Medicaid’s Blue State Bailout

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

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

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

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

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

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

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

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

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

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

This post was originally published at The Federalist.

CBO Tries But Fails to Defend Its Illegal Budget Gimmick

In a blog post released last Thursday, the Congressional Budget Office (CBO) attempted to defend its actions regarding what I have characterized as an illegal budget gimmick designed to facilitate passage of an Obamacare bailout. When fully parsed, the response does not answer any of the key questions, likely because CBO has no justifiable answers to them.

The issue surrounds the budgetary treatment of cost-sharing reductions (CSRs), which President Trump cancelled last fall. While initially CBO said it would not change its budgetary treatment of CSRs, last month the agency changed course, saying it would instead assume that CSRs are “being funded through higher premiums and larger premium tax credit subsidies rather than through a direct appropriation.”

That claim fails on multiple fronts. First, it fails to address the states that did not assume that CSR payments get met through “higher premiums and larger premium tax credit subsidies.” As I noted in a March post, while most states allowed insurers to raise premiums for 2018 to take into account the loss of CSR payments, a few states—including Vermont, North Dakota, the District of Columbia, and a few other carriers in other states—did not. In those cases, the CSR payments cannot be accounted for through indirect premium subsidies, because premiums do not reflect CSR payments.

In its newest post, CBO admits that “most”—not all, but only “most”—insurers have covered the higher costs associated with lowering cost-sharing “by increasing premiums for silver plans.” But by using that phraseology, CBO cannot assume CSRs are being “fully funded” through higher premium subsidies, because not all insurers have covered their CSR costs through higher premiums. Therefore, even by CBO’s own logic, this new budgetary treatment violates the Gramm-Rudman-Hollings statutory requirements.

Second, even assuming that (eventually) all states migrate to the same strategy, and do allow for insurers to recover CSR payments through premium subsidies, CBO’s rationale does not comply with the actual text of the law. The law itself—2 U.S.C. 907—requires CBO to assume that “funding for entitlement authority is…adequate to make all payments required by those laws” (emphasis mine).

I reached out to CBO to ask about their reasoning in the blog post—how the organization can reconcile its admission that not all, but only “most,” insurers raised premiums to account for the lack of CSR funding with CBO’s claim that the CSRs are “fully funded” in the new baseline. A spokesman declined to comment, stating that more information about this issue would be included in a forthcoming publication. However, CBO did not explain why it published a blog post on the issue “provid[ing] additional information” when it now admits that post did not include all relevant information.

In addition, CBO also has not addressed the question of why Director Keith Hall reneged on his January 30 testimony before the House Budget Committee. At that January hearing, Reps. Jan Schakowsky (D-IL) and Dave Brat (R-VA) asked Hall about the budgetary treatment of CSRs. In both cases, the director said he would not make any changes “until we get other direction from the Budget Committees.”

That’s not what happened. CBO now claims that the change “was made by CBO after consultation with the House and Senate Budget Committees” (emphasis mine). No one directed CBO to make this change—or so the agency claims. But curiously enough, as I previously noted, Hall declined to answer a direct question from Rep. Gary Palmer (R-AL) at an April 12 hearing: “Why did you do that [i.e., change the baseline]?…You would have had to have gotten instruction to” make the change.

Moreover, Brat specifically asked how the agency would treat CSRs—as if they were being paid directly, or indirectly. Hall repeated the same response he gave Schakowsky, that CBO would not change its treatment “unless we get direction to do something different”—an answer which, given the agency’s later actions, could constitute a materially misleading statement to Congress.

Reasonable as it may seem from outward appearances, CBO’s excuses do not stand up to any serious scrutiny. The agency should finally come clean and admit that its recent actions do not comport with the law—as well as who put CBO up to making this change in the first place.

This post was originally published at The Federalist.

Exclusive: Congress Should Investigate, Not Bail Out, Health Regulators Who Risked Billions

What if a group of regulators were collectively blindsided by a decision that cost their industry billions of dollars? One might think Congress would investigate the causes of this regulatory debacle, and take steps to ensure it wouldn’t repeat itself.

Think again. President Trump’s October decision to terminate cost-sharing reduction (CSR) subsidy payments to health insurers will inflict serious losses on the industry. For October, November, and December, insurers will reduce deductibles and co-payments for certain low-income exchange enrollees, but will not receive reimbursement from the federal government for doing so. America’s Health Insurance Plans, the industry’s trade association, claimed in a recent court filing that insurance carriers will suffer $1.75 billion in losses over the remainder of 2017 due to the decision.

As Dave Anderson of Duke University recently noted, the “hand grenade” of stopping the cost-sharing reduction payments, “if it was thrown in January or February of this year, would have forced a lot of carriers to do midyear exits and it would have destroyed the exchanges in some states.” Yet Congress has asked not even a single question of regulators why they did not anticipate and plan for this scenario—a recipe for more costly mistakes in the future.

A Brewing Legal and Political Storm

The controversy surrounds federal payments that reimburse insurers for lower deductibles, co-payments, and out-of-pocket expenses for qualifying low-income households purchasing exchange coverage. While the text of Obamacare requires the U.S. Department of Health and Human Services to establish a program to reimburse insurers for providing the discounts, it nowhere includes an explicit appropriation for such spending.

As the exchanges launched in 2014, the Obama administration began making CSR payments to insurers. However, later that year, the House of Representatives, viewing a constitutional infringement on its “power of the purse,” sued to stop the executive from making the payments without an explicit appropriation. In May 2016, Judge Rosemary Collyer ruled the payments unconstitutional absent an express appropriation from Congress.

The next President could easily wade into this issue. Say a Republican is elected and he opts to stop the Treasury making payments related to the subsidies absent an express appropriation from Congress. Such an action could take effect almost immediately….It’s a consideration as carriers submit their bids for next year that come January 2017, the policy landscape for insurers could look far different.

One week after my article, Collyer issued her ruling calling the subsidy payments unconstitutional. At that point, CSR payments faced threats from both the legal and political realms. On the legal front, the ongoing court case could have resulted in an order terminating the payments. On the political side, the new administration would have the power to terminate the payments unilaterally—and it does not appear that either Hillary Clinton or Trump ever publicly committed to maintaining the payments upon taking office.

Yet Commissioners Stood Idly By

In the midst of this gathering storm, what actions did insurance commissioners take last year, as insurers filed their rates for the 2017 plan year—the plan year currently ongoing—to analyze whether cost-sharing payments would continue, and the effects on insurers if they did not? About a week before the Trump administration officially decided to halt the payments, I submitted public records requests to every state insurance commissioner’s office to find out.

Two states (Indiana and Oregon) are still processing my requests, but the results from most other states do not inspire confidence. Although a few states (Illinois, Utah, and California’s Department of Managed Health Care) withheld documents for confidentiality or logistical reasons, I have yet to find a single document during the filing process for the 2017 plan year contemplating the set of circumstances that transpired this fall—namely, a new administration cutting off the CSR payments.

In many cases, states indicated they did not, and do not, question insurers’ assumptions at all. North Dakota said it does not dictate terms to carriers (although the state did not allow carriers to re-submit rates for the 2018 plan year after the administration halted the CSR payments in October). Wyoming said it did not issue guidance to carriers on CSRs “because that’s not how we roll.” Missouri did not require its insurers to file 2017 rates with regulators, so it would have no way of knowing those insurers’ assumptions.

Other states admitted that they did not consider the possibility that the incoming administration would, or even could, terminate the CSR payments. North Carolina said it did not think the court case was relevant, or that cost-sharing reduction payments would be an issue. Massachusetts’ insurance Connector (its state-run exchange) responded that “there was no indication that rates for 2017 were affected by the pendency of House v. Burwell,” the case Collyer ruled on in May 2016.

Despite the ongoing court case and the deep partisan disputes over Obamacare, many commissioners’ responses indicate a failure to anticipate difficulties with cost-sharing reduction payments. Mississippi stated that, during the filing process for 2017, “CSRs weren’t a problem then, as they were being funded.” Minnesota added that “it was not until the spring of 2017 that carriers started discussing the threat [of CSR payments being terminated] was a real possibility.” Nebraska stated that “I don’t think that there’s anyone who allowed for the possibility of non-payment of CSRs for plan year 2017. We were all waiting for Congress to act.”

However, as an e-mail sent by the National Association of Insurance Commissioners (NAIC) to state regulators demonstrates, federal authorities at the Centers for Medicare and Medicaid Services (CMS) stated their “serious concerns” with the Texas and New Mexico proposals. Federal law requires insurers to reduce cost-sharing for qualifying beneficiaries, regardless of the status of the reimbursement program, and CMS believed the contingency language—which never went into effect in either Texas or New Mexico—violated that requirement.

In at least one case, an insurer raised premiums to reflect the risk that CSR payments could disappear in 2017. Blue Cross Blue Shield of Montana submitted such request to that state’s insurance authorities. However, regulators rejected “contingent CSR language”—apparently an attempt to cancel the reduced cost-sharing if reimbursement from Washington was not forthcoming, a la the Texas and New Mexico proposals. The insurance commissioner’s office also objected to the carrier’s attempt to raise premiums over the issue: “We will not allow rates to be increased based on speculation about outcomes of litigation.”

Of course, had insurers requested, or had regulators either approved or demanded, premium increases last year due to uncertainty over cost-sharing reduction payments, they would not now face the prospect of over $1 billion in losses due to non-payment of CSRs for the last three months of 2017. But had regulators approved even higher premium increases last year, those increases likely would have caused political controversy during the November elections.

As it was, news of the average 25 percent premium increase for 2017 gave Trump a political cudgel to attack Clinton in the waning days of the campaign. One can certainly question why Democratic insurance commissioners who did not utter a word about premium increases and CSR “uncertainty” during Clinton’s campaign suddenly discovered the term the minute Trump was elected president.

However, at least some ardent Obamacare supporters just did not anticipate a new administration withdrawing cost-sharing reduction payments. Washington state’s commissioner, Mike Kreidler, published an op-ed last October regarding the House v. Burwell court case. He did so at the behest of NAIC consumer representative Tim Jost, who wanted to cite Kreidler’s piece in an amicus curiae brief during the case’s appeal. But despite their focus on the court case regarding CSRs, it appears neither Jost nor Kreidler ever contemplated a new administration withdrawing the payments in 2017.

Congressional Oversight Needed

The evidence suggests that not a single insurance commissioner considered the impact of a new administration withdrawing cost-sharing reduction payments in 2017, a series of decisions that put the entire health of the individual insurance market at risk. What policy implications follow from this conclusion?

First, it undercuts the effectiveness of Obamacare’s “rate review” process. That mechanism requires states to evaluate “excessive” premium increases. However, the program’s evaluation criteria do not explicitly include policy judgments such as those surrounding CSRs. Moreover, the political focus on lowering “excessively” high premium increases might result in cases where regulators approve premium rates set inappropriately low—as happened in 2017, where no carriers priced in a contingency margin for the termination of CSR payments, yet those payments ceased in October.

As noted above, Montana’s regulators called out that state’s Blue Cross Blue Shield affiliate for proposing a rate increase relating to CSR uncertainty. The state’s insurance commissioner, Monica Lindeen, issued a formal “letter of deficiency” in which she stated that “raising rates on the basis of this assumption [i.e., loss of cost-sharing reduction payments] is unreasonable.” But events proved Lindeen wrong—those payments did disappear in 2017. Yet the insurer in question has no recourse after their assumptions proved more accurate than Lindeen’s—nor, for that matter, will Lindeen face any consequences for the “unreasonable” assumptions she made.

Second, it suggests an inherent tension between state authorities and Washington. Several regulators specifically said they looked to CMS’ advice on the cost-sharing reduction issue. Iowa requested guidance from Washington, and Wisconsin said the status of the payments was “out of our hands.” But given the impending change of administrations, any guidance CMS provided in the spring or summer of 2016 was guaranteed to remain valid only through January 20, 2017—a problem for regulators setting rates for the 2017 plan year.

Obamacare created a new layer of federal oversight—and federal policy—surrounding regulation of insurance, which heretofore had laid primarily within the province of the states. The CSR debacle resulted from the conflict between those two layers. Unless and until our laws reconcile those tensions—in conservatives’ case, by repealing the Obamacare regime and returning regulation to the states, or in liberals’ preferred outcome, by centralizing more regulatory authority in Washington—these conflicts could well recur.

Third, and perhaps most importantly, it should spark Congress to examine state oversight of health insurance in greater detail. The fact that insurance commissioners escaped the equivalent of a Category 5 hurricane—the withdrawal of CSR payments in January—and struggled through a mere tropical storm with payments withdrawn in October instead, had no relevance on their regulatory skill—to the contrary, in fact.

Unfortunately, Congress has demonstrated little interest in examining why the regulatory apparatus fell so short. The same Democratic Party that investigated regulators and bankers following the financial crisis has shown little interest in questioning why insurers and insurance regulators failed to anticipate the end of cost-sharing reduction payments. With their focus on getting Congress to appropriate funds restoring the CSR payments President Trump terminated, insurance commissioners’ lack of planning and preparation represents an inconvenient truth that Democrats would rather ignore.

Likewise, Republicans who wish to appropriate funds for the cost-sharing reduction payments have no interest in examining the roots of the CSR debacle. In September, Sen. Lamar Alexander (R-TN) convened a hearing of the Health, Education, Labor, and Pensions (HELP) Committee to take testimony from insurance commissioners on “stabilizing” insurance markets.

At the hearing, Alexander did not ask the commissioners why they did not predict the “uncertainty” surrounding cost-sharing reductions last year. HELP Committee Ranking Member Patty Murray (D-WA) asked Kreidler, her state’s insurance commissioner, about regulators’ “guessing games” regarding the status of CSRs with regard to the 2018 plan year. But neither she nor any of the members asked why those regulators made such blind and ultimately incorrect assumptions last year, by not even considering a scenario where CSR payments disappeared during the 2017 plan year.

Alexander and Murray claim the legislation they developed following the hearing, which would appropriate CSR funds for two years, does not represent a “bailout” for the insurance industry. But the fact remains that last fall, when preparing for the 2017 plan year, insurance regulators dropped the ball in a big way.

Ignoring their inaction, and appropriating funds for cost-sharing reductions without scrutinizing their conduct, would effectively bail out insurance commissioners’ own collective negligence. Congress should think twice before doing so, because next time, a regulatory debacle could have an even bigger impact on the health insurance industry—and on federal taxpayers.

This post was originally published at The Federalist.

Enrollment Statistics Show High-Risk Pool Failure

Further to my post on poor high-risk pool enrollment from yesterday, the updated enrollment statistics are now online.  A total of 18,313 individuals were enrolled in federal high-risk pools as of March 31.  To put this number in perspective, only six states have more than 1000 enrollees, while 16 have fewer than 100.  The District of Columbia has only 15 individuals with pre-existing conditions participating, and North Dakota has but six.

Remember:  In January the Administration claimed that up to 129 million non-elderly Americans “have some type of pre-existing health condition.”  Today’s announcement shows that the $2.6 trillion health care law has provided coverage to .014% of the individuals HHS claims have pre-existing conditions.

State-by-State Resources on Obamacare’s Effects

As Families USA released a compilation this morning of state-by-state statistics showing the “benefits” of the law, I wanted to make sure you were aware of the following studies and sources that show its true effects:

  • The Heritage Foundation has a very helpful report indicating the impact of the health care law’s Medicare Advantage cuts, with details broken out by state (and by congressional district), that can be found here.
  • The Finance and Energy and Commerce Committee staffs compiled a state-by-state report outlining new unfunded mandates totaling at least $118 billion thanks to the health care law.  Keep in mind also that these numbers may be UNDER-estimates, as definitions of income in the statute mean many more individuals could be dumped into Medicaid than previously contemplated, and because the Administration’s stated effort to impose new rules on Medicaid physician payment levels would impose yet another unfunded mandate on states.
  • NFIB has compiled state-by-state data illustrating how most small businesses WILL NOT be eligible for tax credits, thanks to all the various bureaucratic hoops firms must go through to obtain federal subsidies.  (On a related note, this morning’s Associated Press article includes a quote admitting that “the longer this [tax credit] has been out in the marketplace, the less appealing it’s been to small business owners.”)
  • The Center for Studying Health System Change released a study detailing how many states with the largest Medicaid expansions do not have adequate numbers of physicians willing to treat Medicaid patients – meaning a Medicaid card will NOT mean access to care in those areas.
  • The Administration has a list of the 1,040 firms – covering over 2.6 million individuals – who received waivers from the law’s mandates.  The Administration (surprisingly) has yet to release a state-by-state breakdown of where these individuals reside – but such information may be disclosed in the coming weeks.
  • The Administration also has a list of states that have applied for waivers from the medical loss ratio requirements – and several more states have indicated their intent to apply in the coming months.  Individuals in states obtaining waivers will not receive the law’s “consumer protections,” although they may be more likely to keep their current coverage (at least for a few more years).
  • The Administration has released state-by-state enrollment numbers for the new federal high-risk pool program – and the numbers fall far short of the 375,000 enrollment predicted by the Medicare actuary.  Many states have enrollment lagging in double digits – Minnesota’s pool has only 29 enrollees, and North Dakota’s but five – while even the largest state, California, enrolled only 706 people with pre-existing conditions as of February.

Heritage Report: State-by-State Impact of Medicare Advantage Cuts

In case you hadn’t yet seen, I wanted to pass along this helpful report from the Heritage Foundation, released earlier today, about the impact of the health care law on Medicare Advantage (MA) beneficiaries.  The report takes the original estimate by the Medicare actuary that the MA provisions in the health care law would cut program enrollment in half by 2017, and uses those assumptions to generate more detailed analysis about the law’s effects.  Among the key findings:

  • By 2017, the reduction in Medicare Advantage benchmarks – coming from both the direct reductions in MA benchmark levels under the law, and the indirect reduction in benchmark levels as a result of reductions in traditional Medicare’s spending – will average $3,714 per beneficiary.  In addition, “the new formulas will reduce every county’s benchmark for 2017 relative to its projected benchmark for 2017 under prior law.”
  • The report provides state-by-state breakdowns of the reduction in MA benchmarks when compared to prior law.  The impact is projected to vary from an average cut per beneficiary of $2,985 in North Dakota to $5,092 in Louisiana.
  • Most importantly, the report also provides a state-by-state breakdown of the impact on MA enrollment in 2017 compared to prior law projections.  Effects range from a 38% enrollment reduction in Montana to a 62% reduction in Louisiana – with MA enrollment in the District of Columbia dropping by more than two-thirds (67%), and enrollment in Puerto Rico plummeting by 84%.  The map on page 9 of the report provides more information, and a chart on page 12 names the 30 counties with the steepest projected drops in enrollment.
  • When broken out by ethnicity, the MA provisions will cause Hispanics to lose $2.3 billion in benefits, with 300,000 losing access to MA plans.  African-Americans will lose $6.4 billion in benefits, with 800,000 losing plan access.
  • When analyzed by income, “more than 10.3 million Medicare beneficiaries with incomes under $32,400 in today’s dollars are projected to lose a total of $38.5 billion per year” in benefits.  Fully 70% of the cut to MA will be absorbed by seniors with incomes under $32,400 – and more than 5 million of these low-income seniors will lose access to an MA plan.
  • The Medicare Advantage cuts will increase Medicaid spending – because many dual eligible beneficiaries currently participating in MA, and receiving extra benefits from their MA plans, do not feel the need to sign up for Medicaid.  However, as a result of the health care law, an estimated 472,000 dual eligibles will lose their MA plan, increasing Medicaid costs by a total of $924 million – $401 million of which must be borne by states.
  • Because MA plans offering drug coverage currently bid about $11 per month less to offer prescription coverage than stand-alone Part D drug costs, Medicare Advantage has had the effect of lowering total Part D spending.  However, as a result of the MA cuts included in the health care law, Part D spending is projected to increase by $1.5 billion per year.

A Reading Guide to Obamacare’s Backroom Deals

“I think the health care debate as it unfolded legitimately raised concerns not just among my opponents, but also amongst supporters that we just don’t know what’s going on. And it’s an ugly process and it looks like there are a bunch of back room deals.”

— President Obama, interview with ABC’s Diane Sawyer, January 25, 2010[i]

 

The White House recently enacted its health “reform” agenda by signing the 2,733 page legislation (H.R. 3590) that passed the Senate in December.[ii] While the Administration touts its removal of the “Nebraska FMAP provision” that saw 49 other states funding Nebraska’s Medicaid largesse (known as the “Cornhusker Kickback”), it did not address other deals negotiated by Democrats in the Senate legislation. Many other backroom agreements are included in the legislation the President has now enacted into law:

Page 428—Section 2006, known as the “Louisiana Purchase,” provides an extra $300 million in Medicaid funding to Louisiana.[iii]

Page 2132—Section 10201(e)(1) provides an increase in Medicaid Disproportionate Share Hospital (DSH) payments for Hawaii, meaning 49 other states will pay more in taxes so that Hawaii can receive this special benefit.

Page 2203—Section 10317 amends provisions in Medicare so that hospitals in Michigan and Connecticut can receive higher payments.

Page 2222—Section 10323 makes certain individuals exposed to environmental hazards eligible for Medicare coverage. The definition used in the bill ensures the only individuals eligible will be those living in Libby, Montana.

Page 2237—Section 10324 increases Medicare payments by $2 billion in “frontier states.”[iv]

Page 2354— Section 10502 spends $100 million on “debt service of, or direct construction of, a health care facility,” language which the sponsors intended to benefit Connecticut.[v]

Page 2395—Section 10905(d) exempts Medigap supplemental insurance plans from the new tax on health insurance companies; press reports indicate this provision was inserted to benefit an insurer headquartered in Nebraska.[vi]

Even after the public outrage from the “Cornhusker Kickback,” Democrats used separate legislation designed to “fix” this particular provision (H.R. 4872) to add yet more deals behind closed doors.[vii] For instance, page 71 (Section 1203(b)) of the “fixer” bill provided an increase in Medicaid disproportionate share hospital payments just for Tennessee. And Section 2213 (page 145) of the original version of the “fixer” bill[viii] included a sweetheart deal making the Bank of North Dakota the only financial facility in the country exempted from Democrats’ government takeover of student loans—a backroom deal so egregious that it was removed within hours once the bill was finally revealed to the American public.[ix]

These specific agreements and provisions also do not display the full scope of the White House’s legislative deal-making. For instance, the head of the pharmaceutical industry said the Administration approached him to negotiate a deal with his industry: “We were assured, ‘We need somebody to come in first.  If you come in first, you will have a rock-solid deal.’”[x] And former Democratic National Committee Chairman Howard Dean publicly admitted at a town hall forum that “The reason that tort reform is not in the [health care] bill is because the [Democrat Members] who wrote it did not want to take on the trial lawyers.”[xi]

The many pages of backroom deals included in the health care takeover legislation raise several questions: If the bill itself was so compelling, why did Democrats need billions of dollars in “sweeteners” negotiated in secret in order to vote for it? If President Obama was so concerned about the public perceptions created by the backroom dealing, why did he not propose to strike all the special agreements? Does he believe that this pork-barrel spending is the only reason why Democrats voted to pass his government takeover of health care in the first place?

 

[i] Full interview transcript available at http://abcnews.go.com/print?id=9659064.

[ii] Senate-passed bill text available at http://www.opencongress.org/bill/111-h3590/text.

[iii] “Dems Protect Backroom Deals,” Politico February 4, 2010, http://www.politico.com/news/stories/0210/32499.html.

[iv] Congressional Budget Office, score of H.R. 3590 including Manager’s Amendment, December 19, 2009, http://cbo.gov/ftpdocs/108xx/doc10868/12-19-Reid_Letter_Managers_Correction_Noted.pdf.

[v] “Dodd Primes Pump in Bid to Survive,” Politico December 22, 2009, http://www.politico.com/news/stories/1209/30881.html.

[vi] “How Nebraska’s Insurance Companies Stand to Profit from Ben Nelson’s Compromises in Health Care Bill,” Huffington Post 21 December 2009, http://www.huffingtonpost.com/2009/12/21/how-nebraskas-insurance-c_n_400080.html.

[vii] Senate-passed bill (H.R. 3590) text available at http://www.opencongress.org/bill/111-h3590/text; reconciliation bill (H.R. 4872) text available at http://www.opencongress.org/bill/111-h4872/text.

[viii] House Rules Committee amendment in the nature of a substitute, http://docs.house.gov/rules/hr4872/111_hr4872_amndsub.pdf.

[ix] “Conrad Wants Controversial Carve-Out Axed,” Roll Call March 18, 2010, http://www.rollcall.com/news/44368-1.html. The provision was stripped by the Rules Committee prior to full House consideration of H.R. 4872.

[x] Quoted in “White House Affirms Deal on Drug Cost,” New York Times August 5, 2009, http://www.nytimes.com/2009/08/06/health/policy/06insure.html?_r=3&scp=8&sq=kirkpatrick&st=cse.

[xi] Exchange at Town Hall forum in Reston, VA, August 25, 2009, available online at http://www.youtube.com/watch?v=IdpVY-cONnM.

Manager’s Amendment to Reconciliation Bill

As an FYI, this document makes changes to the reconciliation measure:

  • Reduces the growth of the true out-of-pocket threshold for the Medicare prescription drug benefit, beginning in 2014;
  • Increases Medicare Advantage coding intensity adjustments for the years 2014 through 2018;
  • Adjusts the physician practice expense geographic adjustment for 2010;
  • Provides a total of $400 million for payments in fiscal years 2011 and 2012 to “qualified hospitals” ranking within the lowest quartile of counties in Medicare spending;
  • Strikes Section 1303 (relating to CMS and IRS data matching to identify fraudulent providers);
  • Strikes language making transfers between the Treasury general fund and the Medicare Hospital Insurance Trust Fund related to the new Medicare tax on wages and unearned income;
  • Raises the brand name pharmaceutical tax by $200 million in 2012 and 2013, $500 million in 2017, and $100 million in 2018;
  • Reduces the medical device tax from 2.9 percent to 2.2 percent, but applies such taxes to Class I medical devices;
  • Adjusts a timing shift in section 1410 of the reconciliation bill;
  • Strikes Section 1411 (regarding no net impact on the Social Security Trust Fund);
  • Amends Section 2101 to include $13.5 billion in mandatory Pell Grant spending;
  • Strikes Section 2102 (related to student financial assistance);
  • Strikes Section 2213 (related to state-owned banks – the “Bismarck Bank Job”); and
  • Makes other technical and conforming changes.

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.