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.

AARP’s Amnesia on “Raiding” Medicare

Based on its statements the past few weeks, if Obamacare extended to non-profit organizations, AARP might need to seek coverage for memory loss. While the seniors’ group opposes House Republicans’ extension of children’s health insurance because it includes provisions means-testing Medicare benefits for wealthy seniors, the Obamacare legislation it endorsed in December 2009 did the very same thing.

Obamacare Included Means-Testing

A letter the AARP sent to the House Energy and Commerce Committee last week objected to the House’s proposals to increase Medicare means-testing, noting that wealthy seniors already pay a greater share of their Part B (outpatient care) and Part D (prescription drug) premiums. That statement is true—in part because of Obamacare, which AARP endorsed.

In addition, Section 3308 of Obamacare applied means-testing for affluent seniors to the Part D prescription drug program for the first time.

Obamacare Used Medicare Savings

Last week’s AARP letter also claimed that “not only is it wrong to continue to ask Medicare beneficiaries to shoulder the burden for non-Medicare expenditures, but it will make it harder to finance actual improvements and address long-term challenges in the Medicare program.” That statement contains no small amount of irony, considering that Obamacare, as House Minority Leader Nancy Pelosi herself admitted, “took half a trillion dollars out of Medicare in [Obamacare], the health care bill”—to spend on new entitlements.

Moreover, by using savings from the Medicare Part A (hospital insurance) trust fund, Obamacare gamed the accounting to make the program’s shortfalls look less severe. When then-Secretary of Health and Human Services Kathleen Sebelius was asked whether the Medicare savings were being used “to save Medicare, or to fund health reform [Obamacare],” Sebelius replied, “Both.”

Some would argue that Obamacare’s financial chicanery has actually undermined Medicare’s solvency by giving lawmakers an excuse to postpone needed reforms. While this year’s Medicare trustees report claimed the Part A trust fund would become insolvent in 2029, the last trustees report released prior to Obamacare measured the program’s insolvency date at 2017—this year.

If it weren’t for the double-counting in Obamacare—a bill that AARP proudly endorsed—lawmakers would likely be confronting Medicare’s structural deficits this year. Instead, comforted by the false hope of Obamacare’s accounting gimmicks, Congress seems unlikely to embark on comprehensive Medicare reform to solve those deficits in the near future, which will only exacerbate the impact of legislative changes when they do take place.

The history of Obamacare lends support to AARP’s current argument that Medicare savings not finance other government spending. But given its own history in supporting Obamacare, AARP seems singularly unqualified to make it.

This post was originally published at The Federalist.

Bernie Sanders’ Single Payer Bill Provides Benefits for Billionaires

On Wednesday, socialist Sen. Bernie Sanders plans to introduce the latest version of his single-payer health-care program. If past practice holds, Sanders will call his plan “Medicare for All.” But if he wants to follow Medicare as his model, then the Sanders plan could easily earn another moniker: Benefits for Billionaires.

An analysis released by the Congressional Budget Office (CBO) in August demonstrates how Medicare currently provides significant financial benefits to seniors at all income levels, including the wealthy. Specifically, the CBO paper analyzed lifetime Medicare taxes paid, and lifetime benefits received, by individuals born in the 1950s who live to age 65.

The CBO analysis confirms prior work by the Urban Institute—no right-wing think tank—that Medicare pays out more in benefits than it receives in taxes at virtually all income levels. For instance, according to Urban’s most recent study, a high-earning male turning 65 in 2020 will pay in an average of $123,000 in Medicare taxes, but receive an average of $222,000 in benefits.

Melinda Gates Doesn’t Need Government Health Care

Some may quibble with the work by CBO and Urban Institute for containing an important oversight. In analyzing only Medicare benefits and Medicare taxes paid, the two papers omit the portion of Medicare’s financing that comes from general revenues—including the income taxes paid primarily by the wealthy. While it’s difficult to draw a precise link between Medicare’s general revenue funding and any one person’s income tax payments, it’s possible that—particularly for one-percenters—income taxes paid will offset the net cost of their Medicare benefits.

But regardless of those important details, the larger point still holds. Even if her taxes do outweigh the Medicare benefits received, why does Melinda Gates need the estimated $300,000 in health care benefits paid to the average high-income woman born in the 1950s? Does that government spending serve a useful purpose?

We Don’t Have Money to Subsidize the Rich

Yes, Medicare currently does include some means testing for wealthy beneficiaries, in both the Part B (physician) and Part D (prescription drug) portions of the program. But common sense should dictate first that wealthy individuals not only should be able to opt-out of Medicare if they so choose—because, strange as it sounds, the federal government currently forbids individuals from renouncing their Medicare benefits—wealthy seniors should not receive a taxpayer subsidy at all. Whether in Medicare or Sanders’ socialist utopia, the idea that Warren Buffett or Bill Gates warrant taxpayer subsidies defies credulity.

Despite this common-sense logic, liberals continue to support providing taxpayer-funded benefits for billionaires. In 2011, then-Rep. Henry Waxman (D-CA) said “if [then-Speaker John] Boehner wants to have the wealthy contribute more to deficit reduction, he should look to the tax code.” Perhaps Waxman views keeping wealthy seniors in Medicare as a form of punishment for the rich. After all, nearly nine in ten seniors have some form of supplemental insurance, and a form of “insurance” one must insure against may not be considered an unalloyed pleasure.

Regardless, Medicare faces its own financial reckoning, and sooner rather than later. In 2009—the last trustees’ report before Obamacare introduced fiscal gimmicks and double-counting into Medicare—the program’s actuaries concluded Medicare’s Hospital Insurance Trust Fund would become functionally insolvent this year. Given that bleak outlook, neither Medicare nor the American people can afford Sanders’ ill-conceived scheme to provide taxpayer-funded health benefits to wealthy 1-percenters.

This post was originally published at The Federalist.

Democrats’ Hypocrisy on the Trump Budget

As expected, the Left had a harsh reaction to President Trump’s first budget on its release Tuesday. Bernie Sanders called the proposed Medicaid reductions “just cruel,” the head of one liberal think-tank dubbed the budget as a whole “radical,” and on and on.

But if liberals object to these “draconian cuts,” there’s one potential solution: Look in the mirror.

And exactly who might be to blame for creating that toxic environment?

Democrats Are Using The ‘Mediscare’ Playbook

Democrats have spent the past several political cycles running election campaigns straight out of the “Mediscare” playbook. In case anyone has forgotten, political ads have portrayed Republicans as literally throwing granny off a cliff.

This rhetoric about Republican attempts to “privatize” Medicare came despite several inconvenient truths:

  1. The “voucher” system Democrats attack for Medicare is based upon the same bidding system included in Obamacare;
  2. The Congressional Budget Office concluded one version of premium support would, by utilizing the forces of competition, actually save money for both seniors and the federal government; and
  3. Democrats—in Nancy Pelosi’s own words—“took half a trillion dollars out of Medicare” to pay for Obamacare.

Given the constant attacks from Democrats against entitlement reform, however, Donald Trump made the political decision during last year’s campaign to oppose any changes to Medicare or Social Security. He reiterated that decision in this week’s budget, by proposing no direct reductions either to Medicare or the Social Security retirement program. Office of Management and Budget Director Mick Mulvaney said the president told him, “I promised people on the campaign trail I would not touch their retirement and I would not touch Medicare.”

That’s an incorrect and faulty assumption, of course, as both programs rapidly spiral toward insolvency. The Medicare hospital insurance trust fund has incurred a collective $132.2 billion in deficits the past eight years. Only the double-counting created by Obamacare continues to keep the Medicare trust fund afloat. The idea that President Trump should not “touch” seniors’ retirement or health care is based on the fallacious premise that they exist beyond the coming decade; on the present trajectory, they do not, at least not in their current form.

Should Bill Gates Get Taxpayer-Funded Healthcare?

That said, the president’s reticence to “touch” Social Security and Medicare comes no doubt from Democrats’ reluctance to support any reductions in entitlement spending, even to the wealthiest Americans. When Republicans first proposed additional means testing for Medicare back in 2011, then-Rep. Henry Waxman (D-CA) opposed it, saying that “if [then-House Speaker John] Boehner wants to have the wealthy contribute more to deficit reduction, he should look to the tax code.”

In other words, liberals like Henry Waxman, and others like him, wish to defend “benefits for billionaires”—the right of people like Bill Gates and Warren Buffett to receive taxpayer-funded health and retirement benefits. Admittedly, Congress passed some additional entitlement means testing as part of a Medicare bill two years ago. But the notion that taxpayers should spend any taxpayer funds on health or retirement payments to “one-percenters” would likely strike most as absurd—yet that’s exactly what current law does.

As the old saying goes, to govern is to choose. If Democrats are so violently opposed to the supposedly “cruel” savings proposals in the president’s budget, then why don’t they put alternative entitlement reforms on the table? From eliminating Medicare and Social Security payments to the highest earners, to a premium support proposal that would save seniors money, there are potential opportunities out there—if liberals can stand to tone down the “Mediscare” demagoguery. It just might yield the reforms that our country needs, to prevent future generations from drowning in a sea of debt.

This post was originally published at The Federalist.

What You Need to Know about Republicans’ Newest “Replace” Legislation

Below please find some quick fast facts on House Republicans’ “repeal-and-replace” legislation, introduced on Monday evening. (The Energy and Commerce title is here, and the Ways and Means title is here.)

What’s changed since the leaked discussion draft, dated February 10?

Several provisions have been revised, updated, deleted, or added in the intervening three weeks:

  • Increase in funding for community health centers, from $285 million to $422 million;
  • Revision to the repeal of Disproportionate Share Hospital (DSH) cuts—the cuts are restored two years sooner for states that have not expanded Medicaid under Obamacare (in the prior draft, the cuts were restored immediately for all states);
  • Several new Medicaid program integrity provisions, including those prohibiting lottery winners from retaining benefits, restricting retroactive eligibility, prohibiting presumptive eligibility for individuals who cannot provide proof of citizenship, and requiring states to make eligibility re-determinations every six months in many cases;
  • A $10 billion pool of funding ($2 billion per year for calendar years 2018 through 2022) for states that did not expand Medicaid under Obamacare;
  • Change to the inflation formula (medical inflation, instead of medical inflation plus one percent) for Medicaid per capita caps when adjusted forward from 2016 to 2019—for years after 2019, the formula remains unchanged at medical inflation plus one percent;
  • Change to the Patient and State Stability Fund, including a change to the title (previously called the State Innovation Grant program), language permitting CMS to intervene in a state if a state declines to apply for grant funding, and change in the formulae and criteria, which generally focus more upon achieving stability (based on insurers’ medical loss ratios)—the funding levels remain unchanged, at $100 billion from 2018 through 2026;
  • Removal of language requiring HHS to verify special enrollment periods, codifying a change proposed by the Department in regulations last month;
  • Removal of language permitting the perpetual offering of “grandmothered” health insurance plans—that is, plans purchased after Obamacare’s enactment, but prior to its major insurance regulations taking effect in 2014;
  • Prohibition on “grandmothered” plans receiving Obamacare subsidies in 2018 and 2019—although individuals in grandfathered plans (i.e., those purchased prior to Obamacare’s enactment) and coverage purchased off of Exchanges could qualify for subsidies;
  • Delayed repeal of Obamacare’s tax increases until 2018, as opposed to 2017 in the leaked discussion document;
  • Repeal of the Obamacare “Cadillac tax” only until 2025;
  • Removal of repeal of Obamacare’s economic substance doctrine tax increase;
  • Means testing to the refundable tax credit—individuals with incomes below $75,000, and families with incomes below $150,000, would qualify for the full credit, while individuals with incomes above $215,000, and families with incomes above $290,000, would not qualify for the credit; and
  • Removal of a cap on the exclusion for employer-provided health insurance.

What’s changed since the reconciliation legislation passed in 2015/2016?

  • Longer transition period (three years, instead of two)
  • Expansion of Obamacare subsidies during the transition period
  • Medicaid expansion remains, albeit at state option and with enhanced funding sunset for beneficiaries who enroll after January 2020
  • Elimination of repeal of risk corridors and reinsurance
  • Delay of repeal of Obamacare taxes (take effect next year, not this year, and “Cadillac tax” repeal sunsets in 2025)
  • Elimination of repeal of economic substance doctrine

What remains since the reconciliation legislation passed in 2015/2016?

  • Repeal of prevention “slush fund”
  • Defunding of certain Medicaid providers, which will eliminate federal funding for Planned Parenthood for one year
  • Repeal of Exchange subsidies (albeit delayed)
  • Repeal of enhanced federal funding for Medicaid expansion (albeit delayed, and with a phase-out/freeze instead of a funding “cliff”)
  • Repeal of DSH cuts (albeit delayed/modified)
  • Elimination of individual and employer mandate penalties
  • Repeal of most of Obamacare tax increases (albeit delayed)

What major parts of Obamacare does the bill repeal?

  • Prevention “slush fund”
  • Exchange subsidies, beginning in 2020
  • Enhanced federal match for states that expanded Medicaid, beginning with individuals enrolled after January 1, 2020
  • The individual and employer mandates (penalties set to zero) effective December 31, 2015—mandates would not apply to 2016 tax filings currently taking place
  • All tax increases, except for 1) the economic substance doctrine (not repealed at all); 2) the “Cadillac tax” on high-cost health plans (repealed only until 2025)

What major parts of Obamacare does the bill NOT repeal?
Entitlements

  • Exchange subsidies revised and expanded (extended to off-Exchange populations) through 2020
  • Exchange subsidies would expire in 2020—one year later than the 2015/2016 reconciliation bill
  • Medicaid expansion available to states as an optional population beginning in 2020—the prior 2015/2016 reconciliation bill repealed categorical eligibility for able-bodied adults entirely

Tax Increases

  • “Cadillac tax”—only repealed until 2025
  • Economic substance doctrine
  • Other tax increases (except the employer and individual mandates) not repealed immediately

Major Insurance Regulations

  • Pre-existing conditions (the bill modifies the existing requirements, by allowing insurers to vary premiums by up to 30 percent for those without continuous coverage)
  • Community rating by age (the bill expands existing rate bands, and permits states to opt-out of the federal standard if they so choose)
  • Under-26 mandate
  • Prohibition on annual and lifetime limits
  • Medical loss ratio requirements
  • Preventive service mandate (including coverage of contraception)
  • Insurance Exchanges
  • Risk corridors and reinsurance

ALL the Medicare savings

One Easy Way to Start Reforming Entitlements

During his election campaign and the subsequent presidential transition, Donald Trump expressed a high degree of discomfort with reducing Medicare benefits. His position ignores the significant financial peril Medicare faces—a whopping $132.2 billion in deficits for the Part A (Hospital Insurance) trust fund over the past eight years.

That said, there is one easy way in which the new administration could advance the cause of entitlement reform: allow individuals—including wealthy individuals, like, say, Donald Trump—to opt out of Medicare.

If you think the government holding benefits hostage to forcibly enroll seniors—even wealthy ones—in taxpayer-funded Medicare sounds more than a little absurd, you wouldn’t be the first one. Several years ago, several conservatives—including former House Majority Leader Dick Armey—filed a lawsuit in federal court, Hall v. Sebelius, seeking to overturn the SSA guidance. The plaintiffs wanted to keep their previous private coverage, and did not wish to lose the benefits of that coverage by being forcibly enrolled in Medicare Part A.

We Have A Roadmap To Remedy This Problem

Unfortunately, both a federal district court and the Court of Appeals for the District of Columbia agreed with the federal government. The majority opinions held that the underlying statute distinguished being “entitled” to Medicare Part A benefits from “enrolling” in Part B, meaning the government was within its rights to deny the plaintiffs an opportunity to opt out of Part A.

However, a dissent at the Court of Appeals by Judge Karen LeCraft Henderson can provide a roadmap for the Trump Administration to remedy the absurd scenario of individuals being forcibly enrolled in a taxpayer-funded program. Judge Henderson held that the Social Security Administration had no statutory authority to prohibit (via its Program Operations Manual System, or POMS) individuals from disclaiming their Medicare Part A benefits. While the law “entitles” individuals to benefits, it does not give SSA authority to force them to claim said benefits. SSA published guidance in its program manual exceeding its statutory grant—without even giving the public the opportunity for notice-and-comment before establishing its policy.

It’s Time To End The SSA’s Kafka-esque Policies

During the Cold War, East German authorities referred to the barriers surrounding West Berlin as the “Anti-Fascist Protective Wall”—implying that the Berlin Wall stood not to keep East Berliners in East Germany, but West Berliners out. One can’t help but notice a similar irony in the Medicare opt-out policies developed by the Social Security Administration. After all, if Medicare is so good, why must SSA hold individuals’ Social Security benefits hostage to keep them enrolled in the program?

The Trump Administration can easily put an end to the Social Security Administration’s Kafka-esque policies—and take one small step towards reforming entitlements—by instructing the new Commissioner of Social Security to work with the Centers for Medicare and Medicaid Services to develop a means for individuals to opt out of the Medicare Part A benefit. The savings from such a policy would likely be modest, but why should the federal government force the expenditure of taxpayer dollars on benefits that the beneficiaries themselves do not wish to receive?

The simple answer: it shouldn’t. Perhaps Bernie Sanders or Elizabeth Warren view forcible enrollment in Medicare as “punishment” for wealthy seniors. But at a time when our nation faces nearly $20 trillion in debt, individuals of significant means—whether Bill Gates, Donald Trump, or even Hillary Clinton—shouldn’t be forced to accept taxpayer-funded benefits. The Trump Administration eliminating this government absurdity would represent a victory for fiscal responsibility—and sheer common sense.

This post was originally published in The Federalist.

Is the “Doc Fix” Bill Fiscally Sustainable?

Last month, in writing about how the president’s budget would forestall changes to entitlements for several years, I said that while the budget “would include some modest changes to Medicare benefits, the overall document postpones most of the fiscal pain until after President Barack Obama leaves office.” The same might be true of bipartisan Medicare legislation that addresses physician payments.

House leaders filed “doc fix” legislation Thursday afternoon, but they have not yet released the legislative language surrounding the parts of the bill that would be paid for. A summary circulating among lobbyists in Washington suggests as one of the “pay-fors” a Medicare Advantage timing shift—a budget gimmick that would shift plan payments into a future fiscal year, masking overall Medicare spending levels.

The document also discusses more substantive changes to the Medicare program: Federal Part B and Part D subsidies would be reduced for individuals with incomes greater than $133,000. And first-dollar coverage for new beneficiaries purchasing supplemental coverage—which studies have shown encourages seniors to over-consume care–would be limited.

These changes may start to address Medicare’s structural shortfalls, but they seem relatively paltry next to some of the Obama administration’s budget proposals. The president’s plan proposed increasing the Medicare Part B deductible and introducing home health co-payments—actions that could reduce incentives for over-consumption of care and crack down on fraud, a particular problem in the home health program. But while the president’s proposed changes would not take effect until 2019, the House proposal would delay them one additional year, until 2020.

Demographics will define our fiscal future for the generation to come. The Congressional Budget Office noted this year that Social Security, health programs, and interest payments represent 84% of the increase in federal spending over the coming decade, largely because an average of 10,000 baby boomers will retire every day. Yet the House legislation could end up exempting from any structural reforms the more than 16 million individuals forecast to join Medicare by 2020.

Unsustainable trends will, at some point, give out. As I wrote last month, putting dessert before spinach by kicking tough choices to future political leaders might lead to short-term political gains but could also produce long-term fiscal and political pain. And when the fiscal reckoning occurs, voters are not likely to look kindly on those who created the problems.

This post was originally published at the Wall Street Journal Think Tank blog.

How Obama’s Budget Delays Fiscal Pain

In its 2016 budget, the Obama administration proposed approximately $400 billion in health-care savings. While this would include some modest changes to Medicare benefits, the overall document postpones most of the fiscal pain until after President Barack Obama leaves office.

The budget proposes additional increases to Medicare means-testing: reducing federal Part B and Part D subsidies to higher-income households. It also would increase the Medicare Part B deductible, introduce a Part B surcharge for beneficiaries who purchase rich supplemental Medigap coverage, and introduce home health co-payments. The latter three changes would apply only to new beneficiaries—and all the changes would take effect in 2019, more than a year after President Obama leaves office.

In its updated economic outlook last month, the Congressional Budget Office made clear that the United States faces an entitlement problem. CBO’s Figure 1-3 (above) shows that Social Security, health programs, and interest represent 84% of the increase in federal spending over the coming decade. With an average of 10,000 baby boomers retiring every day, President Obama’s proposals would permanently exempt approximately 14 million individuals who will join Medicare by January 2019—making the task of bringing entitlement commitments into balance that much more difficult.

President Obama has a history of prioritizing political expediency over fiscal rectitude. His first submission proposing additional Medicare cost-sharing—in September 2011—delayed the implementation until 2017. Obamacare has followed the same course: Two of the law’s biggest long-term “pay-fors”—provisions slowing the growth in insurance exchange subsidies and the law’s “Cadillac tax“—won’t take effect until a new president is in office. A third provision, the controversial Independent Payment Advisory Board, has been left unaddressed by the administration.

This strategy of pursuing dessert before spinach—of kicking tough choices down the road to future political leaders—may lead to short-term political gains but could result in long-term fiscal and political pain. Unsustainable trends will not continue forever—and whenever the fiscal reckoning comes, voters are unlikely to look kindly on those whose actions helped bring about the mess.

This post was originally published at the Wall Street Journal Think Tank blog.

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

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

Overall, the budget:

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

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

Discretionary Spending

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Other Health Care Proposal of Note

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

The Siren Song of the Left’s “Competition”

As previously noted, yesterday the Center for American Progress released its platform for altering entitlements.  In fairness, the paper does include some conservative ideas, most notably additional means-testing for Medicare beneficiaries.  But mainly the report demonstrates the fundamental difference between conservatives and liberals: Not only do liberals not believe in markets, they don’t understand (and/or don’t want to understand) how markets actually work.

Take for instance the CAP proposals that will supposedly “enhance competition based on price and quality,” such as the idea to “require health insurance exchanges to offer tiered insurance plans.”  On the face of it, the idea sounds reasonable enough – encourage plans to lower premiums by offering a variety of choices.  But the catch here – as in the rest of the CAP proposals – is that “competition” is government-defined, government-mandated, and government-prescribed.  For instance, if insurers want to offer, and patients want to purchase, less expensive insurance coverage that doesn’t cover all of Obamacare’s mandated benefits – and/or insurance purchased across state lines – both CAP and Obamacare would tax those who gain coverage through such means, because this “competition” is prohibited in liberals’ new health care utopia.

Then there’s the fact that the CAP report also includes numerous other proposals that involve expanding prescription drug price controls in various forms.  One may find it ironic – and ever-so-slightly contradictory – that a report supposedly focused on “enhanc[ing] competition” simultaneously expands government-dictated price controls.

Finally, CAP’s proposals for “competitive bidding” seem little short of comical for their ideologically-based hypocrisy.  The paper states that Congress should “use competitive bidding for Medicare Advantage” – but then just as quickly states that government-run Medicare itself should not compete.   And why doesn’t CAP want government-run Medicare to compete against private plans?  Because a paper co-authored by one of CAP’s own scholars released in September found that in many parts of the country, traditional Medicare can’t compete – it’s far too costly.  The study, outlined in an article in the Journal of the American Medical Association, found that private plans would be 9% cheaper than traditional Medicare under a competitive bidding proposal.

Mind you, the Left has no problems forcing seniors to pay more for private Medicare Advantage coverage, or forcing them out of their plans entirely – Obamacare’s cuts to the program will ensure both outcomes.  But when it comes to competitive bidding for government-run Medicare itself, CAP and others on the Left want nothing to do with such an idea, clinging instead to the shibboleth of government-run Medicare as a first step towards socialized medicine for all.  And that hypocrisy – competition for thee, but not for me – explains in a nutshell why liberal ideas such as those in the CAP paper are both unrealistic and ideologically dangerous.