CBO Partial Score for Medicare Title of House Discussion Draft

In case you hadn’t seen it, I wanted to pass along information about the CBO score for the Medicare title of the House Democrat discussion draft released two weeks ago.  Note that this score does NOT include estimates of the cost of coverage expansions, and considers the Medicare provisions largely in isolation.  Major points in this portion of the score include:

  • All told, the provisions would reduce the deficit by about $152 billion over ten years.  This is MUCH less than the $622 billion in Medicare and Medicaid savings proposed by the White House — largely due to additional entitlement spending within Medicare that offsets many of the savings reductions.
  • The largest savings generated come from reductions in payments to inpatient hospitals (nearly $85 billion over ten years), outpatient hospital services ($21.8 billion), skilled nursing facilities ($26 billion), hospice care ($9.8 billion), inpatient rehabilitation facilities ($5.3 billion) and long-term care and psychiatric hospitals ($7.1 billion over ten years total).  Provisions limiting Medicare payment for hospital readmissions would generate about $16 billion in savings, over and above the numbers outlined above.
  • Home health agencies would receive a total of $56.8 billion in payment reductions over the ten-year budget window, and imaging services would be reduced by $4.3 billion due to an adjustment in projected utilization for imaging equipment.
  • Medicare Advantage plans would receive a total of nearly $172 billion in cuts — $156.3 billion from reducing MA plan benchmarks to Medicare fee-for-service levels, and another $15.5 related to enhanced Secretarial authority to prevent “up-coding” by MA plans — with a small portion of those cuts offset by creation of a $9.6 billion quality bonus payment program.
  • Extending the Medicaid drug rebate price control to all full-subsidy beneficiaries in the Medicare Part D program would generate $63 billion in savings.  Some of this money would be spent covering the $47 billion ten-year cost of filling in the Part D “doughnut hole.”  Note however that as the Democrat legislation only partially fills in the “doughnut hole” before 2019, the full cost of this spending program would lie outside of the budgetary scoring window.
  • Apart from the “doughnut hole” provisions, the largest spending measures in the Democrat bill cover physician reimbursements — $228.5 billion on sustainable growth rate reform, along with an additional $2.6 billion in various adjustments and reporting incentives, and another $5 billion increase for primary care services.  There is also an additional $39.6 billion to expand the low-income subsidy program within Medicare — which was already expanded once in last year’s Medicare bill — and several more minor coverage expansions, such as those relating to preventive services, with costs of up to a few billion dollars each
  • Finally, on delivery system reform, CBO scores the accountable care organizations pilot program in the Democrat bill as saving $2.2 billion over ten years, while the medical home pilot program would cost $1.8 billion over the same time frame.

Subprime Health Reform

“[Rising federal debt] leaves us very vulnerable to a global rise in interest rates that might be substantially beyond our control….It’s a little like what happened to the subprime borrowers—people are just assuming the funding will always be there.”

—Harvard Professor Kenneth Rogoff, quoted in New York Times on rising interest rates, June 3, 2009


A recent blog post by Office of Management and Budget Director Peter Orszag attempted to define the White House’s more than $1 trillion health reform initiative as fiscally responsible because “at worst, we [will] have a deficit-neutral plan that will not worsen our fiscal situation.” However, a history of government-run health programs illustrates a fundamental flaw in Orszag’s premise—new health entitlements have frequently exceeded cost estimates by very wide margins:

  • At the time of its enactment in 1965, actuaries for the House Ways and Means Committee projected that in 1990, Medicare Part A would spend $9.1 billion on hospital services and related administration. In reality, spending in 1990 totaled nearly $67 billion—more than seven times the original estimates.
  • Prior to its enactment, the Medicare Part B program for physician services was projected to be funded through a $3 monthly premium, supplemented by “federal appropriations of about $500 million a year from general tax revenues.” In 2008, Medicare Part B relied upon $146.8 billion in federal general revenues—an increase of nearly 4300 percent in inflation-adjusted spending.
  • In the first ten years following its enactment in 1997, the State Children’s Health Insurance Program relied upon two separate federal bailouts totaling nearly $1 billion to subsidize “shortfall states” which overspent their federal allotment.
  • The Massachusetts health plan—a model for Democrat reform proposals—has experienced significant budgetary pressures in the three short years since its enactment. Massachusetts’ overall costs for health programs have risen 42 percent since 2006, and the cost of the Commonwealth Care program—which subsidizes health insurance for “low-income” families—exceeded projections by more than 50 percent in Fiscal Year 2008.
  • President Obama’s own campaign plan said that enacting health reform “will cost between $50-65 billion a year when fully phased in,” and that savings from the health system itself would fully fund coverage expansions; any up-front spending would be “more than covered by allowing the Bush tax cuts to expire for people making more than $250,000 per year.” However, most estimates suggest the true cost may be more than twice the campaign’s estimates—and a report by the Senate Finance Committee indicates that Democrats are exploring new taxes on alcohol, soda, and college students to fund this entitlement spending.
  • One of the few government health programs to come in under projected estimates has been the Medicare Part D prescription drug program; actuaries at the Centers for Medicare and Medicaid Services recently noted the plan’s costs are 40 percent below estimates at the time of the bill’s passage in 2003. The Part D benefit relies entirely upon competition among private plans to drive down costs—unlike most Democrat proposals, which rely on government-run health plans that have a history of exceeding projected costs, not controlling them.


“Over time, lenders began pushing low-income buyers into homes they could not possibly afford…offering low, teaser interest rates that explode after the initial grace period.”

—Barack Obama, Financial Times op-ed on subprime lending, August 29, 2007

Given the history of exploding spending in government entitlement programs, the $1 trillion price tag currently being discussed for health reform represents the tip of the spending iceberg. Members may view the currently proposed spending levels as a $1 trillion “teaser” that could also “explode after the initial grace period” in the same manner as President Obama criticized subprime loans. And just as many home borrowers in recent years believed the value of their homes would never decline, Democrats have not considered that the cost of health reform could significantly exceed projected estimates.

The cost of exceeding projections was brought home by a recent Congressional Budget Office letter analyzing the potential impact of an increase in interest rates over the ten-year budget window. Specifically, the letter found that using the most recent “blue chip” economic forecast of long-term interest rate projections would increase total deficit spending by $1.2 trillion over ten years when compared to the March CBO estimate of the President’s budget. If interest rates returned to their average levels during the 1980s, the United States could face an additional $5.6 trillion in red ink—even before the effects of increased spending on health care entitlements is taken into account.

Some Members may therefore question the priorities and actions of the Democrat majority with respect to its proposed massive expansion of government-run health care:

  • Why are Democrats so scornful of subprime lenders who allegedly placed Americans into loans that “exploded” after several years so unwilling to confront the possibility that health reform could have the exact same effect on the federal budget?
  • What will happen if the new entitlements proposed end up costing significantly more than the $1 trillion projected? Will health reform legislation contain “triggers” requiring Congress and the federal government to scale back entitlement programs in the face of escalating costs, or will federal spending—and the debt passed on to future generations—continue to rise without limit?
  • What are the economic and national security implications of relying on countries like China to finance the proposed new government-run health system?

After Treasury Secretary Geithner’s claims of the United States’ fiscal rectitude were publicly mocked by an audience during his recent visit to China, Democrats would be wise to provide much more clarity—and spending restraint—before embarking on a new and costly initiative to expand government-run health insurance to as many as 114 million Americans.

Glossary of Key Health Care Terms

In anticipation of a debate on comprehensive health reform later this year, we have prepared a list of important terms surrounding the debate.

Administrative Pricing:  Reimbursement mechanisms for doctors and hospitals determined by legislative or regulatory fiat, rather than through the free market.  Critics of administrative pricing note that the “take it or leave it” philosophy imposed by Medicare and Medicaid results in numerous distortions within the health system—the price paid by the federal government has only a notional relation to the cost borne by the provider, often leading to cost shifting whereby individuals with private insurance end up offsetting the shortfalls in providers’ federal reimbursement levels.

Adverse Selection:  A phenomenon caused by a high proportion of sicker individuals enrolling in a particular insurance pool, often leading to higher premiums for all participants in the pool.  In extreme cases, a “death spiral” can result, whereby high premiums encourage healthy individuals to drop coverage—resulting in higher overall costs, yet more premium increases, and further lost coverage.  Economists have argued that guaranteed issue and community rating regulations—either without an individual mandate to purchase insurance, or with a poorly-enforced one—could result in significant adverse selection increasing the cost of coverage for healthy individuals.

Capitation:  A form of reimbursement that bases payment levels on a flat, regular (often monthly) payment, often risk-adjusted to reflect an individual’s health status.  Payments to Medicare Advantage plans are made on a capitated basis.  Supporters of capitation believe that it removes the perverse incentives present in fee-for-service reimbursement to over-bill for care, while critics voice concerns that capitation could encourage doctors and hospitals to under-provide care to save costs.

Comparative Effectiveness:  Research comparing the relative merits of two drugs or methods of treating an illness.  Of particular concern is the distinction between clinical effectiveness—which examines the merits of various treatment options without respect to their cost—and cost-effectiveness research.  Critics of government-sponsored effectiveness research have voiced concern that cost-effectiveness judgments could be used to determine reimbursement for government-funded health plans—leading to federal bureaucrats denying treatment options on cost grounds.

Cost Shift:  In health care, cost shift refers to two related phenomena—doctors and hospitals charging patients with health insurance to pay for uncompensated care provided to those without coverage, and providers charging those with private coverage more to pay for below-cost reimbursement by government programs.  With respect to the former issue, the Congressional Budget Office has testified that uncompensated care represents a minor fraction of total health spending, and its impact “appears to be limited.”  With respect to cost-shifting from public to private payers, CBO notes that reimbursement rates in Medicare and Medicaid are anywhere from 20-40% lower than rates paid by private payers.  One study estimates that, as a result of the low rates paid by government programs, families with private insurance pay approximately $1,800 per year more for their health coverage.

Crowd Out:  A phenomenon whereby individuals drop their private health insurance to enroll in government programs.  One recent example of crowd out occurred in Hawaii, where Governor Linda Lingle ended the Keiki Care program for children’s health coverage because, in the words of one official, “People who were already able to afford health care began to stop paying for it so they could get it for free.”  Due in large part to its expansion of government-run health insurance to higher-income families, the Congressional Budget Office found that the recent State Children’s Health Insurance Program legislation signed by President Obama would result in more than one-third of those children who would obtain government-run coverage—2.4 million of the 6.5 million newly enrolled—would drop private health insurance to enroll in the government program.

Delivery System Reform:  A general term for efforts to slow the growth of health costs by reforming the way health care is delivered in order to generate efficiencies.  Many of these proposals would leverage the federal government’s role in financing Medicare and Medicaid by linking hospital and physician reimbursement to certain behaviors or practices.  Critics of these proposals caution that they may not generate significant savings to the federal government, but will further entangle federal bureaucrats in the practice of medicine.

Employee Exclusion:  Dating from an Internal Revenue Service ruling during World War II, all health and related fringe benefits provided by an employer are excluded from income for purposes of both payroll and income taxes without limit. (Note however that for the employer, both wages and health benefits are tax-deductible business expenses.)  The Joint Committee on Taxation estimates that in 2007, the exclusion resulted in more than $246 billion in foregone income and payroll tax revenue to the federal government.  Many economists of varying political stripes argue that—because a marginal dollar of cash income is taxable to employees, while a marginal dollar of health insurance is completely tax-free—the exclusion encourages the purchase of overly generous insurance policies, and in turn leads to the over-consumption of health care.

ERISA:  Acronym describing the Employee Retirement Income Security Act of 1974, which enacted rules regarding employee benefit plans.  Section 514 of ERISA pre-empts “any and all State laws insofar as they…relate to any employee benefit plan,” permitting employers who self-insure their group health plans from complying with (potentially conflicting) State benefit mandates and other regulatory requirements.  Small employers who “fully insure”—that is, purchase coverage from another company without assuming insurance risk—remain subject to State regulatory requirements.

Exchange:  Also called a “Connector,” any of a variety of proposals designed to provide comparison shopping of health insurance products for individuals.  President Obama and Democrats in Congress have further proposed empowering an Exchange to serve as a “watchdog” on consumers’ behalf.  Supporters of Exchanges argue that they could enhance individuals’ plan choice as well as portability of insurance coverage from job to job.  While Exchanges can allow free markets for health insurance to flourish, they could also be used to impose price controls or other regulations, by restricting access to the Exchange for those companies who do not comply with bureaucratic mandates.

Fee-for-service:  A method of reimbursement that bases payment levels on a discrete episode of care—for instance, a single office visit or procedure performed.  Traditional Medicare and many forms of private insurance bill on a fee-for-service basis.  Critics of fee-for-service medicine argue that reimbursement policies discourage doctors to provide more efficient care—since physicians generally receive none of the savings resulting from procedures they did not perform.

Group Insurance:  Health coverage provided by employers—the largest source of coverage nationwide, with approximately 160 million individuals (more than 60% of the non-elderly population) enrolled.  Coverage is offered to all eligible employees within a given classification and can be self-insured or fully-insured by an employer—in the latter instance, the employer purchases coverage from a carrier and assumes no insurance risk.  States and the federal government also divide the group market into small and large groups, with the small groups classified as those with 2-50 employees.

Guaranteed Issue:  A requirement that insurance carriers accept all applicants, regardless of health status.  Generally coupled with community rating—a further requirement that carriers charge all individuals the same rates, with few variations.  Critics argue that the two policies, particularly when enacted in concert, encourage individuals not to purchase health insurance until they encounter significant medical expenses, and likewise—by raising premiums for all individuals—discourage young and healthy individuals from buying insurance.

High-Risk Pools:  A form of coverage for the medically uninsurable, currently offered in 34 States.  Coverage is generally extended to those rejected for coverage on the individual market.  Premiums are higher than rates for healthy individuals, but lower than the actual cost of most participants’ health care—State general fund appropriations, grants from the federal government, and/or surtaxes on insurance premiums finance the pools’ operating losses.  Supporters of these mechanisms believe that a more robust system of State-based risk pools could offer coverage to all medically uninsurable individuals, without the adverse market effects connected with a requirement that insurance companies accept all applicants (see Guaranteed Issue above).

Individual Insurance:  Health coverage purchased for an individual (or family) outside the group setting.  Individual insurance is subject to State regulation (including benefit mandates), and must generally be purchased with after-tax dollars.

Mandates, Benefit:  Laws requiring all insurance policies sold to offer coverage for a particular treatment (e.g., in vitro fertilization, hair prostheses) or access to a particular type of medical provider (e.g., dentists, massage therapists).  One survey found that as of 2008, States had enacted nearly 2,000 discrete benefit mandates.  Critics of benefit mandates argue that mandates both individually and collectively raise the cost of health insurance, making coverage less accessible to individuals.  Federal group policies regulated under ERISA are exempt from State benefit mandates.

Mandates, Employer:  Proposals requiring employers to provide health insurance benefits to their employees, and/or pay a tax to finance their workers’ health coverage.  Also commonly called “pay-or-play,” after a requirement instituted as part of the Massachusetts health reforms that employers must “play” by offering health coverage to their workers or “pay” a tax to cover the costs of their employees’ uncompensated care.  Critics cite an NFIB study that an employer mandate could result in 1.6 million jobs lost as evidence that mandates would negatively impact the American economy.

Mandates, Individual:  A requirement that all individuals have health insurance, subject to some type of enforcement by the State.  Massachusetts’ health reform law required individuals to purchase health insurance or face penalties on their tax returns.  Critics argue that mandates are not easily enforced, could result in interest groups lobbying for an overly generous definition of “insurance” for purposes of compliance with the mandate, and may penalize individuals who cannot afford health insurance by taxing them for not buying it.

Medicaid:  A State-federal partnership providing health coverage to certain vulnerable populations.  Eligibility requirements vary by State, but often include low-income women and children as well as elderly and disabled populations.  The federal government finances Medicaid through the Federal Medical Assistance Percentage (FMAP), a match rate linked to States’ relative income level that has averaged 57% of total Medicaid spending in recent years.  While low-income individuals and children constitute the majority of Medicaid beneficiaries, most Medicaid spending funds long-term and related care to elderly and disabled enrollees.

Medical Loss Ratio:  A requirement that insurance carriers dedicate a minimum percentage of premiums to paying medical claims, in an attempt to restrict “excessive” administrative costs or profits by insurance companies.  However, the Government Accountability Office has noted that “there is no definitive standard for what a medical loss ratio should be,” and White House adviser Ezekiel Emanuel has previously written that “some administrative costs are not only necessary but beneficial.”  Critics of this approach argue that imposing de facto price controls on insurance companies will only exacerbate problems in the health sector, by discouraging carriers from monitoring their patients outside a hospital or physician’s office.

Medicare:  A single-payer (i.e. government-funded) health insurance plan that offers coverage to seniors over age 65, Social Security disability recipients (after a two-year waiting period) and individuals with end-stage renal disease.  Part A (hospital services) is mandatory for all seniors, while Part B (physician and outpatient services) and Part D (prescription drug coverage) are voluntary. (Medicare Part C is Medicare Advantage, an alternative to traditional Medicare described below.)  Medicare generally pays doctors and hospitals on a fee-for-service basis, reimbursing based on a discrete office visit, procedure performed, or hospital stay.

Medicare Advantage:  Health coverage provided by private insurance companies and regulated by the federal government, in lieu of the traditional Medicare benefit.  Plans receive capitated (per-beneficiary) payments from the federal government that are adjusted according to enrollees’ risk and based on their bids against a statutorily-defined benchmark.  Plans which bid below the benchmark may use the savings to provide extra benefits—reduced cost-sharing, lower premiums, and/or vision and dental coverage—to beneficiaries.

Medigap:  Insurance products designed to supplement the traditional Medicare benefit, offered by private companies according to standardized benefit designs implemented and regulated by the federal government.  Many economic analysts—including the Congressional Budget Office—have concluded that, by insulating beneficiaries from financial exposure to deductibles and co-payments, Medigap policies encourage seniors to over-consume health care, resulting in higher costs for the Medicare program.

Pay-for-Performance:  Proposals designed to increase or decrease Medicare or Medicaid reimbursement levels to quality outcomes.  Several programs exist linking incentive payments to reporting of selected quality measures, but reimbursement has yet to be directly linked with outcomes.  Critics of this approach argue that pay-for-performance could discourage providers from accepting patients with complications that could lead to poor outcomes.

“Public Option”:  An insurance plan run and/or funded by a governmental entity.  Democrats have proposed several different ideas as to how such a plan may be structured—a Medicare-like insurance plan operated by the Department of Health and Human Services, a more independent entity where a third-party administrator makes operational decisions, or State-based governmental plans, perhaps including a buy-in to State employee health insurance offerings.  Independent actuaries at the non-partisan Lewin Group found that a government-run plan reimbursing at Medicare rates would cause about 120 million Americans to lose their current health coverage.  Regardless of the particulars of its structure, opponents may echo the concerns of CBO Director Elmendorf, who testified that it would be “extremely difficult” to have a “public plan compete on a level playing field,” such that Democrats would create inherent biases in favor of the government-run plan.  Some may also be concerned that such a plan could exercise increasing control over patients’ health decisions, leading to delays in obtaining critical treatments or outright denials of care.

Sustainable Growth Rate:  A mechanism instituted as part of the Balanced Budget Act of 1997 regarding physician reimbursements, which calls for reductions in future years’ reimbursement levels if physician spending exceeds the SGR target.  Critics note that, because the target applies to aggregate levels of spending, individual physicians have a micro-level incentive to increase the number of services they perform in order to overcome a lower per-service payment under the SGR.  On the other hand, supporters of entitlement reform argue that while imperfect, the mechanism has forced Congress to find offsets to finance increases in the SGR, resulting in a higher level of scrutiny of the Medicare program than would otherwise have been the case.

Tax Treatment of Health Insurance:  Health insurance provided through an employer is not taxable, while health insurance outside the employer group market generally must be purchased with after-tax dollars.  Three exceptions to this rule exist: 1) self-employed individuals may deduct health insurance premiums from their income (but not payroll) taxes; 2) Health Savings Account contributions may be deducted from income (but not payroll) taxes; and 3) health insurance expenses may be taken as an itemized deduction for income tax purposes, but only to the extent that total health expenses exceed 7.5% of adjusted gross income.  Critics of the current policy argue that individuals without access to employer-sponsored insurance have to pay 30-50% more for their coverage, resulting in more uninsured individuals.

On Saving Medicare, Democrats Stand as the “Party of No”

Today’s release of the annual Medicare trustees report paints a stark picture of the entitlement “time bomb” facing American seniors—the trustees project total unfunded liabilities of nearly $38 trillion, and project that the Hospital Insurance (Part A) Trust Fund will be exhausted in 2017, two years earlier than last year’s estimate.  But while President Obama speaks of reforming entitlement programs, the actions of the President and Democrats in Congress have not solved Medicare’s shortfalls—and could increase them.

No to Spending Restraint:  President Obama’s budget actually proposed an overall increase in Medicare spending—by failing to find any offsets for increases in physician reimbursement levels that Congress has frequently paid for in the past.  Particularly given the program’s unfunded obligations, Members may agree with Senate Budget Committee Chairman Conrad that “It’s very hard for me to understand why the answer is to put more money into the system.”

No to Saving Medicare First:  While the President’s budget did propose some reforms to the Medicare program, every penny of these savings—much of which are derived from cuts to Medicare Advantage plans popular with seniors—are re-directed into a “reserve fund” designed to pay for expanded entitlement coverage for younger Americans.  Some Members may question both the wisdom and fairness of re-directing money designed to bolster Medicare—including the use of a fund designed specifically “to make improvements under the original Medicare fee-for-service program”—to create new federal entitlements of undetermined cost.

No to Solving the Problem:  President Obama’s full budget submission to Congress did not include legislative proposals on how to address Medicare’s funding shortfalls—even though according to the Medicare Modernization Act, the President is required to submit such legislation every year the Medicare trustees have issued a funding warning for the program.  Some Members may question the level of the President’s commitment to Medicare reform if he failed to comply with a law designed to accomplish that very purpose.

No to Letting Others Solve the Problem:  The first action taken by Speaker Pelosi and the Democrat majority in the 111th Congress was a procedural vote turning off the expedited procedures under which a Medicare reform bill could be considered in the House of Representatives.  Some Members may be concerned that the Democrat leadership’s inaction not only does not fix Medicare’s funding shortfalls, it hinders those Members of both parties who wish to make a serious effort at entitlement reform from doing so.

No to Admitting the Scope of the Problem:  Although President Obama has paid lip service to the idea of reforming entitlements like Medicare, many Democrats in Congress have made statements indicating that the program does not need changes.  Responding to last year’s Medicare trustees report, Ways and Means Health Subcommittee Chairman Pete Stark asserted that “I don’t think it makes any difference what [the trustees] say” and that “Medicare is not in crisis.”  Similarly, last July Rep. Alcee Hastings (D-FL) noted that “the perceived problem with Medicare funding has already been addressed.”  Given these and other similar statements, some Members may question how high Medicare’s unfunded obligations must rise before Democrats in Congress begin to take them seriously.

While Republicans have offered a budget alternative that fully resolved Medicare’s long-term funding shortfalls, Democrat proposals for “entitlement reform” have thus far focused around spending over $1 trillion to create a new government-run health plan.  Given this record, and the warning issued by the Medicare trustees today, some Members may therefore believe that Democrats should spend more time solving America’s current health entitlements rather than creating a new entitlement that will cause as many as 120 million Americans to lose their current health coverage.

Ten Facts about President Obama’s Health Proposals

President Obama’s budget proposal includes nearly $1 trillion in new health care spending—a $634 billion reserve fund as a “down payment” for expanded coverage, and nearly $350 billion in un-offset increases to physician reimbursements and other government programs.  The fund would be paid for in part through $318 billion in tax increases on filers who itemize, “competitive bidding” for Medicare Advantage plans, and tighter government price controls on drug makers:

  1. More Spending Will Not Control Costs.  At a time when government actuaries projected that health spending will jump from 16.6% to 17.6% of GDP this year alone, President Obama’s plan would propose nearly $1 trillion in new health spending—on top of the $150 billion in health spending already passed in the “stimulus” bill.
  2. Government Spending Means Government Control.  Administration officials confirmed they will seek legislative authority to impose a “least costly alternative” reimbursement policy for Medicare—a policy of rationing access to care consistent with a draft House Committee report saying that “more expensive [treatments] will no longer be prescribed” as the result of research into the effectiveness of various treatments.
  3. “Competitive Bidding” a Sham.  The budget proposes a new “competitive bidding” program for Medicare Advantage plans—but traditional Medicare will not be required to be competitive.  Moreover, this one-sided “competition” will only occur after Medicare Advantage plans receive three years of arbitrary and harmful cuts that will drive plans from this successful program and limit seniors’ choice of insurance options.
  4. Undermines Cancer Agenda.  The budget proposes $6 billion in new cancer funding for the National Institutes of Health—but limits individuals’ ability to deduct donations to charities like the American Cancer Society, and imposes new drug price controls that will discourage companies from developing new cancer therapies.
  5. Weakens Medicare’s Solvency.  Because the budget includes $330 billion in increases to physician reimbursements—without proposing offsets for this new spending, as Congress has done in the past—Medicare spending will actually rise under the President’s proposals, exacerbating Medicare’s nearly $86 trillion in unfunded obligations.
  6. Prolongs Downturn in Housing Market.  In order to pay for the health care reserve fund, the budget proposes to reduce certain individuals’ ability to deduct mortgage interest—even though the Congressional Budget Office predicts that housing starts in 2011 will still be at or below levels last seen in the early 1990s.
  7. Undermines Parental Control.  A proposed expansion of family planning programs through Medicaid would permit children of any income level to qualify for family planning services without parental approval.
  8. Raids Medicare and Medicaid Funds.  The budget includes proposed $24 billion in savings from the Medicare and Medicaid Improvement Funds.  According to current law, the Medicare Improvement Fund is designated specifically “to make improvements under the original Medicare fee-for-service program.”
  9. Harms Medical Innovation.  The budget would generate nearly $20 billion in savings from increased government price controls on the pharmaceutical industry—a one-time savings that would do nothing to slow the long-term growth in health costs, while permanently harming the research on treatments that can cure or improve a myriad of diseases.
  10. Budgetary Gimmick.  The budget presumes that spending on the State Children’s Health Insurance Program will drop by 66% in Fiscal Year 2014—a reduction many Members may consider unrealistic, and therefore intended to mask the true size of the Administration’s spending proposals.

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

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

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

Health Provisions Affecting Unemployed Workers

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Health Care Aid to the States

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Health Information Technology

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


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

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

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

Weekly Newsletter: October 20, 2008

Hawaii Program “Crowded Out” by Rising Costs

Late last week, state officials in Hawaii announced a rapid end to a child universal health care program that had only been established earlier this year. The program, dubbed Keiki Care, was intended to provide coverage to children from families above the Medicaid eligibility threshold—which in Hawaii stands at 300% of the federal poverty level, or more than $73,000 for a family of four.

Despite a six-month waiting period incorporated into the program at the Governor’s insistence, state officials found that families were dropping private coverage in order to obtain health insurance through the government program, which featured co-pay levels—$7 per physician visit—lower than many private plans. As one official noted, “People who were already able to afford health care began to stop paying for it so they could get it for free.”

Some conservatives may not be surprised by this development, and note that Hawaii’s experience should give policy-makers looking to expand public programs significant pause. Not only does expanding access to public programs for families making over $75,000 increase government spending, but below-market co-payment levels will only encourage individuals to over-consume health care, exacerbating the acceleration of health care costs plaguing the current system. At a time when the federal government faces Medicare obligations alone of nearly $86 trillion, conservatives may believe that the failed Hawaii experiment should remind lawmakers why the Democrat leadership’s call expand the SCHIP program to families making more than $80,000 per year will be neither cheap nor sustainable.

Read the Associated Press story here.

Medicaid Fraud Will Not Be Addressed by Bailout

Last month, the New York Times highlighted the case of Staten Island University Hospital, an institution with a history of questionable billing practices—and now one of the largest fraud settlements against a single hospital. This week the hospital agreed to return nearly $90 million to respond to claims of overbilling government programs as a result of two whistle-blower lawsuits and actions by federal prosecutors. The lawsuits and charges alleged among other things that the hospital deliberately inflated bed and patient counts in order to obtain reimbursements from Medicare and Medicaid, and come after the hospital had reached two previous settlements—one in 1999 resulting in $45 million in Medicaid
repayments, and another in 2005 resulting in $76.5 returned to Medicaid—with state authorities regarding fraudulent billing activity.

Many conservatives may not be surprised by these repeated instances of fraud and graft within the program, given that a former New York state Medicaid investigator estimated that 40% of all Medicaid payments were fraudulent or questionable in nature. However, this episode may only strengthen conservative concerns that a proposed “temporary” increase in federal Medicaid matching funds (HR 5268) would do nothing to combat this fraud and abuse before spending additional federal dollars. Indeed, given that a single hospital has settled more than $200 million in fraud claims, some conservatives may wonder whether, if the Medicaid program had appropriate anti-fraud efforts in place, an additional $10-15 billion “bailout” for states would even be needed at all.

Also on Medicaid, last week the Centers for Medicare and Medicaid Services released the first annual Medicaid actuarial report, which included long-term projections for Medicaid spending. According to the report, Medicaid spending is scheduled to double in the next nine years, reaching nearly $674 billion in both state and federal spending by 2017 and consuming a rising share of both national GDP and the federal budget. Many conservatives may view these figures as further evidence of the need for comprehensive entitlement reform to slow the skyrocketing growth in health costs, and believe that a temporary bailout would be counter-productive to the program’s long-term stability.

Read the article here. The CMS 2008 Actuarial Report on Medicaid is available here.

The RSC has prepared a one-pager highlighting the need for comprehensive Medicaid reform based on examples from several states; the document can be found here.

Medicare Forces People to Accept Costly Benefits

Earlier this month, several individuals filed a ground-breaking lawsuit against the Department of Health and Human Services and the Social Security Administration. The suit would force both agencies to develop a process to allow individuals to renounce their eligibility for Medicare Part A, which governs hospital care. Under current regulations, while Part B (outpatient and physician care) and Part D (prescription drug coverage) are optional programs, individuals cannot waive participation in Medicare Part A once they apply for Social Security benefits. The plaintiffs’ proposed remedy echoes legislation (H.R. 7148) recently introduced by RSC Member Sam Johnson, which would grant individuals an explicit right to opt-out of Medicare should they choose to provide for their health care without relying on public funding.

Many conservatives may question the absurdity of the government’s position—spending taxpayer dollars to defend itself against individuals who want to forfeit their right to Medicare benefits, which would only save taxpayers money. At a time when Medicare faces unfunded obligations totaling $86 trillion, many conservatives may believe that the government’s time and money would be much better spent finding solutions to America’s entitlement obligations, rather than forcing individuals to accept benefits they don’t want—and costing taxpayers billions in the process.

Weekly Newsletter: September 15, 2008

Medicaid: More Spending Does Not Equal Reform

Today, Health and Human Services Secretary Mike Leavitt will be addressing a conference on Medicaid reform in Washington. The symposium comes at a time when some want Congress to pass legislation (H.R. 5268) providing more than $10 billion in Medicaid spending to states as a way to “fix” the program’s problems. However, many conservatives may believe that policy-makers should not use additional spending as a way to shirk from their duties to reform what is often an outmoded model of care.

In the past few years, several states have embarked upon novel and innovative reforms to improve the quality of care provided in the Medicaid program. Most recently, Rhode Island submitted a waiver application to the Centers for Medicare and Medicaid Services (CMS), asking for flexibility to revamp its program. Notable elements of this reform proposal include:

  • Incentives to promote wellness and prevention, including consumer-directed accounts and Health Savings Accounts (HSAs);
  • A shift to home and community-based care instead of a traditional nursing home setting for elderly populations;
  • Incentives to purchase long-term care insurance, so as to eliminate the need for Medicaid long-term care financing;
  • Competitive bidding for durable medical equipment; and
  • A novel financing model that ensures that total Medicaid expenses will rise by up to 5% per year.

    Many conservatives may support these and other similar reform initiatives proposed by states, as one way to slow the growth of health care costs and thereby reduce America’s unsustainable entitlement spending. Moreover, some conservatives may believe that time on the legislative calendar debating a Medicaid bailout should instead be used to discuss these types of comprehensive structural reforms to the program—so that the poorest beneficiaries are not subjected to more of the same from a government health system that does not work for many.

    The RSC has prepared a one-pager highlighting the need for comprehensive Medicaid reform based on examples from several states; the document can be found here.

    Cautionary Tales from Across the Pond

    This past week, a British think-tank published a paper that spoke the heretofore unthinkable: the policy group Reform advocated replacing the single-payer National Health Service with a voucher-based private health system. Under the proposal, individuals would receive a £2,000 voucher to purchase private insurance—injecting competition into a health system previously dominated by government, and bringing with it the potential to slow the growth of costs while achieving better value through improved care.

    The Reform proposal comes on the heels of several disturbing developments regarding the National Health Service last month. One survey found that a quarter of cancer specialists are purposely keeping their patients “in the dark” about treatment options—in order to avoid upsetting those patients when they find out the NHS will not pay for their treatments. Several weeks earlier, the National Institute of Health and Clinical Excellence (NICE)—Britain’s comparative effectiveness institute—adopted a policy of refusing to pay for four kidney cancer drugs, even though the pharmaceuticals made “significant gains” in survival times, because NICE did not believe the drugs were cost-effective.

    Conservatives may not be surprised by any of these developments—as the rationing of care frequently leads to demands to reform or abolish the governmental bureaucracies that deny life-saving treatments to patients. Some conservatives may also believe that the type of changes advocated by Reform with respect to the National Health Service, if applied to Medicare, could allow seniors a wide range of options to receive their health care, while achieving cost-savings through competition that could slow the growth of skyrocketing health and entitlement costs.

    Read the BBC News article: “Doctors ‘Keep Cancer Drugs Quiet’”

    Article of Note: The Hospital-Industrial Complex

    An article in the Wall Street Journal last month revealed the continuance of a troubling trend: hospitals using their monopoly power to raise prices for consumers—helping to contribute to the growth in health care costs. Consolidations in recent decades—coupled with state certificate-of-need laws that provide government-sanctioned exclusivity in most states—have allowed regional hospitals to tighten their grip on many markets, and the Journal article tells the tale of Carilion Health System in southwest Virginia:

  • Colonoscopy prices four to 10 times higher than a local clinic;
  • Neck CT scans more than double the price of an imaging center;
  • A significant spike in regional health insurance premiums to the highest level in the state; and
  • Over $105 million in net income achieved by a non-profit hospital over the past five years.

One local businessman called the area a “one-market town…in terms of health care,” noting that the hospital “has the leverage”—and the article demonstrates that its impact on both physician practices and the insurance premiums paid by thousands of Virginians has been significant.

The piece comes at a time when the hospital industry is attempting to eradicate one of its few remaining sources of competition, by asking Congress to place a ban on the development of physician-owned specialty hospitals. Some conservatives may oppose this measure as a high-handed approach by Washington policy-makers to interfere with free markets, further solidifying existing hospitals’ monopolies, and stifling the type of innovation in health care that new entrants like specialty hospitals can create to slow the growth of health care costs.

Additionally, conservatives may note a letter from the Department of Health and Human Services’ Inspector General from this April, which publicly rebuked several hospital trade associations for making “several statements that misrepresent our findings and draw[ing] several conclusions that we did not make” in a white paper to Congressional policy-makers on the need for a specialty hospital ban. Some conservatives may therefore be highly skeptical of claims from self-interested parties exhibiting monopolistic tendencies, who have made deceptive and misleading statements to Congress to advance their claims—and apparently lack the integrity to apologize for doing so.

Read the article here: Wall Street Journal: “Non-profit Hospitals Flex Pricing Power

Health Care for Undocumented Immigrants

Background:  Data from this year’s Census Bureau report on the uninsured indicate that more than one-fifth—over 9.7 million—of the uninsured are foreign-born residents of the United States lacking American citizenship.  This category—which includes both legal residents not yet citizens as well as undocumented aliens—contains the highest percentage of uninsured Americans (43.8%) of any age, race, income, or other cohort included in the Census survey.[1]

While the Census Bureau reports do not contain specific data on the uninsurance rate among illegal immigrants, a 2005 study using data from the Los Angeles area provides some insight regarding this population.[2]  Extrapolating the 68% uninsured rate for aliens found in the Los Angeles study to a nationwide undocumented population of 12 million would yield approximately eight million uninsured—about one-sixth of the total number of uninsured Americans—who are illegally present.

Impact on Federal Programs:  In general, provisions in Title IV of the 1996 welfare reform law (P.L. 104-193) prohibit the provision of health care or other services to aliens illegally present in the United States.[3]  However, federal health care programs address the issue of verifying identity and nationality as a condition of providing care in various ways, while other programs attempt indirectly to offset the impact of uncompensated care for illegal aliens on health care providers.  The most important of these include:

Medicare:  Under Title XVIII of the Social Security Act, Medicare benefits are available to eligible citizens, as well as to legal aliens continually resident in the United States for at least five years prior to application for benefits.[4]  The five-year residency requirement was challenged on due process grounds, and eventually upheld by the Supreme Court in June 1976; Justice John Paul Stevens, writing for a unanimous Court, stated “it is obvious that Congress has no constitutional duty to provide all aliens with the welfare benefits provided to citizens.”[5]

The Social Security Administration (SSA) determines eligibility for Medicare benefits, including the process of verifying an applicant’s identity and citizenship (or legal resident status).  The standards used by SSA are found in federal regulations, and include evidence of age (e.g. birth certificate or hospital record), identity (e.g. driver’s license, school record, or other documents identifying an individual), and citizenship (e.g. birth certificate, passport, or certificate of naturalization).[6]

Medicaid:  Under the provisions of the welfare reform law, states may only receive federal Medicaid matching funds for legal U.S. citizens or qualified aliens (subject to a five-year waiting period in most cases.[7]  However, while the Medicaid statute has required since 1986 that applicants declare their nationality under penalty of perjury, until recently most states relied on self-attestation to verify citizenship status.[8]  A 2005 report by the Department of Health and Human Services Inspector General found that 40 states (including the District of Columbia) allowed self-declaration, with an additional seven states sometimes permitting self-declaration of citizenship status; of these 47 states, 27 did not verify the accuracy of the citizenship attestation.[9]

As a result of this report, Congress in the Deficit Reduction Act (DRA, P.L. 109-171) eliminated the ability of state Medicaid programs to rely on self-declarations by beneficiaries as the sole means of citizenship verification.  Specifically, Section 6036 of the Act requires states receiving federal Medicaid funds to verify participants’ identity and citizenship on the basis of appropriate documentation (e.g. passport, birth certificate, etc.).  The verification provisions do not apply to dual eligible (i.e. enrolled in both Medicare and Medicaid) beneficiaries, or to Medicaid beneficiaries receiving SSI benefits, as the Social Security Administration verifies the identities of these beneficiaries, as outlined above.

Shortly after the DRA provisions took effect, the Centers for Medicare and Medicaid Services (CMS) issued an interim final rule on July 12, 2006, using discretionary authority included in the DRA to expand the list of eligible documents that could be used to verify citizenship and/or identity, in order to ease the transition to the new verification regime.[10]  In addition, the Tax Relief and Health Care Act of 2006 (P.L. 109-432) exempted children in foster care from the DRA documentation provisions.  While the verification requirements were sharply criticized by some organizations at the time of their enactment, many conservatives may note the relative lack of controversy surrounding Medicaid verification two years after the provisions took effect as proof that citizenship verification can be implemented in an effective manner that ensures aliens do not have access to federal benefits while preserving existing programs for eligible individuals.

SCHIP:  Because of the hybrid nature of the State Children’s Health Insurance Program (SCHIP), only some children undergo citizenship verification as part of the application process.  The Balanced Budget Act of 1997 (P.L. 105-33), which created SCHIP, gave states the option to use SCHIP funds to expand their Medicaid programs, create a new program for SCHIP beneficiaries, or some combination of the two approaches.  The eight states (and the District of Columbia) which chose Medicaid expansion programs—as well as Medicaid participants in the 24 states with combination programs—are subject to the citizenship verification requirements enacted as part of DRA.[11]  However, the 18 states with separate SCHIP programs currently have no requirement to verify the identity and nationality of individuals before enrolling beneficiaries.

EMTALA:  Enacted in 1986 as part of the Combined Omnibus Budget Reconciliation Act (P.L. 99-272), the Emergency Medical Treatment and Active Labor Act (EMTALA) imposes requirements on hospitals accepting Medicare payments to treat patients in emergency conditions.  The Act’s requirements apply to all patients, regardless of their Medicare eligibility status, ability to pay, or immigration status.[12]  The Act also includes significant penalties: violations of EMTALA can result in fines of up to $50,000 and exclusion from the Medicare program in repeated or egregious cases, as well as lawsuits by patients adversely harmed by an EMTALA violation.

In recognition of the rising costs to providers associated with the EMTALA unfunded mandate, particularly as it relates to care for illegal aliens, Section 1011 of the Medicare Modernization Act (P.L. 108-173) provided a total of $1 billion in grants directly to providers (though on the basis of state-based formulae) for uncompensated emergency care given to illegal aliens—$250 million for each of Fiscal Years 2005 through 2008.

Community Health Centers:  Under the Public Health Service Act, the federal government provides competitive grants to federally qualified health centers, including migrant health centers.  In 2007, health centers treated 16.3 million patients, while the health centers grant program received $2.065 billion in the Fiscal Year 2008 omnibus appropriations bill (P.L. 110-161).[13]  Subsequent legislation passed in the House (H.R. 1343) and Senate (S. 901) would increase health center authorization levels to $15 billion over the FY09-FY13 period.

The statute authorizing the health centers grant program requires that care not be denied to patients based on an inability to pay for services.[14]  In addition, the Congressional Research Service reports that grant recipients are not required to verify the citizenship status of their patients.  Given that the authorizing statute is silent with respect to enforcing the prohibition against federal benefits being provided to illegal immigrants, some conservatives therefore may be concerned that federal tax dollars are being used to provide aliens with health care services.

Disproportionate Share Hospital (DSH) Payments:  While not providing care to illegal aliens, the section of the Medicaid statute related to DSH payments implicitly recognizes the impact this population can have on providers.  In particular, the statute deems hospitals with a low-income utilization rate of 25% as qualifying for DSH payments, without limiting the low-income population to citizens normally eligible for federally-funded care.[15]  As a result, states may allocate portions of their Medicaid DSH payments—estimated to total $8.8 billion in Fiscal Year 2008—to offset care provided by hospitals to illegal aliens.[16]

Legislative Proposals:  Much of the debate surrounding health care for aliens during the 110th Congress has focused on SCHIP reauthorization.  While many Democrats have attempted to use reauthorization as a vehicle to limit or repeal the Medicaid citizenship verification provisions enacted in DRA, many conservatives believe that a reauthorized SCHIP program should incorporate the Medicaid documentation requirements to improve the integrity of the program.

More specifically, H.R. 3162, passed by the House in July 2007, would make Medicaid citizenship verification a state option for children under 21, retroactive to the July 2006 effective date of the DRA provisions.  In addition, Section 112 of the bill would also establish “Express Lane” agencies to enroll beneficiaries in Medicaid and SCHIP, without including citizenship verification or documentation requirements; Section 136 would require states to conduct audits on a sample caseload to ensure that federal Medicaid and SCHIP funds “are not unlawfully spent” on illegal aliens.  Some conservatives may be concerned that the removal of the mandatory Medicaid verification language for children, along with the “Express Lane” provisions, would effectively undermine the important reforms enacted as part of DRA, and that sample audits would not be sufficient to ensure compliance with provisions of the 1996 welfare law cited above stating that no illegal alien may receive federal health or welfare benefits.

H.R. 3963, vetoed by the President in October 2007, would extend citizenship verification requirements to both the SCHIP program has a whole and the “Express Lane” mechanism outlined in H.R. 3162 above.  However, the bill would provide an alternative verification process to the DRA provisions that would instead rely upon name and Social Security number validation—a process which, according to a September 2007 letter from Social Security Administration Commissioner Michael Astrue, would not keep an applicant from fraudulently receiving coverage under Medicaid or SCHIP (if they claimed they were someone they were not).  Some conservatives may therefore be concerned that this provision—coupled with the incentive to states provided by a greatly enhanced federal match to establish this more lenient verification system—would weaken the process put in place by the Deficit Reduction Act.

Conversely, several proposed Republican SCHIP alternatives (H.R. 3176, H.R. 3888, and S. 2193) would apply the Medicaid citizenship verification requirements, as created by the DRA, to the SCHIP program, with an enhanced federal match for administrative costs.  Some conservatives would support the extension of the reasonable Medicaid DRA provisions to the SCHIP program, along with an enhanced administrative match to reimburse states for any increase in overhead costs associated with citizenship verification.

More recently, press reports indicate that the Democratic “Tri-Caucus” of Hispanic, Black, and Asian Members have written to Speaker Pelosi asking her to include provisions repealing the five-year waiting period for qualified aliens to become eligible for Medicaid or SCHIP coverage as part of any SCHIP bill considered by the House this fall.[17]  This change would alter provisions in the 1996 welfare reform law—which also prohibited illegal aliens from receiving federal benefits—that limited access to benefits for most “qualified aliens” for five years.[18]  Some conservatives may be concerned that this provision would increase costs while encouraging would-be immigrants to file claims for asylum in order to obtain federal health care coverage.

Implications for Comprehensive Health Reform:  In light of reports suggesting that illegal immigrants represent a significant—and fast-growing—component of the uninsured in America, some conservatives may focus on two elements necessary to address this issue in any comprehensive health care bill that may be considered.  First, consistent with the debate surrounding SCHIP legislation during this Congress, many conservatives may believe that any reform package must include provisions similar to those in the DRA that impose verification requirements for all applicants to preserve the integrity of federal programs and avoid providing incentives for illegal immigration.  For instance, while the Healthy Americans Act (S. 334) by Sen. Ron Wyden (D-OR) excludes access to new state-based health plans for illegal immigrants, it contains no enforcement or verification provisions to implement this restriction.

Secondly, some conservatives may be concerned about the impact which uncompensated care given to illegal immigrants may impose on providers, particularly hospitals.  The unfunded mandate created by EMTALA has a significant impact on providers treating illegal immigrants, who are less likely to have the health insurance necessary to pay catastrophic expenses.  The combination of DSH payments and the $1 billion uncompensated care fund created by MMA, scheduled to sunset at the end of the fiscal year, only partially defer the uncompensated care cost paid by providers who treat illegal aliens.

Consistent with the conservative concerns about uncompensated care is the relatively new phenomenon of lawsuits against hospitals initiated by illegal immigrants.  The New York Times recently reported on a case from Florida where a hospital, having provided $1.5 million in uncompensated care to a Guatemalan alien, asked for and obtained a court order to return the immigrant to Guatemala; no nursing home in the United States would accept an alien patient without insurance and ineligible for Medicaid, while the hospital could not release a patient with brain injuries into the general population without arranging post-discharge care.[19]  In a case with potentially far-reaching implications, relatives for the alien had the Florida court order reversed after deportation—and subsequently filed suit against the hospital for false imprisonment.

Though tragic on multiple levels, the Florida case highlights a reality a growing number of providers may face—offer virtually unlimited care to illegal aliens, even when an inability to pay is glaringly apparent, or face legal action initiated by the aliens or their caretakers.  Therefore, some conservatives may support actions designed to ensure that providers offering reasonable emergency care to illegal aliens need not be subjected to additional and costly lawsuits.

Conclusion:  The Census data breaking down the uninsured by citizenship and national origin, while not widely publicized, illustrate one reason why the concept of universal health insurance coverage may prove ineffective.  Democrat proposals for an individual mandate to purchase coverage would prove ineffective for this population, who by their very presence have already violated United States law.  Although the uninsured population is not limited to undocumented aliens, many conservatives may believe that a truly comprehensive solution to this health care issue must address the significant demands on the health care system placed by illegal immigrants in a way that preserves the fiscal integrity of existing entitlement programs while protecting providers from liability imposed upon them by aliens illegally present.


[1] “Income, Poverty, and Health Insurance Coverage in the United States: 2007” (Washington, Census Bureau, August 2008), available online at http://www.census.gov/prod/2008pubs/p60-235.pdf (accessed August 26, 2008), Table 6, p. 30.

[2] Dana Goldman, James Smith, and Neeraj Sood, “Legal Status and Health Insurance among Immigrants,” Health Affairs 24:6 (November/December 2005), 1640-1653.

[3] Illegal aliens are eligible for emergency care (as defined by the EMTALA statute discussed below) provided under Medicaid, and for public health assistance with respect to immunization for, and treatment of, communicable diseases.  Some groups of qualified aliens—excluding those illegally present—are eligible for other federal benefits, as discussed below.

[4] Available at 42 U.S.C. 1395o.

[5] Mathews v. Diaz, 426 U.S. 82 (1976).

[6] Some examples of documentation can be found at 20 CFR 422.107.  In addition, SSA’s Program Operations Manual System (POMS) includes guidelines for workers in SSA field offices; the section of the manual relating to citizenship, alien status, and residency can be found online at https://s044a90.ssa.gov/apps10/poms.nsf/lnx/0200303000 (accessed August 25, 2008).

[7] According to the Kaiser Family Foundation, 17 states provide benefits funded solely by state dollars to illegal aliens and/or aliens subject to the waiting period.  See “Health Insurance Coverage and Access to Care for Low-Income Non-Citizen Adults,” (Washington, Kaiser Policy Brief #7651, June 2007), available online at http://www.kff.org/uninsured/upload/7651.pdf (accessed August 26, 2008), p. 3.

[8] The requirement is in Section 1137 of the Social Security Act, available at 42 U.S.C. 1320b-7(d)(1)(A).

[9] Daniel Levinson, “Self-Declaration of U.S. Citizenship for Medicaid,” (Washington, DC, HHS Office of the Inspector General, Report OEI-02-03-00190, July 2005), available online at http://oig.hhs.gov/oei/reports/oei-02-03-00190.pdf (accessed August 20, 2008), pp. 16-18.

[10] A final rule incorporating comments to the July 12, 2006 interim final rule was published in the Federal Register on July 13, 2007 and can be found online at http://edocket.access.gpo.gov/2007/pdf/07-3291.pdf (accessed August 20, 2008).

[11] A state-by-state breakdown of SCHIP program status can be found in Congressional Research Service, The State Children’s Health Insurance Program (SCHIP): An Overview, Report RL 30473, available online at http://www.congress.gov/erp/rl/pdf/RL30473.pdf (accessed August 21, 2008), Table 1, Column 1, pp. 18-21.

[12] The full EMTALA statute can be found at 42 U.S.C. 1395dd.

[13] Fiscal Year 2009 HHS Budget in Brief, available online at http://www.hhs.gov/budget/09budget/2009BudgetInBrief.pdf (accessed August 20, 2008), pp. 21-25.

[14] The statutory language is available at 42 U.S.C. 254b(k)(3)(G)(iii)(I).

[15] The definitions of Medicaid DSH institutions can be found at 42 U.S.C. 1396r-4(b).

[16] March 2008 CBO Medicaid baseline, available online at http://www.cbo.gov/budget/factsheets/2008b/medicaidBaseline.pdf (accessed August 20, 2008).

[17] Mike Soraghan, “Minority Caucuses to Press for Two SCHIP Provisions,” The Hill August 13, 2008, available online at http://thehill.com/leading-the-news/minority-caucuses-to-press-for-two-schip-provisions-2008-08-12.html (accessed August 21, 2008).

[18] Title IV of P.L. 104-193 did contain some exceptions to the “qualified alien” waiting period—most notably for legal permanent residents with a substantial work history (i.e. 40 qualifying quarters of Social Security coverage) and for those with a military connection (i.e. veterans, active-duty servicemen, and their spouses and dependents).

[19] Deborah Sontag, “Immigrants Facing Deportation by U.S. Hospitals,” New York Times August 3, 2008, available online at http://www.nytimes.com/2008/08/03/us/03deport.html?_r=1&sq=jimenez&st=cse&adxnnl=1&oref=slogin&scp=10&adxnnlx=1219331895-evIAEOYXEq2SKfB7dLGcEg&pagewanted=print (accessed August 21, 2008).

Weekly Newsletter: June 23, 2008

Controversial Medicare Bill to be Considered Tuesday

On Tuesday, the House is scheduled to consider under suspension of the rules legislation (H.R. 6331) addressing physician reimbursement levels under Medicare. The bill would prevent for 18 months a reduction in fee schedule levels scheduled to take effect on July 1, and would expand access to certain subsidy programs for low-income beneficiaries. These provisions would be offset largely by cuts to private Medicare Advantage plans, particularly private fee-for-service plans. Similar legislation (S. 3101) failed to advance on a procedural vote in the Senate on June 12.

Some conservatives may be concerned that a bill making significant changes to the Medicare program— which in 2006 spent more money than the national economies of Israel, the Czech Republic, and Colombia combined—is being considered under expedited procedures usually reserved for minor, noncontroversial matters. Some conservatives may also be concerned that the bill fails to address the long-term integrity of the Medicare program, relying on funding gimmicks and government-controlled price-fixing rather than undertaking comprehensive reform that would inject market forces into the program as a means to slow the growth of health care costs. Finally, some conservatives may be concerned that the bill’s significant cuts to Medicare Advantage would have the effect of driving beneficiaries away from a privately-run model of health insurance that has provided enhanced benefits and choice for millions of seniors.

Bipartisan Senate talks resumed last week in the hopes of reaching agreement on physician payment language before Congress begins its Independence Day recess this Friday. The RSC will weigh in with conservative concerns and updates on H.R. 6331 and any other physician payment legislation which may be introduced or considered in the coming days.

The Legislative Bulletin on H.R. 6331 can be found here.

There are additional RSC Policy Briefs on issues related to the Medicare bill: Physician Payments; Medicare Advantage; Bidding for Durable Medical Equipment; and the Medicare Trustees Report.

Supplemental Language Would Override Medicaid Fiscal Integrity Regulations

The House’s vote on amendments to wartime supplemental legislation (H.R. 2642) included several domestic spending provisions, including language that would postpone the implementation of six regulations proposed by the Administration to prevent funding abuses related to the Medicaid program. During negotiations on the components of the package, Congressional Democrats agreed to allow one of the proposed regulations—concerning the definition of an outpatient hospital—to move forward, and removed restrictions on physician-owned specialty hospitals and provisions extending access to reduced-priced pharmaceuticals to Planned Parenthood clinics incorporated into the supplemental in the Senate.

Despite the improvements over the Senate-passed language, and the maintenance of the outpatient hospital regulation, some conservatives may remain concerned by congressional actions to block six other regulations that respond to more than a dozen Government Accountability Office (GAO) reports released since 1994 highlighting the various ways states have attempted to “game” the Medicaid program and increase the amount of federal matching funds received.

Because the provisions only place moratoria on further administrative action until April 2009, the stated cost of the legislation is $1.65 billion. However, some conservatives may be skeptical that Congress would ever let these moratoria be lifted, and thus may be concerned that passage of the legislation ultimately could result in the nullification of approximately $16-18 billion in proposed savings—which, though significant, will slow the growth of federal Medicaid spending by just over 1% over the next five years.

In December 2005, 212 Members of Congress—all Republicans—voted to slow the growth of Medicaid spending by less than $4.8 billion as part of the Deficit Reduction Act. If these moratoria remain intact, some conservatives may be concerned that Congress will have more than undone the modest savings which a Republican-led Congress enacted over sharp Democrat protests.

RSC Briefs on the federal-state Medicaid relationship can be found here, here, here, and here.