchange for the 6.2 percent increase in the federal Medicaid match (which will last for the duration of the coronavirus public health emergency). States that increase cost-sharing, change benefits, impose premiums—pretty much any change to the Medicaid benefit package, other than arbitrary reductions in provider payments—lose eligibility for the increased federal match.

Cuomo railed against these restrictions: “Why would the federal government say, ‘I’m going to trample the state’s right to redesign its Medicaid program, that it runs—that saves money?’…I don’t even know what the political interest is they’re trying to protect.”

The governor appeared to win the argument—at first. Section 3720 of a draft version of the third “stimulus” bill (beginning at page 394 here) would have amended the second “stimulus” bill to allow New York to go ahead with its reforms, while still receiving the 6.2 percent increase in the federal Medicaid match.

But Section 3720 of the version that made it into law (page 147 here) stripped out the original language that allowed New York to proceed with its Medicaid changes. Rep. Lee Zeldin (R-N.Y.) claims Schumer got the language removed, presumably because he opposes Cuomo’s reform package:

Lee Zeldin

@RepLeeZeldin

Re-upping here for additional background on what Gov Cuomo is talking about right now re FMAP and the stimulus bill.

McConnell offered Schumer exactly what Cuomo asked for on this fix and Schumer rejected it. https://twitter.com/RepLeeZeldin/status/1243210360334815232 

Lee Zeldin

@RepLeeZeldin

Gov. Cuomo just said the stimulus package could’ve & should’ve provided additional support for the NYS budget.

He is right.

Here’s the context not mentioned:

McConnell offered the FMAP language Cuomo asked for & Schumer blocked it, resulting in the loss of SIX BILLION for NY.

Stop Defending Fraudsters

Who exactly nixed the language helping New York, and why, may remain a mystery. But it seems highly unlikely that Senate Republicans would have insisted on its removal. Most conservatives support states’ Medicaid reform proposals, and fought maintenance of effort requirements included in the 2009 “stimulus” and Obamacare that thwarted state flexibility. The objection that led to the New York provision’s removal almost certainly came from the Democrat side of the aisle.

As to why, consider this quote from Politico: “Critics argue…that even if there is some sense in targeting waste and fraud, it also makes sense to raise taxes on the wealthy to support a program that poor New Yorkers rely on.”

Yes, by all means let’s raise taxes during the midst of an economic cataclysm. If we crack down on fraud too much, the fraudsters might go out of business—and they need to eat just like the rest of us!

It’s exactly this kind of mentality that left the United States with $23 trillion in debt (and rising). Cuomo rightly called out the members of his own party for their socialistic games, because the American people deserve better than the left’s welfare-industrial complex.

This post was originally published at The Federalist.

Don’t Just Bail Out a Flawed Medicaid Program

In recent days, some observers have discussed the possibility of targeted assistance to state Medicaid programs affected by the coronavirus outbreak. Unfortunately, the legislation proposed by House Speaker Nancy Pelosi (D-CA) falls far short of that marker, providing a gusher of new spending with no long-term reforms to the program. Conservatives should insist on better.

The House’s bill, introduced late in the night Wednesday, contains several noteworthy flaws. By increasing the federal Medicaid match for all states by 8 percentage points for the entire public health emergency, it prevents the targeting of assistance to those states most affected by coronavirus cases.

Increasing the federal match for able-bodied adults to 98 percent encourages states to prioritize these individuals over disabled populations, while discouraging states from rooting out fraud. The legislation also precludes states from making any changes to their Medicaid programs for the duration of the bailout, reinstituting the fiscal straight-jacket contained in President Obama’s “stimulus” bill.

Like that 2009 package, Pelosi’s legislation proposes tens of billions in new spending for an already-sprawling Medicaid program without any structural changes. But if Pelosi or conservatives wish to pay for the short-term largesse via long-term changes to Medicaid, they need not look far: President Obama’s budgets included several proposals that, if enacted into law, would change incentives in Medicaid for the better.

One area ripe for reform: Medicaid provider taxes. Hospitals and other medical providers often support these taxes—the only entities that ever endorse new taxes on themselves—because they immediately come right back to the health care industry, after states use the tax revenue to draw down additional Medicaid matching funds. In 2011, none other than Joe Biden reportedly called this form of legalized money laundering a “scam.”

At minimum, Congress should immediately enact a moratorium on any new provider taxes, or any increases in existing provider taxes, cutting off the spigot of federal dollars via this budget gimmick. Lawmakers can echo President Obama’s February 2012 budget submission, which would have saved $21.8 billion by reducing states’ maximum provider tax rate.

That proposal delayed its effective date by three years, “giv[ing] states more time to plan”—which would in this case delay the changes until the coronavirus outbreak subsides. Another positive solution: Codifying the Trump administration’s Medicaid fiscal accountability rule, which includes welcome reforms reining in states’ most egregious accounting gimmicks, effective a future date.

More broadly, Congress should also consider the ways the existing matching rate formula encourages additional Medicaid spending by states. For instance, current law provides all states with a minimum 50 percent match rate, encouraging richer states to spend more on Medicaid. Absent that floor, 14 states—11 of them blue—would face a lower match; Connecticut’s rate would plummet from 50 percent to 11.69 percent.

Gradually lowering or eliminating the federal floor on the match rate, beginning 2-3 years hence, would discourage wealthier states from growing their Medicaid programs beyond their, and the federal government’s, control. Had lawmakers enacted this proposal as part of the 2009 “stimulus,” New York—which would have a federal match rate of 34.49 percent in the current fiscal year absent the 50 percent minimum—might have right-sized its Medicaid program well before the program’s current budget crunch.

Alternatively, Congress could embrace Obama’s budget proposal for a blended Medicaid matching rate. Replacing the current morass of varying federal match rates for different populations could save money, and eliminate the perverse incentives included in Obamacare, which gives states a higher match rate to cover able-bodied adults than individuals with disabilities.

Judging from her initial bid in the “stimulus” wars, Pelosi has taken Rahm Emanuel’s advice never to let a serious crisis go to waste. If she wishes to emulate Obama’s first chief of staff, conservatives should insist that she also enact some of the Medicaid changes proposed in Obama’s own budgets, to begin the process of reforming the program.

This post was originally published at The Federalist.

Analyzing the Gimmicks in Warren’s Health Care Plan

Six weeks ago, this publication published “Elizabeth Warren Has a Plan…For Avoiding Your Health Care Questions.” That plan came to fruition last Friday, when Warren released a paper (and two accompanying analyses) claiming that she can fund her single-payer health care program without raising taxes on the middle class.

Both her opponents in the Democratic presidential primary and conservative commentators immediately criticized Warren’s plan for the gimmicks and assumptions used to arrive at her estimate. Her paper claims she can reduce the 10-year cost of single payer—the amount of new federal revenues needed to fund the program, over and above the dollars already spent on health care (e.g., existing federal spending on Medicare, Medicaid, etc.)—from $34 trillion in an October Urban Institute estimate to only $20.5 trillion. On top of this 40 percent reduction in the cost of single payer, Warren claims she can raise the $20.5 trillion without a middle-class tax increase.

The Return of the Individual Mandate

Well, that didn’t last long. Fewer than six months after Congress effectively repealed Obamacare’s individual mandate—and more than six months before that change actually takes effect, in January next year—another liberal group released a plan to reinstate it. The proposal comes as part of the Urban Institute’s recently released “Healthy America” plan.

In the interests of full disclosure: I criticized Republicans for repealing the individual mandate as part of the tax reform bill last fall. I did so not because I support requiring Americans to buy health insurance—I don’t—but because Republicans need to go further, and repeal the federal insurance regulations that represent the heart of Obamacare and necessitated enacting the mandate in the first place.

Lipstick on an Unpopular Pig?

The Urban Institute plan tries to re-brand a federal requirement to purchase insurance by never even using the term “mandate” in its proposal. Instead, the document says that “uninsured people would lose a percentage of their standard deduction (or the equivalent for the itemized deduction) when they pay income taxes….Half the lost deduction amount could be refunded the following year if the person enrolls in coverage and maintains it for the next full plan year.”

But as the saying goes, if it looks like a mandate and functions like a mandate, it’s a mandate. The paper claims that taking away a “tax benefit…would be better received politically than the additional tax penalty” under Obamacare, but functionally, that provides a distinction without a difference. Even the Urban researchers call this “loss of a tax benefit” a “penalty” later in the paper, because that’s what it is: A penalty for remaining uninsured.

The paper even includes a chart highlighting the average tax for remaining uninsured by income under the proposal, which generally mimics the tax penalties the uninsured pay under Obamacare:

Other Components of the Plan

Unfortunately, the Urban Institute plan goes well beyond merely reinstating the individual mandate, albeit in a slightly different form. It also makes other major changes to the health care system that would entrench the role of the federal government in it. It would federalize Medicaid health insurance coverage by transferring Medicaid enrollees into exchanges, supplementing benefits for low-income children and individuals with disabilities, and requiring states to keep paying their current contributions into the system. (Long-term care coverage under Medicaid would continue unchanged.)

The exchanges would have a new government-run plan—the default option for low-income enrollees automatically enrolled into coverage—and options run by private insurers. However, all plans would cap reimbursement to doctors and hospitals at Medicare rates, making premiums more “affordable” by imposing price controls that would potentially pay providers at below-market levels. The plan also proposes to “save” on prescription drugs by extending Medicaid rebates (i.e., price controls) to additional individuals.

The Urban plan also proposes much richer health coverage subsidies, consistent with its earlier 2015 proposal. Specifically:

  • Individuals with incomes below the federal poverty level would not pay either premiums or cost-sharing;
  • Individuals with incomes below 138 percent of poverty (the threshold for Obamacare’s Medicaid expansion) would not pay premiums;
  • Premium subsidies would be linked to a plan paying 80 percent of expected health care costs (i.e., actuarial value), as opposed to a 70 percent actuarial value plan under Obamacare;
  • Individuals would have to pay less of their income in premiums than under Obamacare—for instance, an individual with income just under four times poverty would pay 8.5 percent of income in premiums, as opposed to 9.56 percent under Obamacare; and
  • Unlike Obamacare, which limits eligibility for subsidies to those with incomes under four times poverty, the Urban plan would limit premium payments to 8.5 percent of income at all income levels (i.e., including for those making more than four times poverty).

Moreover, “short-term and other private insurance plans that do not comply with Healthy America regulations (consistent with [Obamacare’s] regulatory framework” would be prohibited, including association health plans and other concepts the Trump administration has proposed to give Americans more flexible coverage options.

The Urban researchers admit their plan would require significant new revenues to pay for the new subsidies—an estimated $98 billion in the first year alone. The plan only briefly discusses options to pay for this new spending, but it admits that, even if Congress hikes the payroll tax by an additional percent, raising an estimated $823 billion over ten years, “other adjustments to excise and income taxes would be needed.”

Where the Plan Fits In

At the end of their paper, the Urban researchers include a helpful chart comparing the various liberal proposals for expanded government involvement in health care—lest anyone claim that the left hand doesn’t know what the far-left hand is doing. In general:

  • Elizabeth Warren (D-MA) introduced a bill that would not go as far as the Urban plan. It incorporates the subsidy changes Urban proposed, adds a government-run plan, and imposes other regulatory changes to the exchanges, but (unlike the Urban plan) retains the status quo for Medicaid;
  • The Center for American Progress’ “Medicare Extra” proposal, which I wrote about earlier this year, goes farther than the Urban plan, by eliminating Medicaid (which the Urban plan modifies) entirely, and including more robust auto-enrollment provisions, with “Medicare Extra” the default option for all Americans; and
  • The single-payer bill introduced by Sen. Bernie Sanders (I-VT) would go farthest of all, abolishing virtually all forms of insurance (including Medicare) and creating a single-payer health system.

So much for “If you like your plan, you can keep it.” For that matter, so much for “If you like your freedom, you can keep it.” Like it or not, the Left seems insistent on terrifying the American public with what Ronald Reagan viewed as the nine most effective words to do so: “I’m from the government and I’m here to help.”

This post was originally published at The Federalist.

Liberals’ New Plan to Take Over the Health Care System

The Center for American Progress proposed a plan for government-run health care Thursday, which the liberal think tank calls “Medicare Extra.”

Unlike Bernie Sanders’ single-payer system, which would abolish virtually all other forms of insurance, the plan would not ban employer coverage outright — at least not yet. In broad strokes, CAP would combine Medicaid and the individual insurance market into Medicare Extra, and allow individuals with other coverage, such as employer plans, traditional Medicare or VA coverage, to enroll in Medicare Extra instead.

The goal of CAP’s plan is to grow government, and to grow dependence on government. The paper omits many important policies, such as how to pay for the new spending. Here are some of the major objectives and concerns.

If You Like Your Obamacare, Too Bad

After attacking Republicans for wanting to “taking away health insurance from millions,” CAP would … take away health insurance from millions. The plan would effectively eliminate Obamacare’s insurance exchanges, and all individual health insurance: “With the exception of employer-sponsored insurance, private insurance companies would be prohibited from duplicating Medicare Extra benefits, but they could offer complementary benefits during an open enrollment period.”

Other sections of the plan (discussed further below) suggest that private insurers could offer Medicare Choice coverage as one element of Medicare Extra. CAP indicates that persons purchasing coverage on the individual market would have a “choice of plans.” But didn’t Obamacare promise that already — and how’s that working out? For that matter, what happened to that whole “If you like your plan, you can keep it” concept?

Mandatory Health Insurance — And A $12,550 Tax

The plan reinstates a mandate to purchase health insurance: “Individuals who are not enrolled in other coverage would be automatically enrolled in Medicare Extra … Premiums for individuals who are not enrolled in other coverage would be automatically collected through tax withholding and on tax returns.”

While the plan says that those with incomes below the tax filing threshold “would not pay any premiums,” it excludes one important detail — the right to opt out of coverage. Therefore, the plan includes a mandate, enforced through the tax code, and with the full authority of the Internal Revenue Service. (Because you can’t spell “insurance” without I-R-S.) The plan indicates that for families with incomes between 150 and 500 percent of the poverty level, “caps on premiums would range from 0 percent to 10 percent of income. For families with income above 500 percent of [poverty], premiums would be capped at 10 percent of income.”

In 2018, the federal poverty level stands at $25,100 for a family of four, making 500 percent of poverty $125,500. If that family lacks employer coverage (remember, the plan prohibits individuals from buying any other form of private insurance), CAP would tax that family 10 percent of income — $12,550 — to pay for its Medicare Extra plan.

Wasteful Overpayments Controlled By Government Bureaucrats

As noted above, the plan would allow insurers to bid to offer Medicare Choice coverage, but with a catch: Payments provided to these plans “could be no more than 95 percent of the Medicare Extra premium.” CAP claims that “this competitive bidding structure would guarantee that plans are offering value that is comparable with Medicare Extra.”

It does no such thing. By paying private plans only 95 percent of the government-run plan’s costs, the bidding structure guarantees that private plans will provide better value than the government-run plan. Just as CAP decried “wasteful overpayments” to private insurers in Medicare Advantage, the CAP proposal will allow government bureaucrats to control billions of dollars in wasteful federal government spending on Medicare Extra.

Costs To States

As noted above, CAP envisions the federal government taking over Medicaid from the states, “given the continued refusal of many states to expand Medicaid and attempts to use federal waivers to undermine access to health care.”

But the plan also requires states to continue to make maintenance-of-effort payments even after the federal government takes Medicaid away from state jurisdiction. Moreover, the plan by its own admission “giv[es] a temporary discount [on the maintenance-of-effort provisions] to states that expanded their Medicaid programs” under Obamacare — effectively punishing states for a choice (i.e., to expand or not expand) that the Supreme Court made completely voluntary. And finally, it requires “states that currently provides benefits … not offered by Medicare Extra … to maintain those benefits,” leaving states perpetually on the hook for such spending.

Would Employer Coverage Really Remain?

The plan gives employers theoretical options regarding their health coverage. Employers could continue to offer coverage themselves, subject to certain minimum requirements. Alternatively, they could enroll their employees in Medicare Extra, with three possible sources of employer funding: Paying 70 percent of workers’ premiums, making maintenance-of-effort payments equal to their spending in the year preceding enactment, adjusted for inflation, or “simpler aggregated payments in lieu of premium contributions,” ranging from 0 to 8 percent of payroll. (The plan would exempt employers with under 100 full-time equivalent workers from making any payments.)

Two questions linger over these options: First, would employer coverage remain? CAP obviously wishes that it would not in the long-term, while recognizing the political problems associated with an abrupt transition. Second, could employers game the system among the various contribution options? While details remain unclear, any plan that sets up two systems (let alone four) represents a classic arbitrage opportunity. If employers act rationally, they could end up reducing their own costs in a way that significantly increases the federal government’s obligations.

Higher Health Spending

CAP advertises its plan as providing “zero or low deductibles, free preventive care, free treatment for chronic disease” — the source of 75 percent of American health care spending — and “free generic drugs.” It would also expand coverage of long-term care services not covered by Medicare (and only partially covered by Medicaid). But all this “free” stuff won’t come cheap.

In analyzing Bernie Sanders’ health care plan, the liberal Urban Institute estimated that it would increase overall health spending by 22.1 percent. Notably, the Urban researchers estimated that Sanders’ plan would raise spending by people who currently have health insurance by almost the same amount, or 15.1 percent, because the lack of cost-sharing will encourage individuals to increase their consumption of care. With the CAP plan apparently proposing that government fully subsidize more than three quarters of health care spending, its proposal will increase health care costs almost as much as Sanders’.

The CAP plan proposes measures to lower costs — namely price controls (i.e., Medicare dictating prices to doctors, hospitals, and drug companies), with some token references to other policies like bundled payments and limiting the tax preference for employer-sponsored insurance. But if those proposals go the way of Obamacare’s “Cadillac tax” — potentially never implemented because politicians of both parties lack the discipline to control health care spending — then the plan will only raise health costs rather than lower them.

Something For Nothing

The plan proposes that families with incomes below 150 percent of poverty ($37,150 for a family of four this year) pay for their coverage the princely sum of … zero dollars. No premiums, no deductibles, no co-payments. Zero. Zip. Zilch. Nada.

And while CAP does not include specific ideas to pay for all the associated new spending, the concepts it does propose largely involve taxing “the rich” (which includes small businesses).

While it doesn’t work as it should — most people “get back” far more than they “pay in” — at least Medicare makes an attempt to have all individuals pay for coverage through the payroll tax. CAP’s plan amounts to a transfer of wealth from one group to another.

Even The New York Times this week highlighted dissent from middle-class families upset at the thought of having to pay for low-income individuals to receive “free” Medicaid. So, CAP might want to rethink what Bill Clinton called “the craziest thing in the world” — making middle-class families pay even more for mandatory insurance ($12,550, anyone?) while certain families contribute not so much as a dime for coverage — along with just about every other element of its health care plan.

This post was originally published at The Federalist.

Republicans’ SCHIP Surrender

In spring 2015, Senate Republican leaders pressured their members to accept a clean, two-year reauthorization of the State Children’s Health Insurance Program (SCHIP) added as part of a larger health spending measure.

The SCHIP reauthorization added to a larger Medicare bill included none of the reforms Republicans had proposed that year, many of which attempted to turn the program’s focus back toward covering low-income families first, as the George W. Bush administration had done. But Republican leaders said that the two-year extension, rather than the four-year extension Democrats supported, would allow conservatives to fight harder for reforms in 2017.

The press has focused on the disputes over paying for the SCHIP program, which have held up final enactment of a long-term reauthorization. (The House passed its version of the bill in November; the Senate, failing to find agreement on pay-fors, has not considered the bill on the floor.) But the focus on pay-fors has ignored Republicans’ abject surrender on the policy behind the program, because the media defines “bipartisanship” as conservatives agreeing to do liberal things. That occurred in abundance on this particular bill.

So Much for Our Promises, Voters

On the underlying policy, all the groups who pledged to fight for conservative reforms vacated the field. Senate Finance Committee Chairman Orrin Hatch (R-UT), who brags about how he created the program as part of the Balanced Budget Act in 1997, cut a deal with Ranking Member Ron Wyden (D-OR) that, as detailed below, includes virtually no conservative reforms to the program—raising questions about whether Hatch was so desperate for a deal to preserve his legacy that he failed to fight for conservative reforms.

House Speaker Paul Ryan (R-WI) did not repudiate the agreement Hatch and Wyden struck, even though that agreement maintained virtually the provisions of the 2009 SCHIP reauthorization that Ryan himself, then the ranking member of the House Budget Committee, called “an entitlement train wreck.”

Republicans have thus suffered the worst of both worlds: getting blamed for inaction on a program’s reauthorization, while already having conceded virtually every element of that program, save for its funding.

Details About the SCHIP Proposals

A detailed examination of the Hatch-Wyden agreement (original version here, and slightly revised version in Sections 301-304 of the House-passed bill here) demonstrates how it extends provisions of the 2009 reauthorization passed by a Democratic Congress and signed by President Obama—which Republicans in large part opposed. Moreover, the Hatch-Wyden agreement and House-passed bill includes none of the reforms the House Energy and Commerce Committee proposed, but were not enacted into law, in 2015.

The only “reform” in the pending reauthorization consists of phasing out an enhanced match for states included in Section 2101(a) of Obamacare—one already scheduled to expire. Even though the enhanced match will end on its own in October 2019, the Hatch-Wyden agreement and the House-passed bill would extend that enhanced match by one year further, albeit at a reduced level, before phasing it out entirely.

Child Enrollment Contingency Fund: Created in Section 103 of the 2009 reauthorization. As I noted then, “Some Members may be concerned that the fund—which does not include provisions making additional payments contingent on enrolling the low-income children­ for which the program was designed—will therefore help to subsidize wealthier children in states which have expanded their programs to higher-income populations, diverting SCHIP funds from the program’s original purpose” (emphasis original). Section 301(c) of the House-passed bill would extend this fund, without any reforms.

Express Lane Eligibility: Created in Section 203 of the 2009 reauthorization, as a way of using eligibility determinations from other agencies and programs to facilitate enrollment in SCHIP. As I noted then, “Some Members may be concerned first that the streamlined verification processes outlined above will facilitate individuals who would not otherwise qualify for Medicaid or SCHIP, due either to their income or citizenship, to obtain federally-paid health benefits.” Section 301(e) of the House-passed bill would extend this option, without any reforms.

Citizenship Verification: Section 211 of the 2009 reauthorization created a new process for verifying citizenship, but not identity, to circumvent strict verification requirements included in the 2005 Deficit Reduction Act. As I wrote in 2009:

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

Legal Aliens: Section 214 of the 2009 reauthorization allowed states to cover legal aliens in their SCHIP programs without subjecting them to the five-year waiting period required for means-tested benefits under the 1996 welfare reform law.

As I wrote in 2009, “Some Members may be concerned that permitting states to cover legal aliens without imposing waiting periods will override the language of bipartisan welfare reform legislation passed by a Republican Congress and signed by a Democrat President, conflict with decades-long practices in other federally-sponsored entitlement health programs (i.e., Medicare), and encourage migrants to travel to the United States for the sole or primary purpose of receiving health benefits paid for by federal taxpayers.” The House-passed bill includes no provisions modifying or repealing this option.

Premium Assistance: Section 301 of the 2009 reauthorization created new options regarding premium assistance—allowing states to subsidize employer-sponsored coverage, rather than enrolling individuals in government-run plans. While that reauthorization contained some language designed to make premium assistance programs more flexible for states, it also expressly prohibited states from subsidizing health savings account (HSA) coverage through premium assistance. The House-passed bill includes no provisions modifying or repealing this prohibition on states subsidizing HSA coverage.

Health Opportunity Accounts: Section 613 of the 2009 reauthorization prohibited the Department of Health and Human Services from approving any new demonstration programs regarding Health Opportunity Accounts, a new consumer-oriented option for low-income beneficiaries created in the 2005 Deficit Reduction Act. The House-passed bill includes no provisions modifying or repealing this prohibition on states offering more consumer-oriented options.

Covering Poor Kids First: The 2015 proposed reauthorization looked to restore SCHIP’s focus on covering low-income children first, by 1) eliminating the enhanced federal match rate for states choosing to cover children in families between 250-300 percent of the federal poverty level ($61,500-$73,800 for a family of four in 2017) and 2) eliminating the federal match entirely for states choosing to cover children in families above 300 percent of poverty. These provisions were consistent with the policy of the George W. Bush administration, which in 2007 issued guidance seeking to ensure that states covered low-income families first before expanding their SCHIP programs further up the income ladder. The House-passed bill includes no such provision.

Maintenance of Effort: Section 2001(b) of Obamacare included a requirement that states could not alter eligibility standards for children enrolled in SCHIP through October 1, 2019, limiting their ability to manage their state programs. Whereas the 2015 proposed reauthorization would have repealed this requirement, effective October 1, 2015, Section 301(f) of the House-passed bill would extend this requirement, through October 1, 2022. (However, under the House-passed bill, states could alter eligibility for children in families with incomes over 300 percent of poverty, beginning in October 2019.)

Crowd-Out: The 2015 proposed reauthorization allowed states to impose a waiting period of up to 12 months for individuals who declined an offer of, or disenrolled from, employer-based coverage—a provision designed to keep families from dropping private insurance to enroll in a government program. The House-passed bill contains no such provision.

Program Name: The 2009 reauthorization sought to remove the “state” element of the “State Children’s Health Insurance Program,” renaming the program as the “Children’s Health Insurance Program.” While the 2015 proposed reauthorization looked to restore the “state” element to “SCHIP,” the House-passed bill includes no such provision.

Cave, Not a Compromise

For all the focus on paying for SCHIP, the underlying policy represents a near-total cave by Republicans, who failed to obtain any meaningful reforms to the program. Granted, Democrats likely would not agree to all the changes detailed above. But the idea that a “bipartisan” bill should include exactly none of them also seems absurd—unless Republicans threw in the towel and failed to fight for any changes.

The press spent much of 2017 focused on Republican efforts to unwind Obamacare. But the SCHIP bill represents just as consequential a story. The cave on SCHIP demonstrates how many Republicans, after spending the last eight years objecting to the Obama agenda, suddenly have little interest in rolling it back.

This post was originally published at The Federalist.

Does Medicaid Expand Inequality?

Believe it or not, an incredibly powerful article about health policy mentions the word “medical” once only in passing, and “health” not at all. On Thursday, Politico ran a feature article on the University of Michigan, and how it—and many other prominent public universities—face a “crisis of confidence.” In seeking to attract affluent, and frequently out-of-state, students, these institutions have shunned working-class families, many of whom no longer feel welcome, or try to apply.

The crisis of confidence stems largely from public universities’ financial strategies. That’s where health care comes in, in a big way. Medicaid’s constant, inexorable growth in state budgets has left less money for education of all types, not least higher education. As Medicaid spending has risen, state funding of public universities has declined, leading them to raise tuition and increase their percentage of out-of-state students to help balance the books. At the end of this fiscal game of “Musical Chairs,” many children from working-class families can’t find a proverbial seat at a top-tier institution.

Numbers Don’t Lie

A review of state budget expenditure reports puts the effects in stark relief. In fiscal year 1987, Michigan spent 9.7 percent of its state budget on Medicaid, and 8.5 percent on higher education. Nearly three decades later, in fiscal year 2015, Michigan spent a whopping 30.2 percent of its budget on Medicaid, and 4.3 percent on higher education. The state more than tripled the share of the budget devoted to Medicaid, while cutting the share of spending on higher education in half.

The national spending numbers tell a similar story. In fiscal year 1987, states spent an average of 9.8 percent of their budgets on Medicaid, and 11.1 percent on higher education. In fiscal year 2015, states spent an average of 28.2 percent on Medicaid, and 10.1 percent on higher education. Here again, higher education spending declined, even as Medicaid spending nearly tripled. While in 1987, states spent roughly half as much on Medicaid as they did on primary and secondary education, Medicaid has long since supplanted K-12 education as the top spending item in states’ budgets.

The Medicaid Payment and Access Commission (MACPAC) has a chart showing the way in which Medicaid spending has grown over time. Although their graphic doesn’t include it, one could easily insert two intersecting lines showing how the share of state spending on K-12 education and higher education has declined even as Medicaid spending has risen.

How This Affects Americans

In Michigan, universities have taken it on the chin more than in most states. Primary and secondary education comprise a relatively large percentage of the state’s budget, making the share of spending on post-secondary education (4.3 percent) less than half the national average. Politico explains the effect on the University of Michigan and its students:

In the late 1960s, the state covered 70 percent of instructional costs. By the late 1990s, state support covered less than 10 percent of instructional costs, which were largely unchanged when adjusted for inflation. The trend has persisted. One recent report found that, since 2002, state support for higher education in Michigan has declined 30 percent, when adjusted for inflation.

The university, like nearly every other state school in the nation, leaned on tuition to make up the difference. In-state tuition rose, but university leaders also focused on another, more lucrative, funding stream: out-of-state students, many of them elite students from wealthy families who couldn’t get into the Ivy League. Michigan was the next best thing.

“The university had no choice but to increase out-of-state enrollments of students paying essentially private tuition levels,” [former University of Michigan President James] Duderstadt said. Tuition rose to $14,826 a year for Michigan students; room and board adds about $12,000. In the 1970s, tuition was less than $600 per year. Out-of-state students, who now pay $47,476 per year, make up roughly half of the student body at Michigan, up from 30 percent in the late 1960s.

But as tuition rose, wages stagnated. The median family income in Michigan in 1984 was $50,546, in 2016 dollars. In 2016, it was $57,091. The working class was priced out.

A Poverty Trap?

The Congressional Budget Office (CBO) has indicated its belief that Medicaid itself discourages work. Specifically, CBO wrote that “expanded Medicaid eligibility under [Obamacare] will, on balance, reduce incentives to work.” Because an extra dollar of income could cause beneficiaries to lose access to Medicaid, costing them hundreds, even thousands, of dollars in insurance premiums and co-payments, some individuals will avoid work to keep their incomes below eligibility caps.

However, few have examined the way in which Medicaid can keep people in poverty not just from its direct effects (i.e., discouraging work), but by its indirect effects—the opportunity cost associated with state spending. Every dollar a state spends on Medicaid represents a dollar not spent on rescuing a student trapped in a failing school, or on scholarships for working-class families to attend top-tier universities.

This post was originally published in The Federalist.

Contradictory Messages on SCHIP

When the bill reauthorizing the State Children’s Health Insurance Program (SCHIP) comes to the House floor for an expected vote on Friday, it will feature numerous examples of oxymoronic policy messages from the Republican majority. Call them contradictory, call them hypocritical, but regardless, the lack of coherence sends decidedly mixed messages about what exactly Republicans consider good, conservative health policy.

Voting to Reduce Medicare Spending the Day After Voting to Increase It

On Wednesday, the House Rules Committee finally decided the on-again, off-again question of whether to include provisions expanding Medicare means-testing for the affluent in the bill. The rule the committee reported states that, upon the rule’s adoption by the House, the base bill will be replaced by a substitute amendment—as well as a separate amendment adding the means-testing language back into the bill.

Rewarding States that Expanded Medicaid 

Section 305 of the new substitute amendment would postpone by two years reductions in Obamacare’s Disproportionate Share Hospital (DSH) payments—scheduled to total $4.7 billion in both fiscal years 2018 and 2019—for two years, until 2020. Theoretically the bill would “pay for” this additional spending (i.e., cancelling spending reductions now) by increasing the size of DSH reductions in future years. However, given that Congress has already postponed Obamacare’s DSH reductions three times in as many years, some may view the move as a “can-kicking” exercise and fiscal gimmick that lawmakers do not believe will ever take effect.

More to the point: In undoing the DSH reductions, the bill makes absolutely no distinction between states that expanded Medicaid under Obamacare and those that did not. In 2009 and 2010, Democrats thought the DSH payment reductions would partially offset the increased revenues hospitals would generate as a result of gaining more insured patients under Obamacare. But by failing to target the DSH reductions only toward states that have not expanded Medicaid to the able-bodied, the Republican House would effectively allow expansion states to “double-dip,” gaining both additional revenue from the Medicaid expansion and from the postponement (or the eventual cancellation) of the DSH reductions.

Passing a Not-That-Conservative Bill with Only GOP Votes

As previously noted, the underlying SCHIP reauthorization—separate and distinct from the controversies about how to pay for the spending—deviates from prior legislative proposals designed to return SCHIP towards its original purpose: Covering low-income kids. In addition to the reward for Medicaid expansion states discussed above, the bill:

  • Extends Obamacare’s maintenance of effort requirements, which constrain states’ flexibility in managing their programs, for three years, through 2022;
  • Extends—albeit only for one-year, and at a lower rate as part of a phase-out approach—Obamacare’s enhanced match rate for SCHIP programs;
  • Omits prior language requiring states to focus their programs’ efforts on covering children from low-income households;
  • Omits prior language permitting states to impose waiting periods in SCHIP programs for people who turn down an offer of, or disenroll from, employer-sponsored health coverage, given that studies suggest as many as three in five children enrolled in programs like SCHIP do so after first dropping their prior health coverage (i.e., “crowd-out”).

Even though the bill does not contain any of these conservative proposals, Democrats claim they will not support the legislation, given their objections to the SCHIP “pay-fors.” The Democratic position raises an obvious question: If Republicans will end up passing a SCHIP reauthorization along party lines, why not ensure that the legislation includes solid conservative policies throughout, instead of just conservative offsets? It’s one of several relevant questions given the decidedly mixed messages coming from House Republicans on health care this week.

This post was originally published at The Federalist.