Study Contradicts Claims of California’s Obamacare “Success”

Liberals have cited California as the prototypical Obamacare success story for years now, but a new study puts that assertion very much in doubt. Five years ago, even before Obamacare’s exchanges went live, The New York Times’ Paul Krugman claimed California would prove that “a program designed to help a lot of people can, strange to say, end up helping a lot of people — especially when government officials actually try to make it work.”

Reporters have chimed in with similar stories about Obamacare’s supposed success in California. During the presidential campaign in 2016, the Los Angeles Times reported that “California is emerging as a clear illustration of what the law can achieve.” The article quoted several insurers saying the state “did it right,” and had created stable insurance markets.

Emergency Rooms Are Getting More, Not Less, Use

The study, conducted by the California Health Care Foundation, examined emergency department usage over the ten years from 2006 to 2016. While the report, perhaps quite deliberately, didn’t highlight this conclusion — it mentioned Obamacare once, and only in passing — the data indicate that emergency department usage since Obamacare has not only not decreased, it has accelerated, rising at a faster rate than in prior years.

One chart tells the tale:

The study indicates that ER usage accelerated in the years immediately following Obamacare’s implementation, just as it shows Medicaid patients comprised a larger share of ER visits. From 2006 through 2016, Medicaid patients nearly doubled as a share of ER visitors, while ER visitors with private insurance and no insurance both declined:

Unfortunately, this chart does not reveal data for the years immediately before and after Obamacare implementation in 2014, making it tougher to draw direct conclusions. However, the 20 percentage point increase in ER visits by Medicaid patients (California calls its Medicaid program “Medi-Cal”) more than outweighs the 9 percentage point decline in self-pay and uninsured patients and the 4 percentage point decline in patients with other forms of coverage.

While private patients’ ER usage held relatively flat over the decade, the nearly 4 million increase in ER visits by Medicaid patients swamped the combined 863,000 fewer visits by self-pay and uninsured patients and patients with other coverage.

To put it bluntly, the raw data from the California study suggest the state has less of a problem with an overall increase in ER visits and much more of a problem with an explosion in Medicaid patient ER visits. That inconvenient truth might explain why the California Health Care Foundation didn’t highlight the impact of Medicaid, or Obamacare’s expansion of it, in the report itself.

California Study Echoes Oregon ‘Experiment’

In 2016, a group of economists released an updated analysis from Oregon, which concluded that ER usage increased, not decreased, by 40 percent for participants in the Medicaid expansion. The increased ER usage persisted for at least two years, making it unlikely that it existed solely due to “pent-up demand” — i.e., individuals using their new insurance coverage to have lingering but previously untreated problems examined.

Contrary to the conventional wisdom that giving patients a more normal source of coverage would decrease ER utilization, the Oregon study found that usage of health care services increased across-the-board, including emergency department visits.

The California study did not reveal whether access problems resulted in the 170 percent increase in ER visits by Medicaid patients. The state has notoriously stingy payment rates for Medicaid providers, which could impede patients from accessing primary care, forcing them to use the emergency room instead.

At minimum, however, the study once again demonstrates how Obamacare has failed to deliver on its promise to lower the cost of health care by providing that care in a more timely fashion and at the most efficient location. The increase in ER usage by Medicaid patients also raises questions about whether an insurance card provides access to actual health care.

Five years ago, I wrote about how Krugman’s claims of California’s Obamacare success echoed The Mamas and the Papas: little more than California Dreamin’. Last week’s study reiterates how liberal claims that the state represents an Obamacare “success story” remain nothing more than a pipe dream.

This post was originally published at The Federalist.

Reforming Medicaid in Louisiana

A PDF of this document is available at the Pelican Institute website.

Two years ago, the incoming administration of Gov. John Bel Edwards (D-LA) pledged that expanding Medicaid to able-bodied adults, as permitted under Obamacare, would help solve Louisiana’s ongoing structural budget shortfalls. Unfortunately, the Governor’s promises have not come to fruition. Enrollment in the Medicaid expansion has exceeded projections—as have the costs associated with that expansion. As a result, Louisiana faces a scenario plaguing many states that expanded Medicaid: Rising spending on expansion crowding out other important budgetary priorities like education, transportation, and law enforcement.

Democrats have already proposed a series of tax increases to “solve” the state’s fiscal crisis.[1] But that “solution” misses the point—and won’t actually solve the problem. Rather than raising taxes yet again, to pay for more unaffordable health care spending, Louisiana should both right-size and reform its Medicaid program. Right-sizing the program would involve unwinding the massive expansion to the able-bodied—working-age adults without dependent children—to return Medicaid to serving the populations for which it was originally designed—pregnant women, children, senior citizens, and individuals with disabilities.

After right-sizing the Medicaid program, state leaders should then work to reform and modernize Medicaid for the 21st century. Specifically, Louisiana should work with the Trump Administration to enact a comprehensive Medicaid reform waiver. This waiver could include components to improve coordination of beneficiary care, introduce consumer choice elements into Medicaid, provide a smoother transition to work and employer-based coverage for those who are able to work, and improve program integrity to use scarce taxpayer dollars most effectively.

Individually and collectively, the policy solutions outlined in this paper—unwinding Medicaid expansion and embracing a comprehensive waiver to enact additional reforms—would help put Louisiana on a more sustainable fiscal trajectory, eliminating the need for the tax-and-spend battles of the past several years. By so doing, the state could focus more on enacting reforms necessary for the economy to thrive, bringing jobs back to Louisiana.

 

Massive Expansion

Fewer than two years since Louisiana first expanded Medicaid under Obamacare to able-bodied adults, enrollment in the expansion has already shattered expectations. While officials first projected about 306,000 previously uninsured individuals would gain coverage through expansion, within days of Gov. Edwards signing the executive order authorizing Medicaid expansion, state officials revised their estimates dramatically upward. At that time, officials claimed that as many as 450,000 Louisianans could be added to the Medicaid rolls by expansion.[2] However, even this projection turned out to be an under-estimate, as by December 2017 enrollment reached 456,004, exceeding the higher projection.[3] Louisiana officials admit that, as enrollment exceeds the original 306,000 projection, costs to the state will increase, reducing the state’s supposed fiscal savings.[4]

The fact that Louisiana’s Medicaid expansion has exceeded enrollment projections should come as no surprise. In fact, virtually every state that expanded Medicaid to the able-bodied under Obamacare has seen vastly more enrollees than they had originally planned for. A November 2016 study by the Foundation for Government Accountability (FGA) showed that 24 states’ Medicaid expansion had within two years exceeded projections for the maximum number of individuals that would ever enroll in the Obamacare expansion by an average of 110%.[5]

An earlier report by FGA, issued in April 2015, found that enrollment had exceeded estimates in 17 states. Collectively, those 17 states exceeded their maximum enrollment projections by an average of “only” 61%.[6] By comparison, just eighteen months later, a total of 24 states had exceeded their maximum enrollment projections by more than 110%—amounting to over 6 million enrollees more than projected.[7] More states continue to enroll many more individuals than projected in Medicaid expansion, even after many states already exceeded projections in the expansion’s first year.

The enrollment explosion in “free” Medicaid contrasts with more limited enrollment in Obamacare’s other venue for coverage expansion—health insurance Exchanges. While Medicaid enrollment vastly exceeded projections, as of the 2017 open enrollment period, effectuated Exchange enrollment stood at only 10.3 million individuals.[8] This enrollment figure represents less than half the 23 million individuals the Congressional Budget Office estimated at the time of Obamacare’s enactment would sign up for Exchange coverage in 2017.[9]

Moreover, studies suggest that only individuals who qualify for the most generous subsidies have joined insurance Exchanges in significant numbers. The consulting firm Avalere Health concluded that more than four in five (81%) eligible individuals with incomes of under 150% of the federal poverty level—who qualify for both the richest premiums subsidies and reduced deductibles and co-payments—have signed up for Exchange coverage.[10] By comparison, only about one-sixth (16%) of those with incomes between three and four times the poverty level—who qualify for much smaller premium subsidies, and receive no help with cost-sharing—purchased Exchange coverage.[11] Put simply, while individuals quickly sign up for “free,” or nearly free, health insurance coverage, including through Medicaid, they have signed up much more slowly for health plans for which they must make a financial contribution.

 

Massive—and Rising—Costs

Even prior to Obamacare, Medicaid had grown exponentially over the past several decades to become a larger and larger share of Louisiana’s state budget. In fiscal year 1985, Medicaid represented 8.9% of Louisiana’s total budgetary expenditures.[12] Thirty years later, in fiscal year 2015, Medicaid had more than tripled as a share of the state budget, rising to 27.6% of total expenditures.[13]

The rising tide of Medicaid spending in Louisiana echoes national trends. In fiscal year 1985, Medicaid consumed an average of 9.7% of total state expenditures across all 50 states.[14] By comparison, in fiscal year 2013, the last year before Obamacare’s expansion took effect, Medicaid represented an average of 24.4% of state spending.[15] Over a quarter-century, then, Medicaid spending more than doubled as a share of state spending—before most of Obamacare’s effects kicked in.

However, even when compared to other states, Louisiana suffered from skyrocketing Medicaid spending prior to Obamacare expansion taking effect. The Pew Charitable Trusts noted that, during the years 2000-2015, Medicaid grew the fastest in Louisiana when measured as a share of the state’s own spending. During that time, Medicaid grew by 12.8 percentage points—from 10.5% of the state’s spending to 23.3% of state dollars.[16] As a result of that growth in Medicaid spending, Louisiana was the state most dependent on federal funds in fiscal year 2015, using money from Washington to comprise 42.2% of its budget—again, before Obamacare’s Medicaid expansion ever took effect in Louisiana.[17]

States like Louisiana that chose to expand Medicaid to the able-bodied face additional rising costs, due to both higher than expected enrollment in Medicaid expansion and higher than expected per-beneficiary spending for those expansion enrollees. In late 2016, the Centers for Medicare and Medicaid Services’ (CMS) Office of the Actuary released its annual report on the state of the Medicaid program. The report found that, contrary to projections that expansion enrollees would have per-beneficiary costs lower than previously eligible Medicaid beneficiaries, states actually faced higher per-beneficiary costs for the expansion population than their prior enrollees.[18] In 2016, expansion enrollees cost the Medicaid program an average of $5,926, compared to average spending of $5,215 for non-expansion adults.[19]

The higher spending on Medicaid expansion enrollees has now persisted for several years, contrary to predictions before the coverage expansion took effect. At first, the CMS actuary thought that the higher spending came from pent-up demand for health care—previously uninsured enrollees using their newfound Medicaid coverage to cover heretofore-neglected health conditions.[20] However, the 2014, 2015, and 2016 annual reports on Medicaid all demonstrated higher per-beneficiary spending for expansion populations than those eligible prior to Obamacare.[21]

Echoing the national trends, Medicaid per-beneficiary spending in Louisiana remains higher for expansion enrollees than previously eligible beneficiaries. State officials admit that in fiscal year 2017, spending for expansion enrollees totaled $6,712 per adult—more than 20% higher than the $5,575 spent on non-expansion enrollees.[22] Liberal supporters of the expansion claim that the disparity arises from pent-up demand by new enrollees—the same assumption federal actuaries made.[23] However, the higher spending by expansion enrollees over several years at the federal level suggests that higher spending by expansion enrollees may persist in Louisiana as well.

With enrollment higher than initial projections, and spending on those new enrollees averaging more than anticipated, many states now face fiscal crises brought on by their Medicaid expansions. Under the Obamacare statute, states began to pay a share of the costs for the Medicaid expansion in calendar year 2017. Moreover, states’ 5% share of expansion enrollees’ health costs in 2017 will double over the next few years, rising to 6% in calendar year 2018, 7% in calendar year 2019, and 10% in calendar year 2020.[24] Given the vast sums that states already devote to their Medicaid programs, paying five percent—let alone ten percent—of expansion costs will add significant new stresses to state budgets.

Even as Louisiana expanded Medicaid to the able-bodied, other states began facing expansion’s negative effects, with budget shortfalls looming because the expansion exceeded projected costs. Kentucky’s estimated costs of expansion in fiscal years 2017 and 2018 rose from $107 million to $257 million—a more than doubling of costs that will take money away from other state priorities like education, transportation, or law enforcement.[25] Likewise, Ohio’s budget for Medicaid expansion more than doubled compared to the state’s prior projections, leaving legislators scrambling to cut money from other programs to stem the shortfall.[26]

With Medicaid expansion squeezing state budgets, even Democratic state legislators across the country have contemplated what some liberals might consider apostasy—scaling back and right-sizing the Medicaid program to reflect competing fiscal priorities. Consider comments from New Mexico state senator Howie Morales, a Democrat:

When you’re looking at a state budget and there are only so many dollars to go around, obviously it’s a concern. The most vulnerable of our citizens—the children, our senior citizens, our veterans, individuals with disabilities—I get concerned that those could be areas that get hit.[27]

Other legislators agree, with an Oregon Democratic State Senator reflecting on his state’s $500 million budget shortfall by stating that “the only way to keep this [budget situation] manageable is to keep those costs under control, get people off Medicaid.”[28]

The growth in Medicaid spending has resulted in cascading effects across states—including in Louisiana. As the state’s budget history demonstrates, a dollar of spending on Medicaid results in fewer dollars for other programs. For instance, as the share of Louisiana’s budget devoted to Medicaid more than tripled from 1985 through 2015, the share of the budget dedicated to primary and secondary education fell from 23.5% to 18.8%, the share dedicated to higher education fell from 10.9% to 9.9%, and the share dedicated to transportation fell by half, from 11.2% to 5.6%.[29] If Louisiana continues down its current path, schools, universities, and roads will face a continued squeeze as Medicaid consumes more and more state resources.

Moreover, the current Medicaid-imposed woes that states face assume that the enhanced federal match remains static—a far from safe assumption. With the federal debt recently topping $20 trillion, the belief that Washington will continue to pay 90 percent of states’ expansion costs in 2020 and every year thereafter may strike some as an overly rosy scenario.[30] Indeed, President Obama himself once proposed reducing the federal Medicaid match by $100 billion over ten years through a so-called “blended rate” policy.[31] Only an outcry from liberals, combined with the 2012 Supreme Court ruling that made Medicaid expansion optional for states, eventually persuaded President Obama to abandon the proposal.[32] However,  given Washington’s own dire fiscal situation, the concept could well return in future years.

More recently, Congress has begun taking action to rein in another enhanced match provided to states as part of Obamacare. Specifically, Section 2101 of the law provided a 23 percent increase in the federal match to State Children’s Health Insurance Programs (SCHIP) across the country.[33] As a result of the increase, Louisiana’s SCHIP match rate in the current fiscal year ending September 30 stands at 97.58%, instead of the usual 74.58%.[34] A total of 12 states, plus the District of Columbia, currently receive a 100% match for their SCHIP programs, meaning the federal government effectively funds all of the health costs of these states’ SCHIP enrollees.[35]

However, the costs of the enhanced federal SCHIP match on Washington’s budget have led Congress to eliminate that enhanced match within the next few years.  SCHIP legislation signed into law earlier this month will phase out the enhanced match—lowering the 23 percent match to 11.5 percent in fiscal year 2020, while eliminating it altogether in fiscal 2021.[36] With bipartisan agreement within Congress on eliminating Obamacare’s enhanced SCHIP match rate, state lawmakers would do well to consider whether and when Congress will likewise eliminate the enhanced match for Obamacare’s Medicaid expansion to the able-bodied.

 

Difficulties for the Most Vulnerable

In addition to skyrocketing enrollment and costs, the Medicaid expansion has hurt some of the most vulnerable Americans in society, because Obamacare effectively gives state programs financial incentives to discriminate against individuals with disabilities.[37] Traditionally, the federal government provides states with a Medicaid match through a statutory formula comparing a state’s average income to the national average. For their traditional beneficiaries—that is, pregnant women, children, the aged, medically frail, and individuals with disabilities—states receive a federal Medicaid match ranging from 50% to 83%. For the current fiscal year, Louisiana will receive a 63.69% match rate for these populations.[38]

However, as noted above, Obamacare gives states a much greater federal match to cover its expansion population—individuals with incomes of under 138 percent of the poverty level ($34,638 for a family of four in 2017). For calendar year 2017, states received a 95% federal match, which will fall slightly to 94% in 2018, 93% in 2019, and 90% in 2020.[39] Put another way, Louisiana will receive over 30 cents more on the dollar from the federal government to cover the expansion population this year than it will to cover traditional beneficiaries eligible for Medicaid prior to Obamacare.

This yawning disparity in the federal match favoring expansion enrollees over traditional beneficiaries comes despite noteworthy characteristics of the individuals who qualify for Obamacare’s Medicaid expansion. Specifically, the liberal Urban Institute found that nationwide, 82.4% of the expansion population consisted of able-bodied adults of working age.[40] In Louisiana, nearly three-quarters (74.9%) of projected expansion enrollees represented adults without dependent children.[41]

In other words, the federal government offers—and under the current governor, Louisiana accepted—an arrangement whereby states receive a significantly greater federal match to provide services to able-bodied adults of working age than to provide services to the individuals for whom Medicaid was traditionally designed: The medically frail, aged, and individuals with disabilities. Moreover, this disparity comes as many of the latter need critically important services, which they cannot currently obtain from Louisiana’s Medicaid program.

While the federal Medicaid statute requires state programs to provide medical coverage to individuals with disabilities, it does not require them to provide personal care services outside a nursing home setting. Because the law makes such home and community-based services (HCBS) optional, states can utilize waiting lists to control access to such services—and many, including Louisiana, do just that. Overall, more than 640,000 individuals with disabilities remain on lists waiting to access HCBS nationwide—including 62,828 in Louisiana.[42]

Prior to Louisiana accepting Obamacare’s Medicaid expansion to the able-bodied, the state prioritized coverage for individuals with disabilities. Instead of pushing to expand Medicaid under Obamacare, efforts instead focused on providing funds necessary to reduce the state’s HCBS waiting list for individuals with disabilities.[43] However, the current administration has taken the exact opposite tack—prioritizing an expansion of coverage for the able-bodied over the personal care needs of the most vulnerable Louisianans. As a result, able-bodied adults with low incomes can qualify for Medicaid immediately, while individuals with developmental disabilities must wait an average of seven years just to be evaluated for home-based care for their personal needs.[44]

Several states that expanded Medicaid under Obamacare before Louisiana provide evidence of the damage that expansion has caused for society’s most vulnerable. In Arkansas, while Gov. Asa Hutchinson pledged to reduce his state’s HCBS waiting lists in half under his administration, the rolls have risen 25 percent—even as the state continues its Medicaid expansion to the able-bodied.[45] Since the state expanded Medicaid to the able-bodied, at least 79 individuals with disabilities have died while on waiting lists seeking access to home-based care.[46]

Vulnerable residents in other states have likewise suffered as a result of Obamacare’s Medicaid expansion. In Ohio, the administration of Gov. John Kasich reduced eligibility for 34,000 individuals with disabilities, even while expanding Medicaid to the able-bodied.[47] In Illinois, lawmakers voted to allow Cook County to expand Medicaid early on the same day in which they also voted to reduce medication access for individuals with disabilities.[48] In that state, at least 752 residents with disabilities have died awaiting access to home-based care since the state embraced Obamacare’s Medicaid expansion.[49]

The claims of its proponents to the contrary, any policy that prioritizes able-bodied adults over the most vulnerable in society represents the antithesis of compassion. As more and more individuals crowd on to the Medicaid rolls, literally hundreds of thousands of individuals with disabilities wait for access to care—and in some cases, die well before they receive it. Any compassionate society should focus its greatest efforts on protecting the most vulnerable, meaning no state should expand Medicaid to the able-bodied without first having eliminated entirely its waiting list of individuals with disabilities seeking home-based care.

While disadvantaging the most vulnerable in society, who literally wait for years for access to personal care paid for by Medicaid, expansion of the Medicaid entitlement also disadvantages the expansion’s purported beneficiaries—able-bodied adults within working age—in several respects. Medicaid generally provides poorer health outcomes than most other forms of coverage, such that some analysts have questioned whether its patients fare worse than the uninsured.[50]

In general, states provide low reimbursement levels to doctors and hospitals treating Medicaid patients, in large part due to the fiscal pressures discussed above. However, these low reimbursement rates mean many medical providers do not accept Medicaid patients. One study found that specialty physicians denied appointments for two-thirds of Medicaid patients, compared to only an 11% denial rate for patients with private insurance. Moreover, “the average wait time for Medicaid” enrollees who did obtain an appointment “was 22 days longer than that for privately insured children.”[51] Through their “secret shopper” survey, the authors “found a disparity in access to outpatient specialty care between children with public insurance and those with private insurance.”

Louisiana does not deviate from the general pattern of state Medicaid programs providing poor reimbursements to physicians, as the state’s reimbursement levels stand slightly below the already low national average. Overall, the state pays physicians 70% of Medicare reimbursement levels, below the national Medicaid average of 72% of Medicare levels.[52] In primary care, Louisiana reimburses doctors at 67% of Medicare rates, one percentage point above the national average of 66%.[53] And in obstetrics, Louisiana reimburses doctors 70% of Medicare rates, eleven points below the national Medicaid average of 81%.[54] The comparatively paltry rates that Louisiana pays obstetricians come despite the fact that nearly two-thirds (65%) of babies born in the state in 2015 (i.e., before Medicaid expansion took effect) were paid for by Medicaid—the third highest rate of births paid for by Medicaid nationwide.[55]

The lack of access to physician care helps explain Medicaid’s middling performance in improving health outcomes. Most notably, the Oregon Health Insurance Experiment—which compared the health of individuals randomly selected to enroll in Medicaid with those who remained uninsured—found no measurable improvement in physical outcomes for the former group when compared to the latter.[56] The Oregon study also found that Medicaid beneficiaries utilized the emergency room 40 percent more than uninsured patients, a difference which persisted over time. These data suggest that patients lack a usual access to primary care that could alleviate medical conditions before necessitating emergency treatment—a further indication that Medicaid leaves much to be desired as a form of health coverage.[57]

Both Medicaid administrators and beneficiaries acknowledge the program’s shortcomings in providing access to care. One former program head called a Medicaid card a “hunting license”—a government-granted permission slip allowing beneficiaries to try to find a physician who will treat them.[58] With beneficiaries not even considering Medicaid “real insurance,” some would question the wisdom of consigning such a large—and growing—number of individuals to a program that provides such an uneven quality of care.[59]

 

Discouraging Work

In addition to providing beneficiaries with poor quality care, Medicaid expansion includes an in-built “poverty trap” that discourages entrepreneurship and social advancement. Specifically, the law includes numerous effects that will discourage work, and ultimately keep low-income individuals trapped in poverty for longer periods, while also stunting economic growth. According to the Congressional Budget Office (CBO), the Medicaid expansion represents one part of a larger Obamacare scheme that will reduce the labor supply nationally by the equivalent of 2.5 million full-time jobs by 2024.[60]

CBO believes that Medicaid expansion will reduce overall incentives to work. Most notably, Medicaid expansion creates an “income cliff,” whereby one additional dollar of income will cause a family to lose Medicaid eligibility entirely—subjecting them to hundreds, if not thousands, of dollars in health insurance premiums, deductibles, and co-payments as a result. As a result, CBO believes that the expansion will reduce beneficiaries’ labor force participation by about 4 percent by “creat[ing] a tax on additional earnings for those considering job changes.”[61] In other words, individuals will specifically avoid seeking a promotion, additional hours, or a bonus, because it will cause them to lose eligibility for Medicaid—the definition of a “poverty trap” that discourages low-income individuals from advancing their social strata.

Data from the liberal Urban Institute released prior to Obamacare taking effect suggest that most beneficiaries who qualify for Medicaid expansion represent individuals who could be in work, or preparing for work. In Louisiana, more than seven in eight adults who qualify for the expansion are of prime working age—either ages 19-24 (24.5%), 25-34 (25.7%), or 35-54 (37.4%).[62] With nearly three-quarters of Louisianans who qualify for expansion adults without dependent children, as noted above, many of these individuals should be able to work, or prepare for work.

Unfortunately, national data suggest that most beneficiaries enrolled in Medicaid are not working. Specifically, 2015 Census Bureau data indicate that more than half (52%) of non-disabled, working-age Medicaid beneficiaries are not working.[63] Only about one in six (16%) non-disabled Medicaid beneficiaries work full-time year-round, while about one in three (32%) work part-time, or for part of the year.[64]

If able-bodied individuals who currently qualify for Obamacare’s Medicaid expansion pursued full-time employment, many of them would no longer qualify for the expansion. The expansion applies to individuals with household income below 138 percent of the federal poverty level—which in 2018 equals $16,753 for a single individual, $22,715 for a couple, and $34,638 for a family of four.[65] At these levels, a couple each working 35 hours per week, 50 weeks per year, making the federal minimum wage of $7.25 per hour, or an individual working 40 hours per week, 50 weeks per year, making $8.50 per hour, would earn enough income to exceed the Medicaid eligibility thresholds.

While CBO believes Medicaid expansion will discourage work, evidence suggests that unwinding the expansion would increase employment, and employment-related search activity. A study of the Medicaid program in Tennessee, where the state scaled back the program in 2005 due to significant cost overruns, found that the reduction in Medicaid eligibility encouraged beneficiaries to look for work, and ultimately increased employment, as individuals looked for employment-based coverage.[66] Whereas Obamacare’s skewed incentives discourage work, scaling back Medicaid expansion could have salutary economic effects, by expanding the labor force in ways that could grow the economy.

 

What Lawmakers Should Do

The evidence shows the damage caused by Medicaid expansion, both in Louisiana and across the country. Soaring enrollment and higher-than-expected costs have led to fiscal crises in many states—crises that will only grow as states’ share of expansion costs increase in the coming years. Meanwhile, the urgent needs of many vulnerable citizens have taken a back seat, as Obamacare gives states more incentives to cover able-bodied adults than individuals with disabilities.

As the legislature considers its policy options, it should focus on both short-term and long-term solutions. In the short term, Louisiana should begin the process of winding down the Medicaid expansion to able-bodied adults, as one way of alleviating immediate budgetary pressures. In the longer term, the state should take advantage of the flexibility promised by the Trump Administration to consider more innovative reforms to the Medicaid program.

Enrollment Freeze:              The best way to end the high costs associated with the Medicaid expansion would involve freezing enrollment to new entrants.[67] Such a policy would allow individuals who already qualified for the expansion to remain as long as they maintain eligibility for the program. This proposal, passed by legislators in places like Ohio and Arkansas, would provide an orderly wind-down of the expansion, reducing costs to the state over time, while allowing people to transition into employer-sponsored insurance or other coverage as they lose Medicaid eligibility. [68]

One study released in early 2017 calculated the savings from a nationwide Medicaid freeze beginning in fiscal year 2018. Over a decade, this Medicaid freeze would generate approximately $56-64 billion in savings to state Medicaid programs, along with more than half a trillion dollars in savings to the federal government.[69] These savings would come without terminating Medicaid participation for a single beneficiary currently eligible for the program. The sizable savings provided to both the states and the federal government under a potential Medicaid freeze illustrates the need to wind down Medicaid’s expansion to the able-bodied in an orderly way, to restore the program’s focus to the populations for which it was originally intended.

Comprehensive Waiver:     Last March, then-Health and Human Services Secretary Tom Price and CMS Administrator Seema Verma sent a letter to the nation’s governors indicating their desire to expand state flexibility within the Medicaid program.[70] Since then, several organizations have published reports highlighting elements and policies that states could use to reform their Medicaid programs.[71] A bold waiver incorporating many of these policies could transform Medicaid programs across the country.

Louisiana should consider submitting a comprehensive waiver request to CMS. Such a waiver could include:

Consumer-Oriented Options:              Using Health Savings Account-like mechanisms would encourage beneficiaries to serve as smart shoppers of health care—generating savings that they could use once they leave the Medicaid program. Whether through Health Opportunity Accounts—an innovation passed by Congress in 2005, but effectively repealed under the Obama Administration—“right-to-shop” programs that give beneficiaries a chance to share in the savings from obtaining lower costs for non-emergency medical procedures, or other programs, giving beneficiaries financial incentives to act as smart health care consumers could benefit them as well as the Medicaid program.[72]

Wellness Incentives:                As with the consumer options above, providing incentives for healthy behaviors would encourage beneficiaries to improve their health, while giving them a potential source of financial savings. During the debate on Obamacare in 2009-10, wellness incentives proved one of the few sources of bipartisan agreement, thanks to the way in which Safeway and other firms reduced health costs through such reforms.[73] Particularly given the state’s high rates of obesity, Louisiana should consider bringing the “Safeway model” to the state’s Medicaid program.[74]

Premium Assistance:               Providing more flexible benefits to individuals with an offer of employer-sponsored coverage would allow Medicaid to supplement that coverage, thereby reducing costs and giving individuals access to higher-quality private insurance. Other policies in this vein might include a beneficiary waiting period designed to prevent “crowd-out”—individuals dropping private coverage to enroll in government programs—and Health Savings Account coverage, currently prohibited under two separate premium assistance programs.[75] These changes would help beneficiaries make a smoother transition off of the Medicaid rolls and into a life of work.

Home and Community-Based Services:             Focusing on ways to deliver care to beneficiaries outside of nursing homes could reduce costly Medicaid spending in institutional settings. Most importantly, it would enable patients to stay in their homes—most beneficiaries’ desired outcome. For instance, a state waiver could cap the number of nursing home slots available, or require beneficiaries to try receiving care at home prior to entering a nursing facility.[76] Collectively, these policies should create an affirmative bias in favor of care at home, rather than care at a nursing institution.

Work Requirements:               Unlike the Obama Administration, the Trump Administration has indicated a willingness to accept work requirements as part of a Medicaid waiver request.[77] Earlier this month, CMS issued a letter to state Medicaid directors indicating parameters to guide states as they prepare community engagement requirements—a document that reiterated the positive effects that work can have on beneficiaries’ economic success, self-sufficiency, and overall health.[78] Requiring that appropriate adult populations either work, look for work, or prepare for work, while exempting individuals with disabilities and other medically frail individuals, would further promote a transition from welfare into work.

Program Integrity:     Verifying eligibility on a regular basis would ensure that state and federal resources remain targeted to those most in need—an important priority given the way in which scam artists in Louisiana have sought to abuse the Medicaid program.[79] Increasing penalties for fraud would halt scam artists, and could lower Medicaid’s rate of improper payments.[80] More robust asset recovery measures—ensuring Medicaid remains the payer of last resort, not that of first instance—would help preserve scarce state and federal resources for those who need them most.[81]

The state of Rhode Island demonstrates the power of a comprehensive waiver to transform a Medicaid program. Its global compact waiver, approved in the waning days of President George W. Bush’s Administration in January 2009, allowed that state to improve Medicaid by providing more, better, and more timely care to beneficiaries. Thanks to the global compact waiver, Rhode Island actually reduced its per beneficiary Medicaid costs in absolute (i.e., before-inflation) terms over a four-year period[82]—and did so not by cutting access to care, but by improving it.[83] The success of the Rhode Island experiment illustrates the way in which Medicaid reform, done right, can simultaneously save money and improve health—a lesson the legislature should look to bring to Louisiana.

 

Conclusion

Given the state’s structural budget shortfall, and the significant costs associated with Medicaid expansion, Louisiana stands at a turning point. The legislature could continue down their current path, and hope that yet another series of tax increases will sate the growing health care costs that threaten to consume the state’s entire budget.

Thankfully, legislators have another option. Unwinding the Medicaid expansion gradually, while laying the groundwork to submit a comprehensive Medicaid waiver request to CMS, would in combination help turn the fiscal tide. Freezing Medicaid enrollment for able-bodied adults would re-direct the program towards the most vulnerable in society—those for whom Medicaid was originally designed. Likewise, a comprehensive waiver would re-orient and update Medicaid for a 21st century health care system, saving money by providing better care.

Given the two options, the choice for Louisiana seems clear. The state should use the flexibility promised by Washington to unwind Medicaid expansion for the able-bodied, and modernize and re-orient the program toward the program’s original intended beneficiaries. By so doing, the state can go a long way towards resolving its structural fiscal shortfalls, while also improving the care provided to some of Louisiana’s most vulnerable residents.

 

[1] Melinda Deslatte, “Louisiana Governor Offers Tax Ideas to Close $1 Billion Budget Gap,” Associated Press December 18, 2017, https://apnews.com/58833e0c265f4de6b26e465004c01c25/Louisiana-governor-offer.

[2] Kevin Litten, “Louisiana’s Medicaid Expansion Enrollment Could Grow to 450,000,” Times-Picayune January 20, 2016, http://www.nola.com/politics/index.ssf/2016/01/medicaid_expansion_500000.html.

[3] Louisiana Department of Health, “Louisiana Medicaid Expansion Dashboard,” http://www.ldh.la.gov/HealthyLaDashboard.

[4] Litten, “Louisiana’s Medicaid Expansion Enrollment Could Grow.”

[5] Jonathan Ingram and Nicholas Horton, “Obamacare Expansion Enrollment Is Shattering Projections,” Foundation for Government Accountability, November 16, 2016, https://thefga.org/download/ObamaCare-Expansion-is-Shattering-Projections.PDF, p. 5.

[6] Jonathan Ingram and Nicholas Horton, “The Obamacare Expansion Enrollment Explosion,” Foundation for Government Accountability,” April 20, 2015, https://thefga.org/wp-content/uploads/2015/04/ExpansionEnrollmentExplosion-Final3.pdf.

[7] Ingram and Horton, “Obamacare Expansion Enrollment Is Shattering Projections.”

[8] Centers for Medicare and Medicaid Services, “2017 Effectuated Enrollment Snapshot,” June 12, 2017, https://downloads.cms.gov/files/effectuated-enrollment-snapshot-report-06-12-17.pdf. Effectuated enrollment represents coverage for which individuals have both selected an insurance plan and paid at least one month’s premium.

[9] Congressional Budget Office, estimate of H.R. 4872, Health Care and Education Reconciliation Act, in concert with H.R. 3590, Patient Protection and Affordable Care Act, March 20, 2010, https://www.cbo.gov/sites/default/files/111th-congress-2009-2010/costestimate/amendreconprop.pdf, Table 4, p. 21.

[10] Avalere Health, “The State of Exchanges: A Review of Trends and Opportunities to Grow and Stabilize the Market,” report for Aetna, October 2016, http://go.avalere.com/acton/attachment/12909/f-0352/1/-/-/-/-/20161005_Avalere_State%20of%20Exchanges_Final_.pdf, Figure 3, p. 6.

[11] Ibid.

[12] National Association of State Budget Officers, “The State Expenditure Report,” July 1987, https://higherlogicdownload.s3.amazonaws.com/NASBO/9d2d2db1-c943-4f1b-b750-0fca152d64c2/UploadedImages/SER%20Archive/ER_1987.PDF, Medicaid Expenditures as a Percentage of Total Expenditures, p. 30.

[13] National Association of State Budget Officers, “State Expenditure Report,” November 2016, https://higherlogicdownload.s3.amazonaws.com/NASBO/9d2d2db1-c943-4f1b-b750-0fca152d64c2/UploadedImages/SER%20Archive/State%20Expenditure%20Report%20(Fiscal%202014-2016)%20-%20S.pdf, Table 5: State Spending by Function as a Percentage of Total State Expenditures, p. 13.

[14] National Association of State Budget Officers, “The State Expenditure Report.”

[15] National Association of State Budget Officers, “Fiscal Survey of States: Spring 2014,” https://higherlogicdownload.s3.amazonaws.com/NASBO/9d2d2db1-c943-4f1b-b750-0fca152d64c2/UploadedImages/Fiscal%20Survey/NASBO%20Spring%202014%20Fiscal%20Survey%20(security).pdf, p. xi.

[16] Pew Charitable Trusts, “Fiscal 50: State Trends and Analysis,” http://www.pewtrusts.org/en/multimedia/data-visualizations/2014/fiscal-50#ind7, Change in State Medicaid Spending as a Share of Own-Source Revenue, 2000 and 2015.

[17] Ibid., http://www.pewtrusts.org/en/multimedia/data-visualizations/2014/fiscal-50#ind1, Percentage of State Revenue from Federal Funds, Fiscal Year 2015.

[18] For an analysis of the ways that the CMS actuary and the Congressional Budget Office have changed their baseline projections of Medicaid spending over time, see Brian Blase, “Evidence Is Mounting: The Affordable Care Act Has Worsened Medicaid’s Structural Problems,” Mercatus Center, September 2016, https://www.mercatus.org/system/files/mercatus-blase-medicaid-structural-problems-v1.pdf, pp. 15-20.

[19] Centers for Medicare and Medicaid Services Office of the Actuary, “2016 Actuarial Report on the Financial Outlook for Medicaid,” report to Congress, 2016, https://www.medicaid.gov/medicaid/financing-and-reimbursement/downloads/medicaid-actuarial-report-2016.pdf, p. 22.

[20] Centers for Medicare and Medicaid Services Office of the Actuary, “2014 Actuarial Report on the Financial Outlook for Medicaid,” report to Congress, 2014, https://www.medicaid.gov/medicaid/financing-and-reimbursement/downloads/medicaid-actuarial-report-2014.pdf, pp. 36-38.

[21] Centers for Medicare and Medicaid Services Office of the Actuary, “2015 Actuarial Report on the Financial Outlook for Medicaid,” report to Congress, 2015, https://www.medicaid.gov/medicaid/financing-and-reimbursement/downloads/medicaid-actuarial-report-2015.pdf, p. 27.

[22] Cited in Jeanie Donovan, “Setting the Record Straight on Medicaid,” Louisiana Budget Project, August 4, 2017, http://www.labudget.org/lbp/2017/08/setting-the-record-straight-on-medicaid/.

[23] Ibid.

[24] 42 U.S.C. 1396d(y)(1), as codified by Section 2001(a) of the Patient Protection and Affordable Care Act, P.L. 111-148.

[25] Christina Cassidy, “Rising Cost of Medicaid Expansion is Unnerving Some States,” Associated Press October 5, 2016, http://bigstory.ap.org/article/4219bc875f114b938d38766c5321331a/rising-cost-medicaid-expansion-unnerving-some-states.

[26] Ibid.

[27] Christina Cassidy, “Medicaid Enrollment Surges, Stirs Worry about State Budgets,” Associated Press July 19, 2015, http://www.bigstory.ap.org/article/c158e3b3ad50458b8d6f8f9228d02948/medicaid-enrollment-surges-stirs-worry-about-state-budgets.

[28] Ibid.

[29] “The State Expenditure Report,” Primary and Secondary Education Expenditures as a Percentage of Total Expenditures, Higher Education Expenditures as a Percentage of Total State Expenditures, and Transportation Expenditures as a Percentage of Total State Expenditures; “State Expenditure Report,” Table 5: State Spending by Function.

[30] United States Treasury, “The Debt to the Penny and Who Holds It,” total public debt outstanding as of October 26, 2017, https://www.treasurydirect.gov/NP/debt/current.

[31] White House Office of the Press Secretary, “Fact Sheet: The President’s Framework for Shared Prosperity and Shared Fiscal Responsibility,” April 13, 2011, https://obamawhitehouse.archives.gov/the-press-office/2011/04/13/fact-sheet-presidents-framework-shared-prosperity-and-shared-fiscal-resp.

[32] NFIB v. Sebelius, 567 U.S. 519 (2012), https://www.supremecourt.gov/opinions/11pdf/11-393c3a2.pdf; Sam Baker, “White House Drops Support for Major Medicaid Cut,” The Hill December 10, 2012, http://thehill.com/policy/healthcare/272041-white-house-drops-support-for-major-medicaid-cut; Centers for Medicare and Medicaid Services, “Frequently Asked Questions on Exchanges, Market Reforms, and Medicaid,” December 10, 2012, https://www.cms.gov/CCIIO/Resources/Files/Downloads/exchanges-faqs-12-10-2012.pdf.

[33] 42 U.S.C. 1397ee(b), as amended by Section 2101(a) of PPACA.

[34] Department of Health and Human Services, “Federal Financial Participation in State Assistance Expenditures,” Federal Register November 15, 2016, pp. 80078-80080, Table 1, https://www.gpo.gov/fdsys/pkg/FR-2016-11-15/pdf/2016-27424.pdf.

[35] Ibid.

[36] Section 3005 of the HEALTHY KIDS Act, P.L. 115-120.

[37] See also Chris Jacobs, “How Obamacare Undermines American Values: Penalizing Work, Citizenship, Marriage, and the Disabled,” Heritage Foundation Backgrounder No. 2862, November 21, 2013, http://www.heritage.org/research/reports/2013/11/how-obamacare-undermines-american-values-penalizing-work-marriage-citizenship-and-the-disabled.

[38] “Federal Financial Participation in State Assistance Expenditures.”

[39] 42 U.S.C. 1396d(y)(1), as codified by Section 2001(a) of PPACA.

[40] Genevieve M. Kenney et al., “Opting in to the Medicaid Expansion Under the ACA: Who Are the Uninsured Adults Who Could Gain Health Insurance Coverage?” Urban Institute, August 2012, http://www.urban.org/sites/default/files/alfresco/publication-pdfs/412630-Opting-in-to-the-Medicaid-Expansion-under-the-ACA.PDF, p. 9, Appendix Table 2.

[41] Ibid.

[42] Kaiser Family Foundation, “Waiting List Enrollment for Medicaid Section 1915(c) Home- and Community-Based Services Waivers,” Kaiser Commission on Medicaid and the Uninsured 2015 survey, http://kff.org/health-reform/state-indicator/waiting-lists-for-hcbs-waivers/?currentTimeframe=0&sortModel=%7B%22colId%22:%22Location%22,%22sort%22:%22asc%22%7D.

[43] Bobby Jindal, “Obamacare Is Anything But Compassionate,” Politico February 9, 2014, http://www.politico.com/magazine/story/2014/02/obamacare-costs-jobs-hurts-most-vulnerable-103299?paginate=false.

[44] Louisiana Department of Health and Hospitals, “Medicaid Waiver Services,” http://www.dhh.la.gov/index.cfm/page/1555.

[45] Jason Pederson, “Waiver Commitment Wavering,” KATV June 15, 2016, http://katv.com/community/7-on-your-side/waiver-commitment-wavering.

[46] Chris Jacobs, “Obamacare Takes Care from Disabled People to Subsidize Able-Bodied, Working-Age Men,” The Federalist November 18, 2016, http://thefederalist.com/2016/11/18/obamacare-takes-care-disabled-people-subsidize-able-bodied-working-age-men/.

[47] Ibid.

[48] Nicholas Horton, “Illinois’ Medicaid Expansion Enrollment Continues to Climb, Putting Vulnerable at Risk,” Illinois Policy Institute, November 1, 2016, https://www.illinoispolicy.org/illinois-medicaid-expansion-enrollment-continues-to-climb-putting-vulnerable-at-risk/.

[49] Nicholas Horton, “Hundreds on Medicaid Waiting List in Illinois Die While Waiting for Care,” Illinois Policy Institute, November 23, 2016, https://www.illinoispolicy.org/hundreds-on-medicaid-waiting-list-in-illinois-die-while-waiting-for-care-2/.

[50] Scott Gottlieb, “Medicaid Is Worse than No Coverage at All,” Wall Street Journal March 10, 2011, http://www.wsj.com/articles/SB10001424052748704758904576188280858303612.

[51] Joanna Bisgaier and Karin Rhodes, “Auditing Access to Specialty Care for Children with Public Insurance,” New England Journal of Medicine June 16, 2011, http://www.nejm.org/doi/full/10.1056/NEJMsa1013285.

[52] Stephen Zuckerman, et al., “Medicaid Physician Fees after the ACA Primary Care Fee Bump,” Urban Institute March 2017, https://www.urban.org/sites/default/files/publication/88836/2001180-medicaid-physician-fees-after-the-aca-primary-care-fee-bump_0.pdf, Table 1, p. 5.

[53] Ibid.

[54] Ibid.

[55] Kaiser Family Foundation, “Births Financed by Medicaid,” State Health Facts, https://www.kff.org/medicaid/state-indicator/births-financed-by-medicaid/?currentTimeframe=0&sortModel=%7B%22colId%22:%22%25%20Births%20Financed%20by%20Medicaid%22,%22sort%22:%22desc%22%7D.

[56] Katherine Baicker, et al., “The Oregon Experiment—Effects of Medicaid on Clinical Outcomes,” New England Journal of Medicine May 2, 2013, http://www.nejm.org/doi/full/10.1056/NEJMsa1212321.

[57] Amy Finklestein et al., “Effect of Medicaid Coverage on ED Use—Further Evidence from Oregon’s Experiment,” New England Journal of Medicine October 20, 2016, http://www.nejm.org/doi/full/10.1056/NEJMp1609533.

[58] Statement by DeAnn Friedholm, Consumers Union, at Alliance for Health Reform Briefing on “Affordability and Health Reform: If We Mandate, Will They (and Can They) Pay?” November 20, 2009, http://www.allhealthpolicy.org/wp-content/uploads/2016/12/TranscriptFINAL-1685.pdf, p. 40.

[59] Vanessa Fuhrmans, “Note to Medicaid Patients: The Doctor Won’t See You,” Wall Street Journal July 19, 2007, https://www.wsj.com/articles/SB118480165648770935.

[60] Congressional Budget Office, “The Budget and Economic Outlook: 2014 to 2024,” February 2014, http://cbo.gov/sites/default/files/cbofiles/attachments/45010-Outlook2014_Feb.pdf, Appendix C: Labor Market Effects of the Affordable Care Act: Updated Estimates, pp. 117-27.

[61] Edward Harris and Shannon Mok, “How CBO Estimates Effects of the Affordable Care Act on the Labor Market,” Congressional Budget Office Working Paper 2015-09, December 2015, https://www.cbo.gov/sites/default/files/114th-congress-2015-2016/workingpaper/51065-ACA_Labor_Market_Effects_WP.pdf, p. 12.

[62] Kenney, “Opting in to the Medicaid Expansion,” Appendix Table 1, p. 8.

[63] Cited in Nic Horton and Jonathan Ingram, “The Future of Medicaid Reform: Empowering Individuals Through Work,” Foundation for Government Accountability, November 14, 2017, https://thefga.org/wp-content/uploads/2017/11/The-Future-of-Medicaid-Reform-Empowering-Individuals-Through-Work.pdf, p. 4.

[64] Ibid.

[65] Department of Health and Human Services, notice regarding “Annual Update of the HHS Poverty Guidelines,” Federal Register January 18, 2018, https://www.gpo.gov/fdsys/pkg/FR-2018-01-18/pdf/2018-00814.pdf, , pp. 2642-44.

[66] Craig Garthwaite, Tal Gross, and Matthew Notowidigdo, “Public Health Insurance, Labor Supply, and Employment Lock,” National Bureau of Economic Research, NBER Working Paper 19220, July 2013, http://www.nber.org/papers/w19220.

[67] Chris Jacobs, “Putting Obamacare in a Deep Freeze,” National Review December 7, 2016, http://www.nationalreview.com/article/442820/obamacare-repeal-replace-enrollment-freeze-first-step.

[68] Kim Palmer, “Ohio Lawmakers Vote to Freeze Medicaid Expansion,” Reuters June 28, 2017, https://www.reuters.com/article/us-ohio-budget/ohio-lawmakers-vote-to-freeze-medicaid-expansion-idUSKBN19K0B8; Caleb Taylor, “House Passes Medicaid Expansion Freeze,” The Arkansas Project March 1, 2017, http://www.thearkansasproject.com/house-passes-medicaid-expansion-freeze/.

[69] Foundation for Government Accountability, “Freezing Medicaid Expansion Enrollment Will Save Taxpayers More Than Half a Trillion,” February 2017, https://thefga.org/wp-content/uploads/2017/02/MedEx-Freeze-Savings-Table.pdf.

[70] Letter by Health and Human Services Secretary Tom Price and Centers for Medicare and Medicaid Services Administrator Seema Verma to state governors regarding Medicaid reform, March 14, 2017, https://www.hhs.gov/sites/default/files/sec-price-admin-verma-ltr.pdf.

[71] See for instance Chris Jacobs, “Reforming Medicaid to Serve Wyoming Better,” Wyoming Liberty Group Wyoming Policy Review Issue 101, June 2017, https://wyliberty.org/images/PDFs/Wyoming_Policy_Review-Jacobs-Reforming_Medicaid-101.pdf, and Naomi Lopez Bauman and Lindsay Boyd, “Medicaid Waiver Toolkit,” State Policy Network, August 2017.

[72] 42 U.S.C. 1396u-8, as codified by Section 6082 of the Deficit Reduction Act of 2005, P.L. 109-171; Section 613 of the Children’s Health Insurance Program Reauthorization Act of 2009, P.L. 111-3; Josh Archambault and Nic Horton, “Right to Shop: The Next Big Thing in Health Care,” Forbes August 5, 2016, http://www.forbes.com/sites/theapothecary/2016/08/05/right-to-shop-the-next-big-thing-in-health-care/#6f0ebcd91f75.

[73] Steven Burd, “How Safeway is Cutting Health Care Costs,” Wall Street Journal June 12, 2009, http://www.wsj.com/articles/SB124476804026308603.

[74] Louisiana currently ranks fifth in the nation for adult obesity, with an obesity rate of 35.5%. See Trust for America’s Health, “The State of Obesity,” https://stateofobesity.org/states/la/.

[75] 42 U.S.C. 1397ee(c)(10)(B)(ii)(II) and 42 U.S.C. 1396e-1(b)(2)(B), as codified by Section 301 of CHIPRA.

[76] See for instance testimony of Patti Killingsworth, TennCare Chief of Long-Term Supports and Services, before the Commission on Long-Term Care on “What Would Strengthen Medicaid LTSS?” August 1, 2013, http://ltccommission.org/ltccommission/wp-content/uploads/2013/12/Patti-Killingsworth-Testimony.pdf. The author served as a member of the Commission.

[77] Mattie Quinn, “On Medicaid, States Won’t Take Feds’ No for an Answer,” Governing October 11, 2016, http://www.governing.com/topics/health-human-services/gov-medicaid-waivers-arizona-ohio-cms.html.

[78] Centers for Medicare and Medicaid Services, “Opportunities to Promote Work and Community Engagement Among Medicaid Beneficiaries,” State Medicaid Director letter SMD-18-002, January 11, 2018, https://www.medicaid.gov/federal-policy-guidance/downloads/smd18002.pdf

[79] Louisiana Office of the Attorney General, “Over $2 Million in Medicaid Fraud Uncovered in New Orleans,” October 16, 2017, https://www.ag.state.la.us/Article/3470/5.

[80] Jonathan Ingram, “Stop the Scam: How to Prevent Welfare Fraud in Your State,” Foundation for Government Accountability, April 2, 2015, https://thefga.org/wp-content/uploads/2015/04/Stop-The-Scam-research-paper.pdf.

[81] See for instance Government Accountability Office, “Medicaid: Additional Federal Action Needed to Further Improve Third Party Liability Efforts,” GAO Report GAO-15-208, January 2015, http://gao.gov/assets/670/668134.pdf.

[82] Testimony of Gary Alexander, former Rhode Island Secretary of Health and Human Services, on “Strengthening Medicaid Long-Term Supports and Services” before the Commission on Long Term Care, August 1, 2013, http://ltccommission.org/ltccommission/wp-content/uploads/2013/12/Garo-Alexander.pdf.

[83] Lewin Group, “An Independent Evaluation of Rhode Island’s Global Waiver,” December 6, 2011, http://www.ohhs.ri.gov/documents/documents11/Lewin_report_12_6_11.pdf.

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.

Reforming Medicaid to Serve Wyoming Better

A PDF of this document is available on the Wyoming Liberty Group website.

In the past several years, Wyoming has accomplished several key changes to its Medicaid program. A series of reforms regarding long-term care, and other methods to improve care delivery and coordination, have stabilized the overall spending on Medicaid—and reduced expenditures on a per-beneficiary basis.

However, the commitment by both the new Administration and Congressional leaders to examine Medicaid reform closely presents Wyoming with the possibility to accelerate its current reform efforts. Seema Verma, the new head of the Centers for Medicare and Medicaid Services (CMS) and a former Medicaid consultant, has publicly committed to provide states with greater flexibility and freedom to innovate.[1] Likewise, legislation advancing fundamental Medicaid reform has begun to advance in Congress.

Whether through a block grant, per capita allotments, or enhanced waiver authority from the federal government, states like Wyoming can and should receive greater freedom to manage their programs, in exchange for a series of fixed federal payments. Upon receiving this flexibility, Wyoming can put into place additional reforms that will improve care for beneficiaries, encourage transitions to employment and employer-based health coverage where appropriate, reduce health costs, and save taxpayer funds. These reforms would modernize Medicaid to incorporate the best of 21st century medicine, help Baby Boomers as that generation ages into retirement, and alleviate the fiscal challenges Wyoming faces in managing its Medicaid program.

 

The Problem

Enacted into law in 1965, the Medicaid program as originally designed provided federal matching funds to states to cover discrete populations, including the blind, needy seniors, and individuals with disabilities. Over time, expansions of the program to new populations, and changes in the delivery of health care, have made the Medicaid program large, costly, and unwieldy for states to manage. A significant body of evidence demonstrates that, after more than a half-century, Medicaid is long overdue for a modernization.

Cost:    According to government-provided data, Medicaid now approaches Medicare for the title of largest taxpayer-funded health care program. According to non-partisan government actuaries, state and federal taxpayers combined will spend an estimated $595.5 billion on Medicaid in the current fiscal year—$368.9 billion by the federal government, and $226.6billion by states.[2] By comparison, the Congressional Budget Office projects that this fiscal year, Medicare will spend a net of $598 billion, excluding premium payments by enrollees.[3] Even as the Baby Boomers retire in the coming decade, Medicaid will stay on pace with Medicare when it comes to total expenditures—Medicaid spending will total an estimated $57.5 billion in fiscal year 2025, compared to an estimated $1.005 trillion in net Medicare spending the same fiscal year.[4]

On the state level, rising spending on Medicaid has crowded out other key state priorities like education, transportation, and law enforcement. While states often cut back on those other programs during recessions, Medicaid spending continues to grow in both good economic times and bad. For instance, for fiscal year 2017, states adopted a total of $7.7 billion in spending increases on Medicaid when compared to fiscal 2016—less than the growth of K-12 education spending ($8.9 billion increase), but more than spending on higher education or corrections (both $1.1 billion increases).[5] But in fiscal year 2012—as states recovered from the last recession—states sharply cut K-12 education ($2.5 billion decrease) and higher education ($5 billion decrease) to finance a massive increase in Medicaid spending ($15 billion increase).[6]

With program spending growing at a near-constant pace, Medicaid has grown substantially over the past several decades to become the largest line-item in most state budgets. In fiscal year 2016, Medicaid consumed an average of 29.0 percent of state spending from all fund sources, and 20.3 percent of general fund expenditures.[7] By comparison, in fiscal year 1996, Medicaid consumed 20.3 percent of state spending, and 14.8 percent of general fund spending—and in fiscal year 1987, Medicaid consumed only 10.2 percent of state spending, and 8.1 percent of general fund spending.[8] With program spending nearly tripling as a size of their overall budgets from 1987 through 2016, Medicaid growth has limited states’ ability to provide for other critical state priorities—or return some of taxpayers’ hard-earned cash back into their pockets.

Quality:            Unfortunately, many Medicaid programs suffer from poor access to physicians, high rates of emergency room usage, and poor quality outcomes. A New England Journal of Medicine survey using “secret shopper” methods found that two-thirds of Medicaid children were denied appointments with specialty physicians, compared to only 11% of patients with private insurance coverage. Moreover, those Medicaid patients that did receive appointments had to wait an average of more than three weeks longer than privately insured children.[9] Perhaps unsurprisingly, beneficiaries themselves think much less of Medicaid coverage due to their lack of access:

You feel so helpless thinking, something’s wrong with this child and I can’t even get her into a doctor….When we had real insurance, we could call and come in at the drop of a hat.[10]

Even supporters of Medicaid call an enrollment card nothing more than a “hunting license”—a card that grants beneficiaries the ability to go try to find a physician that will actually treat them.[11]

Because of the difficulties beneficiaries face in obtaining timely access to physicians, Medicaid patients often end up with worse outcomes than the general population as a whole. The Oregon Health Insurance Experiment—which compared outcomes for identically situated groups of uninsured individuals, some of whom enrolled in Medicaid and some of whom did not—concluded that patients who enrolled in Medicaid received no measurable improvements in their physical health than those that remained uninsured.[12] Moreover, the newly enrolled Medicaid patients increased their emergency room usage by 40 percent when compared to those who did not obtain coverage—and those disparities persisted over time.[13] Such results tend to bolster previous findings that patients with Medicaid coverage may end up with worse outcomes than uninsured patients.[14]

Impact in Wyoming:  A January 2015 brief by the Kaiser Family Foundation, and a 2014 Government Accountability Office (GAO) report on Medicaid variations by state, provide helpful metrics comparing Wyoming’s Medicaid program to its peers. The Kaiser brief analyzed per-beneficiary spending in Medicaid for “full-benefit” patients—that is, excluding any partial benefit enrollees.[15] As the table below shows, as of 2011, Wyoming’s spending on aged beneficiaries led the nation—nearly double the national average—and its spending on individuals with disabilities ranked high as well.

Moreover, per-beneficiary spending in Wyoming grew at a rapid, above-average pace for the aged and disabled populations. During the years 2000 to 2011, costs per beneficiary nationally grew by an average of 3.7% for aged beneficiaries and 4.5% for individuals with disabilities. By comparison, in Wyoming spending rose an average of 6.8%—again, nearly twice the national average—for aged beneficiaries, and an above-average 5.45% for individuals with disabilities during the same 2000-2011 period.[16]

 

 

Aged

Individuals with Disabilities  

Adults

 

Children

United States $17,522 $18,518 $4,141 $2,492
Wyoming $32,199 $25,346 $3,986 $1,967
Difference $14,677 $6,828 -$155 -$525
Wyoming Rank Highest 7th Highest 31st Highest 46th Highest

The 2014 GAO report provides additional context as to why Wyoming has relatively high levels of spending on aged and disabled populations.[17] Whereas the Kaiser report studied spending for the years 2000 through 2011, GAO analyzed spending for federal fiscal year 2008 only. However, like Kaiser, GAO also found that Wyoming’s per-enrollee spending on aged ($21,662) and disabled ($24,644) beneficiaries significantly exceeded national averages ($17,609 and $19,135, respectively).[18]

In addition to analyzing per-beneficiary spending by state, the GAO study also examined factors known to influence spending—and on these, Wyoming and its rural neighbors also ranked high. Wyoming ranked more than ten percentage points above the national average for the percentage of aged beneficiaries receiving long-term care services (48.7% in Wyoming vs. 37.7% nationally), and for the percentage of aged Medicaid enrollees ever institutionalized during the year (35.7% in Wyoming vs. 24.5% nationally).[19] Crucially, most of Wyoming’s neighbors—North Dakota, South Dakota, Montana, and Colorado—also have percentages of aged seniors receiving long-term care services, and receiving institutional care, well above national averages, and in some cases higher than Wyoming. These data suggest that the difficulties of life in rural and frontier communities may result in above-average rates of institutionalization, as aged or disabled individuals cannot live far from care support structures.

The prior reports indicating high levels of spending on Wyoming’s Medicaid program do not consider the significant reforms the state has implemented to date. Efforts to increase the percentage of beneficiaries receiving home and community-based services, rather than institutional care, have driven the percentage of members receiving long-term care in the home above 50%.[20] As a result, spending on Medicaid has remained relatively flat from fiscal years 2010 through 2015. Per enrollee costs have actually declined over that period, particularly for the aged population.[21]

However, the Kaiser and GAO studies illustrate the challenges and the opportunities the Medicaid program faces in Wyoming. Despite the reforms put in place to date, spending on the aged and disabled population remains at comparatively high levels. While spending on aged beneficiaries has declined from $32,199 per enrollee in 2011 to $26,222 in fiscal 2015, even that lower level remains higher than the national per-beneficiary average in 2011 ($17,522).

But if Wyoming can build upon its existing Medicaid reforms to improve care for the aged and vulnerable population—coordinating care better, and ensuring that individuals who can be treated at home are not inappropriately diverted into institutional settings—then beneficiaries will benefit, as will taxpayers. If Medicaid enrollees receive better care, their lives will improve in both measurable and immeasurable ways. Likewise, simply bringing spending on aged and disabled beneficiaries down to national averages will drive millions of dollars in savings to the Medicaid program.

 

The Vision

Ultimately, the Medicaid program would work best if transformed into a block grant or per capita allotment to states. Under either of these proposals, states would receive additional flexibility from the federal government to manage their health care programs, in exchange for a series of fixed payments from Washington. The American Health Care Act, passed by the House of Representatives on May 4, contains both options, creating a new system of per capita spending caps for Medicaid, while allowing states to choose a block grant for some of their Medicaid populations.[22]

While fundamental changes to Medicaid’s funding formulae must pass through Congress, the incoming Administration can work from its first days to give states more freedom and flexibility to manage their Medicaid programs. Specifically, Section 1115 of the Social Security Act gives the Secretary of Health and Human Services the power to waive certain requirements under Medicaid and the State Children’s Health Insurance Program (SCHIP) for “any experimental, pilot, or demonstration project which, in the judgment of the Secretary, is likely to assist in promoting the objectives” of the programs.[23]

Unfortunately, the Obama Administration often refused or watered down Section 1115 waiver requests from Republican governors. For instance, the last Administration repeatedly refused requests from governors to impose work requirements for able-bodied adults as a condition of participation in the Medicaid program.[24] Ironically, Obamacare actually made the process of obtaining waivers more difficult; one section of the law imposed new requirements, including a series of hearings, that states must undertake when applying for a waiver.[25] In the years since, federal legislative changes have sought to streamline the process for states requesting extensions of waivers already granted.[26]

In the hands of the right Administration, waiver authority could provide states with a significant amount of flexibility to reform their Medicaid programs. Among the finest examples of such reform is the Rhode Island Global Compact Waiver, approved in the waning days of the George W. Bush Administration on January 16, 2009. The waiver combined and consolidated myriad Medicaid waivers into one comprehensive waiver, with a capped allotment on overall spending. Rather than considering the silos of various program requirements, or specific waivers on discrete issues, Rhode Island was able to examine Medicaid reform holistically—focusing on the big picture, rather than specific bureaucratic dictates from Washington.[27]

Given flexibility from Washington, Rhode Island succeeded in controlling Medicaid expenditures—indeed, in reducing them on a per beneficiary basis. Overall spending remained roughly constant from 2010 through 2013, while enrollment grew by 6.6%.[28] Per beneficiary costs declined by 5.2% over that four-year period—a decline in absolute terms, even before factoring in inflation.[29] Perhaps most importantly, an independent report from the Lewin Group found that the Global Compact was “highly effective in controlling Medicaid costs,” while “improving members’ access to more appropriate services.”[30] In other words, Rhode Island reduced its Medicaid costs not by providing less care to beneficiaries—but providing more, and more appropriate, care to them.

The Rhode Island example has particular applicability to Wyoming’s Medicaid program. Just as Wyoming spends above national averages on Medicaid care for the aged and individuals with disabilities, so too did Rhode Island have a highly institutionalized population prior to implementing its Global Compact. Moreover, Wyoming’s current system of discrete waivers—two (including one pending with CMS) under Section 1115, and seven separate long-term care waivers under Section 1915 of the Social Security Act—lends itself towards potential care silos and unnecessary duplication. Consolidating these myriad waivers into one global waiver would allow Wyoming to “see the forest for the trees”—focusing on overall changes that will improve the quality of care. Implementing a global waiver will also give Wyoming the flexibility to accelerate reforms regarding delivery of long-term supports and services to the aged and disabled population, while introducing new consumer-oriented options for non-disabled beneficiaries.

 

Specific Solutions

A block grant, per capita allotment, or waiver along the lines of Rhode Island’s Global Compact provides the vision that will give states the tools needed to reform Medicaid for the 21st century. Fortunately, states have experimented with several specific reforms that can provide more granular details regarding how a reformed Medicaid program might look. Proposals in documents such as House Republicans’ “Better Way” plan, released last year, and a report issued by Republican governors in 2011, provide good sources of ideas.[31] Both individually and collectively, these solutions can 1) improve the quality of care beneficiaries receive; 2) better engage beneficiaries with the health care system, and where appropriate, provide a transition to employment and employer-sponsored coverage; 3) reduce health costs overall; and 4) provide sound stewardship of the taxpayer dollars funding the Medicaid program.

 

Delivery System Reform

With a Medicaid program based around fee-for-service medicine—which pays doctors and hospitals for every service they perform—Wyoming in particular would benefit from reforms that encourage greater value and coordination in health care delivery. As explained above, the state’s above-average spending on aged and disabled beneficiaries speaks to the way in which uncoordinated care can result in health problems for patients—and ultimately, greater expenses for taxpayers.

Promote Home and Community-Based Services (HCBS):         The Lewin Group’s analysis of Rhode Island’s Global Compact Waiver delineated many of the ways in which that state reformed its Medicaid program to de-institutionalize aged and disabled beneficiaries. Between the January 2009 approval of the waiver and the December 2011 report, Rhode Island achieved impressive savings from providing more coordinated, and “right-sized,” care to patients:

  • Shifting nursing home services into the community saved $35.7 million during the period examined by the study;
  • More accurate rate setting in nursing homes saved an additional $15 million in 2010 alone;
  • Better care management for adults with disabilities and special needs children saved between $4.5 and $11.9 million; and
  • Enrollment in managed care significantly increased the access of adults with disabilities to physician services.[32]

The results from the Rhode Island waiver demonstrate the possible savings to Wyoming associated with reform of long-term services and supports (LTSS)—savings that the Lewin report confirms came not from denying care to beneficiaries, but by improving it.

Other states have also taken actions to promote HCBS. Testifying before the Congressionally-chartered Commission on Long-Term Care in 2013, Tennessee’s head of Long-Term Supports and Services proposed several solutions, focused largely on turning the bias in favor of nursing home care toward a bias in favor of HCBS—to use nursing homes as a last resort, rather than a first resort.[33] Her proposals included a possible limit on nursing home capacity; converting nursing home “slots” into HCBS care “slots;” and requiring patients to try HCBS as the default option before moving to a more intense (i.e., institutional) setting.[34] Integrating these proposals into a comprehensive waiver would not only provide Wyoming residents with more appropriate care, it could also save taxpayers money.

Managed Care:            Wyoming could benefit by exploring the use of managed care plans to deliver Medicaid services to beneficiaries. Providing plans with a capitated payment—that is, a flat payment per beneficiary per month—would give them an incentive to streamline care. Moreover, a transition to managed care would provide more fiscal certainty to the state, as payment levels would not change during a fiscal or contract year.

In June 2014, a report commissioned by the Wyoming Legislature and prepared for the Wyoming Department of Health recommended against pursuing full-risk managed care, despite an admitted high level of vendor interest in doing so.[35] Three years later, Wyoming should explore the issue again, as both the Department of Health and medical providers in Wyoming have additional experience implementing other forms of coordinated care. The 2014 report notes that managed care plans have numerous tools available that could help reduce costs, particularly for high-cost patients, including data analytics, case managers, and quality metric incentives. Given the unique capacities that managed care plans bring to the table, it is worth exploring again the issue of whether full-risk plans could improve care to Wyoming beneficiaries while providing fiscal stability to the state.

While managed care could provide significant benefits to Wyoming, the state may be hamstrung by Medicaid’s current requirement that beneficiaries have the choice of at least two managed care plans. Given that Wyoming has only one insurer participating on its insurance Exchange this year, and a heavily rural population, this requirement may not be realistic or feasible. If approved by CMS, a waiver application could enable only one managed care plan to deliver care to rural Wyomingites.

Provider-Led Groups:              In addition to managed care products organized and sold by insurance companies, Wyoming could also explore the possibility of creating groups led by teams of providers to manage care delivery. Similar to the accountable care organization (ACO) model promoted through the Medicare program, these provider-led groups could provide coordinated care to patients, either on a fully- or partially-capitated payment model.

In recent years, at least 18 state Medicaid programs have either adopted or studied the creation of various provider-led organizations.[36] Adopters include neighboring states like Utah and Colorado, as well as southern states like Louisiana and Alabama. Whether a hospital-led ACO, or a group of doctors providing direct primary care to patients, these provider-led organizations would have greater incentives to coordinate care for patients, hopefully resulting in better health outcomes, and reduced spending for the Medicaid program.

Payment Bundling:     One other option for reforming delivery systems lies in bundled payments, which would see Medicaid providing a lump-sum payment for all the costs of a procedure (e.g., a hip replacement and associated post-operative therapy). Such concepts date back more than a quarter-century; a Medicare demonstration that began in the summer of 1991 reduced spending on heart bypass patients by $42.3 million—a savings of nearly 10 percent.[37] More recently, Pennsylvania’s Geisinger Health System helped bring the payment bundle model into the national lexicon, implementing a 90-day “warranty” on heart bypass patients beginning in February 2006.[38]

In recent years, government payers have increasingly adopted the payment bundle as a means to improve care quality and limit spending increases. Beginning in 2011, Arkansas’ Medicaid program worked with its local Blue Cross affiliate to improve health care delivery through payment improvement, and has implemented an episode-of-care payment model (i.e., a payment bundle) as one of its efforts.[39] Likewise, Medicare has moved ahead with efforts to embrace bundled payments—offering providers the option of a retrospective or prospective lump-sum payment for an inpatient stay, post-acute care provided after the stay, or both.[40]

A reformed Medicaid program in Wyoming could offer providers the opportunity to utilize bundled payment models as one vehicle to deliver better care. Ideally, Medicaid need not mandate participation from providers, as Medicare has done for some payment bundles, but instead help to encourage broader trends in the industry.[41] While not as dramatic a change as a move toward managed care, the bundled payment option may appeal to some providers as a “middle ground” for those not yet ready to embrace a fully capitated payment model.

De-Identified Patient Data:   In a bid to harness the power of “big data,” the federal government has made de-identified Medicare patient claims information available to companies that can analyze the information for patterns of care usage. Those initiatives have recently expanded to Medicaid, with one start-up compiling a database of 74 million Medicaid patients.[42] Wyoming could ask outside vendors or consultants to analyze its claims data for relevant patterns and trends—yielding valuable insights into the delivery of care, and potentially improving outcomes for beneficiaries. By releasing its own Medicaid data and encouraging companies to analyze it, Wyoming will encourage the development of Wyoming-specific solutions to the state’s unique health care needs.

 

Consumer-Directed Options

As part of a move towards modernizing Medicaid, Wyoming should adopt several different consumer-directed elements for its health coverage. These provisions would give beneficiaries incentives to act as smart shoppers, using ideas proven to lower the growth of health care costs. Providing appropriate incentives to beneficiaries will also make Medicaid coverage more closely resemble private health insurance plans—providing an easy transition for beneficiaries who move into employer-based coverage as their income rises.

Health Opportunity Accounts:            In 2005, provisions in the Deficit Reduction Act created Health Opportunity Accounts.[43] The language in the statute called for several demonstration projects by states, who could offer non-elderly and non-disabled beneficiaries the choice to enroll in Health Opportunity Accounts on a voluntary basis. The Opportunity Accounts would be used to pay for medical expenses up to a deductible, at which point traditional insurance coverage would take over. While the Opportunity Accounts under the demonstration would function in many respects like a Health Savings Account (HSA)—the state and/or charities would fund the accounts, and beneficiaries could build up savings within them—they included a twist. Upon becoming ineligible for Medicaid, beneficiaries could access most of their remaining Opportunity Account balance for a period of up to three years, to purchase either health insurance coverage or “job training and tuition expenses.”[44]

By creating an HSA-like account mechanism, and giving beneficiaries the flexibility to use their Opportunity Account funds on job training or health insurance expenses upon becoming ineligible for Medicaid, the Opportunity Account demonstration promoted both smart health care shopping and employment opportunities for Medicaid beneficiaries. Unfortunately, in 2009 a Democratic Congress and President Obama passed legislation prohibiting the approval of any new Health Opportunity Account demonstrations— effectively killing this innovative program before it had a chance to take root.[45]

Thankfully, some states have continued to incorporate HSA-like incentives into their Medicaid programs. In the non-Medicaid space, HSAs and consumer-directed options have demonstrated their ability to reduce health care costs. A 2012 study in the prestigious journal Health Affairs found that broader adoption of the HSA model could reduce health care costs by more than $57 billion annually.[46] If extended into the Medicaid realm, slower growth of health costs would save taxpayers—in Wyoming and elsewhere.

The upcoming reauthorization of the State Children’s Health Insurance Program (SCHIP)—currently due to expire on September 30, 2017—gives Congress an opportunity to re-examine Health Opportunity Accounts. Regardless of whether lawmakers in Washington reinstate this particular model, however, account-based health coverage in Medicaid deserves a close look in Wyoming as part of a comprehensive reform waiver. Although the Opportunity Account mechanism was somewhat prescriptive in its approach, allowing beneficiaries to keep some portion of remaining account balances upon becoming ineligible for Medicaid represents an innovative and sound concept. Such a program could represent a true win-win: Both the state and beneficiaries receive a portion of the benefits from lower health spending—cash which the beneficiary can use to help adjust to life after Medicaid.

Right to Shop:              Thanks to several states’ reform of transparency laws, patients can now engage in a “right to shop” in many locations across the country.[47] The movement centers around the basic principle that consumers should share in the benefits of savings from choosing less expensive locations for medical and health procedures. Particularly for non-urgent care—for instance, medical tests or radiological procedures—variations among medical facilities provide patients with the opportunity to achieve significant savings by choosing a less costly provider.

Results from large employers illustrate how price transparency and competition have yielded savings for payers and consumers alike. A California Public Employees’ Retirement System (CalPERS) program of reference pricing—in which CalPERS set a maximum price of $30,000 for hip and knee replacements—led to savings of $2.8 million ($7,000 per patient) to CalPERS, and $300,000 (nearly $700 per patient) in lower cost-sharing, in its first year alone. The program led hospitals to renegotiate their rates with CalPERS, which expanded its reference pricing program to other procedures the very next year.[48]

Other estimates suggest that the potential savings from transparency and competition could range into the tens of billions of dollars. One study concluded that reference pricing for a handful of specific procedures could reduce health spending by 1.6 percent—or nearly $10 billion, if applied to all individuals with employer-sponsored health coverage.[49] A separate estimate found that eliminating variation in “shoppable” (i.e., high-cost and known in advance) health services could reduce spending on individuals with employer health coverage by $36 billion.[50]

A reformed Medicaid program should look to bring these positive effects of “patient power” to Medicaid—by allowing consumers to share in the savings from choosing wisely among providers. The right to shop could work particularly well in conjunction with an account-based model for Medicaid reform, which provides a ready vehicle for the state to deposit a portion of savings to beneficiaries. Citizens have literally saved millions of dollars using the right to shop; tapping into those savings for the Medicaid program would benefit taxpayers significantly.[51] Moreover, by incentivizing all providers to price their services more competitively, right to shop will exert downward pressure on health costs—an important goal for our nation’s health care system.

Wellness Incentives:   Over the past several years, successful employers have used incentives for healthy behaviors to help control the skyrocketing growth in health care costs. For instance, Safeway used such incentives to keep overall health costs flat over four years—at a time when costs for the average employer plan grew by 38 percent.[52]

Many large employers have increasingly embraced the results of the “Safeway model,” offering employees incentives for participating in healthy behaviors. According to the most recent annual survey of employer-provided health plans, approximately one-third of large employers (those with over 200 workers) offer employees incentives to complete a health risk assessment (32%), undergo biometric screening (31%), or participate or complete a wellness program (35%).[53] Among the largest employers—those with over 5,000 workers—nearly half offer incentives for risk assessments (50%), biometric screening (44%), and wellness programs (48%).[54] The trend of employer wellness incentives suggests Wyoming should bring this innovation to its Medicaid program.

Even though Obamacare passed on a straight party-line vote, expanding employer wellness incentives represented one of the few areas of bipartisan agreement. Language in the law permitted employers to increase the permitted variation for participation in wellness programs from 20 percent of premiums to 30 percent.[55] Medicaid programs should have the flexibility to implement such changes to their programs without requesting permission from Washington—and Wyoming should incorporate incentives for healthy behaviors into its revised Medicaid program as part of a comprehensive waiver.

Premiums and Co-Payments:              In addition to more innovative models discussed above, a revised Medicaid program in Wyoming could look to impose modest cost-sharing on beneficiaries through a combination of premiums and co-payments. Applying cost-sharing to specific services—for instance, unnecessary use of the emergency room for non-urgent care—should encourage beneficiaries to find the most appropriate source of care. Reasonable, enforceable cost-sharing would encourage beneficiaries to take responsibility for their care, making them partners in the road to better health.

 

Transition to Employment and Employer-Based Health Insurance

In many cases, individuals on Medicaid can, and ultimately should, make the transition to employment, and to the employer-based health insurance that comes with many quality jobs. However, the benefits currently provided by Medicaid bear little resemblance to most forms of employer-based coverage. In conjunction with the consumer-directed options discussed above, Wyoming should implement other steps to encourage beneficiaries to make the transition into work, and encourage the adoption of employer-based health insurance.

Work Requirements:               Fortunately, the Trump Administration has indicated a willingness to embrace state flexibility in Medicaid—which with respect to work requirements in particular would represent a welcome change from the Obama Administration.[56] A requirement that able-bodied Medicaid beneficiaries either work, look for work, or prepare for work through enrollment in job-training programs would help transform state economies, as even voluntary job-referral programs have led to some impressive success stories. In the neighboring state of Montana, one participant obtained skills that helped her find not just a job, but a new career:

“I think it’s a success story,” [Ruth] McCafferty says about the [Medicaid] jobs program. “I love this. I’m the poster child!”

McCafferty is a 53-year-old single mom with three kids living at home. Seven months ago, she lost her job in banking, and interviews for new jobs weren’t panning out.…

The jobs component of [her Medicaid coverage] means she also got a phone call from her local Job Service office, saying they might be able to hook her up with a grant to pay for training to help her get a better job than the one she lost. She was pretty skeptical, but came in anyway…

Job Service ended up paying not just for online training, but a trip to Helena to take a certification exam. Now, they’re funding an apprenticeship at a local business until she can start bringing in her own clients and get paid on commission.

“I’m able to support my family,” [McCafferty] says. “I’ve got a career opportunity that’s more than just a job.”[57]

Ruth McCafferty is not the only success story associated with Montana’s Medicaid Job Service program. Five in six individuals who participated in the program are now employed, and with an average 50 percent increase in pay, to about $40,000 per year—enough in some cases to transition off of Medicaid.[58] Unfortunately, however, because the program is not mandatory for beneficiaries, only a few thousand out of 53,000 Medicaid enrollees have embraced this life-changing opportunity.[59]

In December 2015, the Congressional Budget Office noted that Obamacare’s Medicaid expansion will reduce beneficiaries’ labor force participation by about 4 percent, “creat[ing] a tax on additional earnings for those considering job changes” that would raise their income above the threshold for eligibility.[60] Rather than discouraging work, as under Obamacare, Medicaid should encourage work, and a transition into working life. Imposing a work requirement for Medicaid recipients, coupled with appropriate resources for job training and education, would help beneficiaries, taxpayers—and ultimately, Wyoming’s economy.

Flexible Benefits:         Particularly for non-disabled adults and optional coverage populations, Wyoming should consider offering a more flexible and limited set of insurance benefits than the standard Medicaid package. Congress moved down this route in 2005, using a section of the Deficit Reduction Act to create a set of “benchmark” benefits that certain populations could receive.[61] However, the “benchmark” plan section limits eligibility to certain populations, and excludes provisions permitting states to impose modest cost-sharing for beneficiaries.

As part of a comprehensive waiver, Wyoming should request the ability to shift non-disabled beneficiaries into “benchmark” plans. Moreover, the waiver application should include provisions for modest cost-sharing for beneficiaries, and make those cost-sharing payments enforceable. Receiving authority from Washington to customize health coverage options for non-traditional beneficiaries would give the state the ability to innovate, and tailor benefit packages to beneficiary needs and fiscal realities.

Premium Assistance:               Premium assistance—in which Medicaid helps subsidize premiums for employer-sponsored health coverage—could play an important role in encouraging the use of private insurance where available, while also keeping all members of a family on the same health insurance policy. Unfortunately, however, current regulatory requirements for premium assistance have proven ineffective and unduly burdensome. All current premium assistance programs require Medicaid programs to provide wrap-around benefits to beneficiaries.[62] In addition, two premium assistance options created by Congress in 2009 explicitly prohibit states from using high-deductible health plans—regardless of whether or not the state funds an HSA to subsidize beneficiaries’ medical expenses in conjunction with the high-deductible plan.[63]

As part of its comprehensive waiver application, Wyoming should ask for more flexibility to use Medicaid dollars to subsidize employer coverage, without providing additional wrap-around benefits. In addition, the state’s application should require non-disabled adults to utilize premium assistance where available—another policy consistent with maximizing the use of private health coverage.

Preventing “Crowd-Out”:        Many government-run health programs face the problem of “crowd-out”—individuals purposefully dropping their private health coverage to enroll in taxpayer-funded insurance. Prior studies have estimated the “crowd-out” rate for certain coverage expansions at around 60 percent.[64] In these cases, coverage expansions enrolled more people who dropped their private coverage than previously uninsured individuals—a poor use of taxpayers’ hard-earned dollars.

States like Wyoming should have the ability to impose reasonable restrictions on enrollment as one way to prevent “crowd-out.” For instance, ensuring enrollees do not have an available offer of employer coverage, or only enrolling persistently uninsured individuals (e.g., those uninsured for at least 90-180 days prior to enrollment), would prevent individuals from attempting to “game the system” and ensure efficient use of taxpayer dollars.

 

Program Integrity

Estimates suggest that health care fraud represents an industry of massive proportions, with tens of billions in taxpayer dollars lost every year to fraudulent activities.[65] Medicaid has remained on the Government Accountability Office (GAO) list of “high-risk” programs since 2003 “due to its size, growth, diversity of programs, and concerns about the adequacy of fiscal oversight.”[66] In its most recent update, GAO noted that improper payments—whether erroneous or fraudulent in nature—increased from a total of $29.1 billion in fiscal year 2015 to $36.3 billion in fiscal 2016—an increase of nearly 25 percent.[67]

A reformed Medicaid program in Wyoming would use flexibility provided by the federal government to strengthen programs and methods ensuring proper use of taxpayer dollars. Because any dollar stolen by a fraudster represents one dollar not used to help the patients—many of them aged and vulnerable—that Medicaid treats, policy-makers should work diligently to ensure that scarce taxpayer funds are used solely by the populations for whom Medicaid was designed.

Verify Eligibility and Identity:            A 2015 report by the Foundation for Government Accountability provides numerous cases of ineligible—or in some cases deceased—beneficiaries remaining on state Medicaid rolls:

  • Arkansas identified thousands of individuals not qualified for Medicaid benefits in 2014, including 495 deceased beneficiaries;
  • Pennsylvania removed over 160,000 individuals from benefit rolls in 2011, including individuals in prison and million-dollar lottery winners; and
  • In Illinois, state officials removed over 400,000 ineligible beneficiaries in one year alone, saving taxpayers approximately $400 million annually.[68]

In the past two years, Wyoming has taken decisive action to crack down on fraud. The eligibility checks begun in mid-2015 removed several thousand ineligible individuals from the Medicaid rolls.[69] Moreover, Act 57, passed by the state legislature last year, introduced a new comprehensive program to stop fraud.[70] By verifying eligibility and identity upon enrollment, monitoring eligibility through quarterly database checks, and prosecuting offenders where found, Act 57 should save Wyoming taxpayers, while ensuring that eligible beneficiaries can continue to receive the health services they need.[71]

Asset Recovery:            A 2015 Government Accountability Office (GAO) report raised concerns about whether Wyoming’s Medicaid program is appropriately protecting taxpayer dollars. GAO concluded that Wyoming ranks second in the percentage of Medicaid beneficiaries (20.6%) with additional private health insurance coverage, and third in the percentage of Medicaid beneficiaries (26.02%) with additional public health insurance coverage.[72] By comparison, GAO concluded that only 13.4% of Medicaid beneficiaries nationwide had an additional source of private insurance coverage—meaning Wyoming has a rate of additional private coverage among Medicaid beneficiaries roughly 50 percent higher than the national average.[73]

As with the concept of crowd-out—individuals dropping private coverage entirely to enroll in Medicaid—discussed above, Medicaid should serve as the payer of last resort, not of first instance. If another payer has liability with respect to a Medicaid beneficiary’s claims, the state has the duty—both a statutory obligation under the federal Medicaid law, and a moral obligation to its taxpayers—to avoid incurring those claims, and seek to recover payments already made when it is cost-effective to do so.

Asset recovery can take several forms. Improving recovery for third-party liability claims could involve participation in electronic data matching between Medicaid enrollment files and private insurer files; empowering any managed care organizations contracted to the Medicaid program to adjudicate third-party liability claims; and prohibiting insurers from denying third-party liability claims for purely procedural reasons, such as failure to obtain prior authorization.[74] As part of these efforts, Wyoming should have the freedom to hire contingency fee-based contractors as one means to stem the flow of improper payments to health care providers.

Long-term services and supports represent another area where Wyoming can take steps to ensure taxpayer dollars are spent on the vulnerable populations for whom Medicaid was designed. The state can and should utilize existing authority to recover funds from estates, or impose sanctions on individuals who transferred assets at below-market rates in their efforts to qualify for Medicaid.[75]

 

Conclusion

In the past decade, Wyoming has made numerous reforms to its Medicaid program. The state has begun to re-balance care away from institutional settings where possible, and has implemented several programs to improve care coordination. These changes have helped stabilize Medicaid spending as a share of the budget, and reduce spending on a per-beneficiary basis.

However, given freedom and flexibility from Washington—flexibility which should be forthcoming under the new Administration—Wyoming can go further. This vision would see additional reforms designed to keep patients out of intensive and costly settings—whether the hospital or a nursing home—and an exploration of managed care options. Beyond the aged population, Wyoming would implement consumer-driven principles into Medicaid, giving beneficiaries greater incentives to take responsibility for their own care, and the tools to do so. And many recipients would ultimately transition out of Medicaid entirely, using skills they learned through Medicaid-sponsored job training programs to build a better life.

This vision stands within Wyoming’s reach—indeed, it stands within every state’s reach. All it takes is flexibility from Washington, and the desire on the part of policy-makers to embrace the vision for a modern Medicaid system. With a comprehensive waiver, Wyoming can transform and revitalize Medicaid. It’s time to embrace the opportunity and do just that.

 

[1] Letter by Health and Human Services Secretary Tom Price and Centers for Medicare and Medicaid Services Administrator Seema Verma to state governors regarding Medicaid reform, March 14, 2017, https://www.hhs.gov/sites/default/files/sec-price-admin-verma-ltr.pdf.

[2] Office of the Actuary, Centers for Medicare and Medicaid Services, “2016 Actuarial Report on the Financial Outlook for Medicaid,” https://www.medicaid.gov/medicaid/financing-and-reimbursement/downloads/medicaid-actuarial-report-2016.pdf, Table 3, p. 15.

[3] Congressional Budget Office, January 2017 Medicare baseline, https://www.cbo.gov/sites/default/files/recurringdata/51302-2017-01-medicare.pdf.

[4] 2016 Actuarial Report, Table 3, p. 15; CBO January 2017 Medicare baseline.

[5] National Association of State Budget Officers, Fiscal Survey of States: Spring 2016, https://higherlogicdownload.s3.amazonaws.com/NASBO/9d2d2db1-c943-4f1b-b750-0fca152d64c2/UploadedImages/Reports/Spring%202016%20Fiscal%20Survey%20of%20States-S.pdf, Table 11: Fiscal Year 2017 Recommended Program Area Adjustments by Value, p. 16.

[6] National Association of State Budget Officers, Fiscal Survey of States: Spring 2011, https://higherlogicdownload.s3.amazonaws.com/NASBO/9d2d2db1-c943-4f1b-b750-0fca152d64c2/UploadedImages/Fiscal%20Survey/Spring%202011%20Fiscal%20Survey.pdf, Table 11: Fiscal Year 2012 Recommended Program Area Adjustments by Value, p. 13.

[7] National Association of State Budget Officers, Fall 2016 Fiscal Survey of States, https://higherlogicdownload.s3.amazonaws.com/NASBO/9d2d2db1-c943-4f1b-b750-0fca152d64c2/UploadedImages/Fiscal%20Survey/Fall%202016%20Fiscal%20Survey%20of%20States%20-%20S.pdf, p. 1.

[8] National Association of State Budget Officers, 1996 State Expenditure Report, April 1997, https://higherlogicdownload.s3.amazonaws.com/NASBO/9d2d2db1-c943-4f1b-b750-0fca152d64c2/UploadedImages/SER%20Archive/ER_1996.PDF, Table 3, p. 11.

[9] Joanna Bisgaier and Karin Rhodes, “Auditing Access to Specialty Care for Children with Public Insurance,” New England Journal of Medicine June 16, 2011, http://www.nejm.org/doi/full/10.1056/NEJMsa1013285.

[10] Vanessa Fuhrmans, “Note to Patients: The Doctor Won’t See You,” Wall Street Journal July 19, 2007, http://www.wsj.com/articles/SB118480165648770935.

[11] Statement by DeAnn Friedholm, Consumers Union, at Alliance for Health Reform Briefing on “Affordability and Health Reform: If We Mandate, Will They (and Can They) Pay?” November 20, 2009, http://www.allhealth.org/briefingmaterials/TranscriptFINAL-1685.pdf, p. 40.

[12] Katherine Baicker, et al., “The Oregon Experiment—Effects of Medicaid on Clinical Outcomes,” New England Journal of Medicine May 2, 2013, http://www.nejm.org/doi/full/10.1056/NEJMsa1212321.

[13] Amy Finklestein et al., “Effect of Medicaid Coverage on ED Use—Further Evidence from Oregon’s Experiment,” New England Journal of Medicine October 20, 2016, http://www.nejm.org/doi/full/10.1056/NEJMp1609533.

[14] Scott Gottlieb, “Medicaid Is Worse than No Coverage at All,” Wall Street Journal March 10, 2011, http://www.wsj.com/articles/SB10001424052748704758904576188280858303612.

[15] Katherine Young et al., “Medicaid Per Enrollee Spending: Variation Across States,” http://files.kff.org/attachment/issue-brief-medicaid-per-enrollee-spending-variation-across-states-2, Appendix Table 1, p. 9.

[16] Ibid., Appendix Table 2, p. 11.

[17] Government Accountability Office, “Medicaid: Assessment of Variation among States in Per-Enrollee Spending,” Report GAO-14-456, June 16, 2014, http://www.gao.gov/assets/670/664115.pdf.

[18] Ibid., Appendix II, pp. 40-41.

[19] Ibid., Appendix VII, pp. 53-54.

[20] Wyoming Department of Health, “Introduction to Wyoming Medicaid,” p. 31.

[21] Ibid., pp. 11, 14.

[22] Section 121 of H.R. 1628, the American Health Care Act, as passed by the U.S. House of Representatives on May 4, 2017.

[23] Section 1115 of the Social Security Act, codified at 42 U.S.C. 1315.

[24] Mattie Quinn, “On Medicaid, States Won’t Take Feds’ No for an Answer,” Governing October 11, 2016, http://www.governing.com/topics/health-human-services/gov-medicaid-waivers-arizona-ohio-cms.html.

[25] Section 10201 of the Patient Protection and Affordable Care Act, P.L. 111-148, created a new Section 1115(d) of the Social Security Act (42 U.S.C. 1315(d)) imposing such requirements.

[26] Section 1115 (e) and (f) of the Social Security Act, codified at 42 U.S.C. 1315(e) and (f).

[27] Testimony of Gary Alexander, former Rhode Island Secretary of Health and Human Services, on “Strengthening Medicaid Long-Term Supports and Services” before the Commission on Long Term Care, August 1, 2013, http://ltccommission.org/ltccommission/wp-content/uploads/2013/12/Garo-Alexander.pdf.

[28] Ibid., p. 4.

[29] Ibid., p. 4.

[30] Lewin Group, “An Independent Evaluation of Rhode Island’s Global Waiver,” December 6, 2011, http://www.ohhs.ri.gov/documents/documents11/Lewin_report_12_6_11.pdf, p. 3.

[31] House of Representatives Republican Task Force, “A Better Way—Our Vision for a Confident America: Health Care,” June 22, 2016, http://abetterway.speaker.gov/_assets/pdf/ABetterWay-HealthCare-PolicyPaper.pdf, pp. 23-28; Republican Governors Public Policy Committee, “A New Medicaid: A Flexible, Innovative, and Accountable Future,” August 30, 2011, https://www.scribd.com/document/63596104/RGPPC-Medicaid-Report.

[32] Lewin Group, “An Independent Evaluation.”

[33] The author served as a member of the commission, whose work can be found at www.ltccommission.org.

[34] Testimony of Patti Killingsworth, TennCare Chief of Long-Term Supports and Services, before the Commission on Long-Term Care on “What Would Strengthen Medicaid LTSS?” August 1, 2013, http://ltccommission.org/ltccommission/wp-content/uploads/2013/12/Patti-Killingsworth-Testimony.pdf.

[35] Health Management Associates, “Wyoming Coordinated Care Study,” June 27, 2014, http://legisweb.state.wy.us/InterimCommittee/2014/WyoCoordinatedCareReportAppendices.pdf.

[36] National Academy for State Health Policy, “State ‘Accountable Care’ Activity Map,” http://nashp.org/state-accountable-care-activity-map/.

[37] Health Care Financing Administration, “Medicare Participating Heart Bypass Demonstration,” Extramural Research Report, September 1998, https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/Reports/downloads/oregon2_1998_3.pdf.

[38] Reed Abelson, “In Bid for Better Care, Surgery with a Warranty,” New York Times May 17, 2007, http://www.nytimes.com/2007/05/17/business/17quality.html?pagewanted=all.

[39] State of Arkansas, “Health Care Payment Improvement Initiative—Episodes of Care,” http://www.paymentinitiative.org/episodesOfCare/Pages/default.aspx.

[40] Centers for Medicare and Medicaid Services, “Bundled Payments for Care Improvement Initiative: General Information,” https://innovation.cms.gov/initiatives/Bundled-Payments/.

[41] On December 20, 2016, the Centers for Medicare and Medicaid Services (CMS) announced that participation in new cardiac and orthopedic bundles would be mandatory for all hospitals in selected metropolitan statistical areas beginning July 1, 2017; see https://www.cms.gov/Newsroom/MediaReleaseDatabase/Fact-sheets/2016-Fact-sheets-items/2016-12-20.html. Both lawmakers and provider groups have suggested that CMS is imposing too many mandates on providers and exceeding its statutory and constitutional authority; see http://tomprice.house.gov/sites/tomprice.house.gov/files/assets/September%2029%2C%202016%20CMMI%20Letter.pdf.

[42] Steve Lohr, “Medicaid’s Data Gets an Internet-Era Makeover,” New York Times January 9, 2017, https://www.nytimes.com/2017/01/09/technology/medicaids-data-gets-an-internet-era-makeover.html.

[43] Section 6082 of the Deficit Reduction Act of 2005, P.L. 109-171, which created a new Section 1938 of the Social Security Act (42 U.S.C. 1396u-8).

[44] The statute provided that, upon a beneficiary becoming ineligible for Medicaid, 25 percent of state contributions to the Opportunity Account would be returned to the state, but the beneficiary would retain 100 percent of any other contributions to the account, along with 75 percent of state contributions.

[45] Section 613 of the Children’s Health Insurance Program Reauthorization Act of 2009, P.L. 111-3.

[46] Amelia Haviland et al., “Growth of Consumer-Directed Health Plans to One-Half of All Employer-Sponsored Insurance Could Save $57 Billion Annually,” Health Affairs May 2012, http://content.healthaffairs.org/content/31/5/1009.full.

[47] Josh Archambault and Nic Horton, “Right to Shop: The Next Big Thing in Health Care,” Forbes August 5, 2016, http://www.forbes.com/sites/theapothecary/2016/08/05/right-to-shop-the-next-big-thing-in-health-care/#6f0ebcd91f75.

[48] Amanda Lechner et al., “The Potential of Reference Pricing to Generate Savings: Lessons from a California Pioneer,” Center for Studying Health System Change Issue Brief No. 30, December 2013, http://hschange.org/CONTENT/1397/1397.pdf.

[49] Paul Fronstin and Christopher Roebuck, “Reference Pricing for Health Care Services: A New Twist on the Defined Contribution Concept in Employment-Based Health Benefits,” Employee Benefit Research Institute Issue Brief No. 398, April 2014, https://www.ebri.org/pdf/briefspdf/EBRI_IB_398_Apr14.RefPrcng.pdf.

[50] Bobbi Coluni, “Save $36 Billion in U.S. Health Care Spending through Price Transparency,” Thomson Reuters, February 2012, https://www.scribd.com/document/83286153/Health-Plan-Price-Transparency.

[51] Archambault and Horton, “Right to Shop.”

[52] Steven Burd, “How Safeway is Cutting Health Care Costs,” Wall Street Journal June 12, 2009, http://www.wsj.com/articles/SB124476804026308603.

[53] Kaiser Family Foundation and Health Research and Educational Trust, “Employer Health Benefits: 2016 Annual Survey,” September 14, 2016, http://files.kff.org/attachment/Report-Employer-Health-Benefits-2016-Annual-Survey, Exhibit 12.20, p. 227.

[54] Ibid.

[55] PPACA Section 1201, which re-wrote Section 2705 of the Public Health Service Act (42 U.S.C. 300gg-4).

[56] Quinn, “States Won’t Take Feds’ No.”

[57] Eric Whitney, “Montana’s Medicaid Expansion Jobs Program Facing Scrutiny,” Montana Public Radio November 21, 2016, http://mtpr.org/post/montanas-medicaid-expansion-jobs-program-facing-scrutiny.

[58] Ibid.

[59] Ibid.

[60] Edward Harris and Shannon Mok, “How CBO Estimates Effects of the Affordable Care Act on the Labor Market,” Congressional Budget Office Working Paper 2015-09, December 2015, https://www.cbo.gov/sites/default/files/114th-congress-2015-2016/workingpaper/51065-ACA_Labor_Market_Effects_WP.pdf, p. 12.

[61] Section 6044 of the Deficit Reduction Act, P.L. 109-171, codified at Section 1937 of the Social Security Act, 42 U.S.C. 1396u-7.

[62] Joan Aiker et al., “Medicaid Premium Assistance Programs: What Information Is Available about Benefit and Cost-Sharing Wrap-Around Coverage?” Kaiser Commission on Medicaid and the Uninsured Issue Brief, December 2015, http://files.kff.org/attachment/issue-brief-medicaid-premium-assistance-programs-what-information-is-available-about-benefit-and-cost-sharing-wrap-around-coverage; Joan Aiker, “Premium Assistance in Medicaid and CHIP: An Overview of Current Options and Implications of the Affordable Care Act,” Kaiser Commission on Medicaid and the Uninsured Issue Brief, March 2013, https://kaiserfamilyfoundation.files.wordpress.com/2013/03/8422.pdf.

[63] Section 301 of the Children’s Health Insurance Program Reauthorization Act of 2009, P.L. 111-3, codified at 42 U.S.C. 1397ee(c)(10)(B)(ii)(II) and 42 U.S.C. 1396e-1(b)(2)(B).

[64] Jonathan Gruber and Kosali Simon, “Crowd-Out 10 Years Later: Have Recent Public Insurance Expansions Crowded Out Private Health Insurance?” Journal of Health Economics February 21, 2008, http://economics.mit.edu/files/6422.

[65] “Medicare Fraud: A $60 Billion Crime,” 60 Minutes October 23, 2009, http://www.cbsnews.com/news/medicare-fraud-a-60-billion-crime-23-10-2009/.

[66] Government Accountability Office, “High-Risk Series: An Update,” Report GAO-15-290, February 2015, http://www.gao.gov/assets/670/668415.pdf, p. 366.

[67] Government Accountability Office, “High-Risk Series: Progress on Many High-Risk Areas, While Substantial Efforts Needed on Others,” Report GAO-17-317, February 2017,  http://www.gao.gov/assets/690/682765.pdf, p. 579.

[68] Jonathan Ingram, “Stop the Scam: How to Prevent Welfare Fraud in Your State,” Foundation for Government Accountability, April 2, 2015.

[69] Wyoming Department of Health, “Introduction to Wyoming Medicaid,” p. 13.

[70] Enrolled Act 57, Wyoming Legislature, 63rd Session.

[71] Ibid.

[72] Government Accountability Office, “Medicaid: Additional Federal Action Needed to Further Improve Third Party Liability Efforts,” GAO Report GAO-15-208, January 2015, http://gao.gov/assets/670/668134.pdf, Appendix II, Table 3, pp. 27-28.

[73] Ibid., Figure 1, p. 10.

[74] Ibid.

[75] Kirsten Colello, “Medicaid Financial Eligibility for Long-Term Services and Supports,” Congressional Research Service Report R43506, April 24, 2014, https://fas.org/sgp/crs/misc/R43506.pdf.

Testimony on Risk Corridors and the Judgment Fund

A PDF of this testimony is available at the House Judiciary Committee website.

Testimony before the House Judiciary

Subcommittee on the Constitution and Civil Justice

 

Hearing on “Oversight of the Judgment Fund”

March 2, 2017

 

Chairman King, Ranking Member Cohen, and Members of the Subcommittee:

Good morning, and thank you for inviting me to testify. My name is Chris Jacobs, and I am the Founder of Juniper Research Group, a policy and research consulting firm based in Washington. Much of my firm’s work focuses on health care policy, a field in which I have worked for over a decade—including more than six years on Capitol Hill. Given my background and work in health care, I have been asked to testify on the use of the Judgment Fund as it pertains to one particular area: Namely, the ongoing litigation regarding risk corridor payments to insurers under Section 1342 of the Patient Protection and Affordable Care Act (PPACA).

The risk corridor lawsuits provide a good example of a problematic use of the Judgment Fund, and not just due to the sums involved—literally billions of dollars in taxpayer funds are at issue. Any judgments paid out to insurers via the Judgment Fund would undermine the appropriations authority of Congress, in two respects. First, Congress never explicitly appropriated funds to the risk corridor program—either in PPACA or any other statute. Second, once the Obama Administration sent signals indicating a potential desire to use taxpayer dollars to fund risk corridors, notwithstanding the lack of an explicit appropriation, Congress went further, and enacted an express prohibition on such taxpayer funding. Utilizing the Judgment Fund to appropriate through the back door what Congress prohibited through the front door would represent an encroachment by the judiciary and executive on Congress’ foremost legislative power—the “power of the purse.”

Though past precedents and opinions by the Congressional Research Service, Government Accountability Office, and Justice Department Office of Legal Counsel should provide ample justification for the Court of Appeals for the Federal Circuit to deny the risk corridor claims made by insurers when it considers pending appeals of their cases, Congress can take additional action to clarify its prerogatives in this sphere. Specifically, Congress could act to clarify in the risk corridor case, and in any other similar case, that it has “otherwise provided for” funding within the meaning of the Judgment Fund when it has limited or restricted expenditures of funds.

 

Background on Risk Corridors

PPACA created risk corridors as one of three programs (the others being reinsurance and risk adjustment) designed to stabilize insurance markets in conjunction with the law’s major changes to the individual marketplace.  Section 1342 of the law established risk corridors for three years—calendar years 2014, 2015, and 2016. It further prescribed that insurers suffering losses during those years would have a portion of those losses reimbursed, while insurers achieving financial gains during those years would cede a portion of those profits.[1]

Notably, however, the statute did not provide an explicit appropriation for the risk corridor program—either in Section 1342 or elsewhere. While the law directs the Secretary of Health and Human Services (HHS) to establish a risk corridor program,[2] and make payments to insurers,[3] it does not provide a source for those payments.

 

History of Risk Corridor Appropriations

The lack of an explicit appropriation for risk corridors was not an unintentional oversight by Congress. The Senate Health, Education, Labor, and Pensions (HELP) Committee included an explicit appropriation for risk corridors in its health care legislation marked up in 2009.[4] Conversely, the Senate Finance Committee’s version of the legislation—the precursor to PPACA—included no appropriation for risk corridors.[5] When merging the HELP and Finance Committee bills, Senators relied upon the Finance Committee’s version of the risk corridor language—the version with no explicit appropriation.

Likewise, the Medicare Modernization Act’s risk corridor program for the Part D prescription drug benefit included an explicit appropriation from the Medicare Prescription Drug Account, an account created by the law as an offshoot of the Medicare Supplementary Medical Insurance Trust Fund.[6] While PPACA specifically states that its risk corridor program “shall be based on the program for regional participating provider organizations under” Medicare Part D, unlike that program, it does not include an appropriation for its operations.[7]

As the Exchanges began operations in 2014, Congress, noting the lack of an express appropriation for risk corridors in PPACA, questioned the source of the statutory authority for HHS to spend money on the program. On February 7, 2014, then-House Energy and Commerce Committee Chairman Fred Upton (R-MI) and then-Senate Budget Committee Ranking Member Jeff Sessions (R-AL) wrote to Comptroller General Gene Dodaro requesting a legal opinion from the Government Accountability Office (GAO) about the availability of an appropriation for the risk corridors program.[8]

In response to inquiries from GAO, HHS replied with a letter stating the Department’s opinion that, while risk corridors did not receive an explicit appropriation in PPACA, the statute requires the Department to establish, manage, and make payments to insurers as part of the risk corridor program. Because risk corridors provide special benefits to insurers by stabilizing the marketplace, HHS argued, risk corridor payments amount to user fees, and the Department could utilize an existing appropriation—the Centers for Medicare and Medicaid Services’ (CMS) Program Management account—to make payments.[9] GAO ultimately accepted the Department’s reasoning, stating the Department had appropriation authority under the existing appropriation for the CMS Program Management account to spend user fees.[10]

The GAO ruling came after Health and Human Services had sent a series of mixed messages regarding the implementation of the risk corridor program. In March 2013, the Department released a final rule noting that “the risk corridors program is not statutorily required to be budget neutral. Regardless of the balance of payments and receipts, HHS will remit payments as required under Section 1342 of” PPACA.[11] However, one year later, on March 11, 2014, HHS reversed its position, announcing the Department’s intent to implement the risk corridor program in a three-year, budget-neutral manner.[12]

Subsequent to the GAO ruling, and possibly in response to the varying statements from HHS, Congress enacted in December 2014 appropriations language prohibiting any transfers to the CMS Program Management account to fund shortfalls in the risk corridor program.[13] The explanatory statement of managers accompanying the legislation, noting the March 2014 statement by HHS pledging to implement risk corridors in a budget neutral manner, stated that Congress added the new statutory language “to prevent the CMS Program Management account from being used to support risk corridor payments.”[14] This language was again included in appropriations legislation in December 2015, and remains in effect today.[15]

 

Losses Lead to Lawsuits

The risk corridor program has incurred significant losses for 2014 and 2015. On October 1, 2015, CMS revealed that insurers paid $387 million into the program, but requested $2.87 billion. As a result of both these losses and the statutory prohibition on the use of additional taxpayer funds, insurers making claims for 2014 received only 12.6 cents on the dollar for their claims that year.[16]

Risk corridor losses continued into 2015. Last September, without disclosing specific dollar amounts, CMS revealed that “all 2015 benefit year collections [i.e., payments into the risk corridor program] will be used towards remaining 2014 benefit year risk corridors payments, and no funds will be available at this time for 2015 benefit year risk corridors payments.”[17]

In November, CMS revealed that risk corridor losses for 2015 increased when compared to 2014. Insurers requested a total of $5.9 billion from the program, while paying only $95 million into risk corridors—all of which went to pay some of the remaining 2014 claims.[18] To date risk corridors face a combined $8.3 billion shortfall for 2014 and 2015—approximately $2.4 billion in unpaid 2014 claims, plus the full $5.9 billion in unpaid 2015 claims. Once losses for 2016 are added in, total losses for the program’s three-year duration will very likely exceed $10 billion, and could exceed $15 billion.

Due to the risk corridor program losses, several insurers have filed suit in the Court of Federal Claims, seeking payment via the Judgment Fund of outstanding risk corridor claims they allege are owed. Thus far, two cases have proceeded to judgment. On November 10, 2016, Judge Charles Lettow dismissed all claims filed by Land of Lincoln Mutual Health Insurance Company, an insurance co-operative created by PPACA that shut down operations in July 2016.[19] Notably, Judge Lettow did not dismiss the case for lack of ripeness, but on the merits of the case themselves. He considered HHS’ decision to implement the program in a budget-neutral manner reasonable, using the tests in Chevron v. Natural Resources Defense Council, and concluded that neither an explicit nor implicit contract existed between HHS and Land of Lincoln.[20]

Conversely, on February 9, 2017, Judge Thomas Wheeler granted summary judgment in favor of Moda Health Plan, an Oregon health insurer, on its risk corridor claims.[21] Judge Wheeler held that PPACA “requires annual payments to insurers, and that Congress did not design the risk corridors program to be budget-neutral. The Government is therefore liable for Moda’s full risk corridors payments” under the law.[22] And, contra Judge Lettow, Judge Wheeler concluded that an implied contract existed between HHS and Moda, which also granted the insurer right to payment.[23]

 

Congress “Otherwise Provided For” Risk Corridor Claims

The question of whether or not insurers have a lawful claim on the United States government is separate and distinct from the question of whether or not the Judgment Fund can be utilized to pay those claims. CMS, on behalf of the Department of Health and Human Services, has made clear its views regarding the former question. In announcing its results for risk corridors for 2015, the agency stated that the unpaid balances for each year represented “an obligation of the United States Government for which full payment is required,” and that “HHS will explore other sources of funding for risk corridors payments, subject to the availability of appropriations. This includes working with Congress on the necessary funding for outstanding risk corridors payments.”[24]

But because insurers seek risk corridor payments from the Judgment Fund, that fund’s permanent appropriation is available only in cases where payment is “not otherwise provided for” by Congress.[25] GAO, in its Principles of Federal Appropriations Law, describes such circumstances in detail:

Payment is otherwise provided for when another appropriation or fund is legally available to satisfy the judgment….Whether payment is otherwise provided for is a question of legal availability rather than actual funding status. In other words, if payment of a particular judgment is otherwise provided for as a matter of law, the fact that the defendant agency has insufficient funds at that particular time does not operate to make the Judgment Fund available. The agency’s only recourse in this situation is to seek additional appropriations from Congress, as it would have to do in any other deficiency situation.[26]

In this circumstance, GAO ruled in September 2014 that payments from insurers for risk corridors represented “user fees” that could be retained in the CMS Program Management account, and spent from same using existing appropriation authority. However, the prohibition on transferring taxpayer dollars to supplement those user fees prevents CMS from spending any additional funds on risk corridor claims other than those paid into the program by insurers themselves.

Given the fact pattern in this case, the non-partisan Congressional Research Service concluded that the Judgment Fund may not be available to insurers:

Based on the existence of an appropriation for the risk corridor payments, it appears that Congress would have “otherwise provided for” any judgments awarding payments under that program to a plaintiff. As a result, the Judgment Fund would not appear to be available to pay for such judgments under current law. This would appear to be the case even if the amounts available in the “Program Management” account had been exhausted. In such a circumstance, it appears that any payment to satisfy a judgment secured by plaintiffs seeking recovery of damages owed under the risk corridors program would need to wait until such funds were made available by Congress.[27]

Because the appropriations power rightly lies with Congress, the Judgment Fund cannot supersede the legislature’s decision regarding a program’s funding, or lack of funding. Congress chose not to provide the risk corridor program with an explicit appropriation; it further chose explicitly to prohibit transfers of taxpayer funds into the program. To allow the Judgment Fund to pay insurers’ risk corridor claims would be to utilize an appropriation after Congress has explicitly declined to do so.

The Justice Department’s Office of Legal Counsel (OLC) has previously upheld the same principle that an agency’s inability to fund judgments does not automatically open the Judgment Fund up to claims:

The Judgment Fund does not become available simply because an agency may have insufficient funds at a particular time to pay a judgment. If the agency lacks sufficient funds to pay a judgment, but possesses statutory authority to make the payment, its recourse is to seek funds from Congress. Thus, if another appropriation or fund is legally available to pay a judgment or settlement, payment is “otherwise provided for” and the Judgment Fund is not available.[28]

The OLC memo reinforces the opinions of both CRS and the GAO: The Judgment Fund is a payer of last resort, rather than a payer of first instance. Where Congress has provided another source of funding, the Judgment Fund should not be utilized to pay judgments or settlements. Congress’ directives in setting limits on appropriations to the risk corridor program make clear that it has “otherwise provided for” risk corridor claims—therefore, the Judgment Fund should not apply.

 

Judgment Fund Settlements

Even though past precedent suggests the Judgment Fund should not apply to the risk corridor cases, a position echoed by at least one judge’s ruling on the matter, the Obama Administration prior to leaving office showed a strong desire to settle insurer lawsuits seeking payment for risk corridor claims using Judgment Fund dollars. In its September 9, 2016 memo declaring risk corridor claims an obligation of the United States government, CMS also acknowledged the pending cases regarding risk corridors, and stated that “we are open to discussing resolution of those claims. We are willing to begin such discussions at any time.”[29] That language not only solicited insurers suing over risk corridors to seek settlements from the Administration, it also served as an open invitation for other insurers not currently suing the United States to do so—in the hope of achieving a settlement from the executive.

Contemporaneous press reports last fall indicated that the Obama Administration sought to use the Judgment Fund as the source of funding to pay out risk corridor claims. Specifically, the Washington Post reported advanced stages of negotiations regarding a settlement of over $2.5 billion—many times more than the $18 million in successful Judgment Fund claims made against HHS in the past decade—with over 175 insurers, paid using the Judgment Fund “to get around a recent congressional ban on the use of Health and Human Services money to pay the insurers.”[30]

When testifying before a House Energy and Commerce subcommittee hearing on September 14, 2016, then-CMS Acting Administrator Andy Slavitt declined to state the potential source of funds for the settlements his agency had referenced in the memo released the preceding week.[31] Subsequent to that hearing, Energy and Commerce requested additional documents and details from CMS regarding the matter; that request is still pending.[32]

Even prior to this past fall, the Obama Administration showed a strong inclination to accommodate insurer requests for additional taxpayer funds. A 2014 House Oversight and Government Reform Committee investigative report revealed significant lobbying by insurers regarding both PPACA’s risk corridors and reinsurance programs.[33] Specifically, contacts by insurance industry executives to White House Senior Advisor Valerie Jarrett during the spring of 2014 asking for more generous terms for the risk corridor program yielded changes to the program formula—raising the profit floor from three percent to five percent—in ways that increased payments to insurers, and obligations to the federal government.[34]

Regardless of the Administration’s desire to accommodate insurers, as evidenced by its prior behavior regarding risk corridors, past precedent indicates that the Judgment Fund should not be accessible to pay either claims or settlements regarding risk corridors. A prior OLC memo indicates that “the appropriate source of funds for a settled case is identical to the appropriate source of funds should a judgment in that case be entered against the government.”[35] If a judgment cannot come from the Judgment Fund—and CRS, in noting that Congress has “otherwise provided for” risk corridor claims, believes it cannot—then neither can a settlement come from the Fund.

Given these developments, in October 2016 the Office of the House Counsel, using authority previously granted by the House, moved to file an amicus curiae brief in one of the risk corridor cases, that filed by Health Republic.[36] The House filing, which made arguments on the merits of the case that the Justice Department had not raised, did so precisely to protect Congress’ institutional prerogative and appropriations power—a power Congress expressed first when failing to fund risk corridors in the first place, and a second, more emphatic time when imposing additional restrictions on taxpayer funding to risk corridors.[37] The House filing made clear its stake in the risk corridor dispute:

Allegedly in light of a non-existent ‘litigation risk,’ HHS recently took the extraordinary step of urging insurers to enter into settlement agreements with the United States in order to receive payment on their meritless claims. In other words, HHS is trying to force the U.S. Treasury to disburse billions of dollars of taxpayer funds to insurance companies, even though DOJ [Department of Justice] has convincingly demonstrated that HHS has no legal obligation (and no legal right) to pay these sums. The House strongly disagrees with this scheme to subvert Congressional intent by engineering a massive giveaway of taxpayer money.[38]

The amicus filing illustrates the way in which the executive can through settlements—or, for that matter, failing vigorously to defend a suit against the United States—undermine the intent of Congress by utilizing the Judgment Fund appropriation to finance payments the legislature has otherwise denied.

 

Conclusion

Both the statute and existing past precedent warrant the dismissal of the risk corridor claims by the Court of Appeals for the Federal Circuit. Congress spoke clearly on the issue of risk corridor funding twice: First when failing to provide an explicit appropriation in PPACA itself; and second when enacting an explicit prohibition on taxpayer funding. Opinions from Congressional Research Service, Government Accountability Office, and Office of Legal Counsel all support the belief that, in taking these actions, Congress has “otherwise provided for” risk corridor funding, therefore prohibiting the use of the Judgment Fund. It defies belief that, having explicitly prohibited the use of taxpayer dollars through one avenue (the CMS Program Management account), the federal government should pay billions of dollars in claims to insurers via the back door route of the Judgment Fund.

However, in the interests of good government, Congress may wish to clarify that, in both the risk corridor cases and any similar case, lawmakers enacting a limitation or restriction on the use of funds should constitute “otherwise provid[ing] for” that program as it relates to the Judgment Fund. Such legislation would codify current practice and precedent, and preserve Congress’ appropriations power by preventing the executive and/or the courts from awarding judgments or settlements using the Judgment Fund where Congress has clearly spoken.

Thank you for the opportunity to testify this morning. I look forward to your questions.

 

 

[1] Under the formulae established in Section 1342(b) of the Patient Protection and Affordable Care Act (PPACA, P.L. 111-148), plans with profit margins between 3 percent and 8 percent pay half their profit margins between those two points into the risk corridor program, while plans with profit margins exceeding 8 percent pay in 2.5 percent of profits (half of their profits between 3 percent and 8 percent), plus 80 percent of any profit above 8 percent. Payments out to insurers work in the inverse manner—insurers with losses below 3 percent absorb the entire loss; those with losses of between 3 and 8 percent will have half their losses over 3 percent repaid; and those with losses exceeding 8 percent will receive 2.5 percent (half of their losses between 3 and 8 percent), plus 80 percent of all losses exceeding 8 percent. 42 U.S.C. 18062(b).

[2] Section 1342(a) of PPACA, 42 U.S.C. 18062(a).

[3] Section 1342(b) of PPACA, 42 U.S.C. 18062(b).

[4] Section 3106 of the Affordable Health Choices Act (S. 1679, 111th Congress), as reported by the Senate HELP Committee, established the Community Health Insurance Option. Section 3106(c)(1)(A) created a Health Benefit Plan Start-Up Fund “to provide loans for the initial operations of a Community Health Insurance Option.” Section 3106(c)(1)(B) appropriated “out of any moneys in the Treasury not otherwise appropriated an amount necessary as requested by the Secretary of Health and Human Services to,” among other things, “make payments under” the risk corridor program created in Section 3106(c)(3).

[5] Section 2214 of America’s Healthy Future Act (S. 1796, 111th Congress), as reported by the Senate Finance Committee, created a risk corridor program substantially similar to (except for date changes) that created in PPACA. Section 2214 did not include an appropriation for risk corridors.

[6] Section 101(a) of the Medicare Modernization Act (P.L. 108-173) created a program of risk corridors at Section 1860D—15(e) of the Social Security Act, 42 U.S.C. 1395w—115(e). Section 101(a) of the MMA also created a Medicare Prescription Drug Account within the Medicare Supplementary Medical Insurance Trust Fund at Section 1860D—16 of the Social Security Act, 42 U.S.C. 1395w—116. Section 1860D—16(c)(3) of the Social Security Act, 42 U.S.C. 1395w—116(c)(3), “authorized to be appropriated, out of any moneys of the Treasury not otherwise appropriated,” amounts necessary to fund the Account. Section 1860D—16(b)(1)(B), 42 U.S.C. 1395w—116(b)(1)(B), authorized the use of Account funds to make payments under Section 1860D—15, the section which established the Part D risk corridor program.

[7] Section 1342(a) of PPACA, 42 U.S.C. 18062(a).

[8] Letter from House Energy and Commerce Committee Chairman Fred Upton and Senate Budget Committee Ranking Member Jeff Sessions to Comptroller General Gene Dodaro, February 7, 2014.

[9] Letter from Department of Health and Human Services General Counsel William Schultz to Government Accountability Office Assistant General Counsel Julie Matta, May 20, 2014.

[10] Government Accountability Office legal decision B-325630, Department of Health and Human Services—Risk Corridor Program, September 30, 2014, http://www.gao.gov/assets/670/666299.pdf.

[11] Department of Health and Human Services, final rule on “Notice of Benefit and Payment Parameters for 2014,” Federal Register March 11, 2013, https://www.gpo.gov/fdsys/pkg/FR-2013-03-11/pdf/2013-04902.pdf, p. 15473.

[12] Department of Health and Human Services, final rule on “Notice of Benefit and Payment Parameters for 2015,” Federal Register March 11, 2014, https://www.gpo.gov/fdsys/pkg/FR-2014-03-11/pdf/2014-05052.pdf, p. 13829.

[13] Consolidated and Further Continuing Appropriations Act, 2015, P.L. 113-235, Division G, Title II, Section 227.

[14] Explanatory Statement of Managers regarding Consolidated and Further Continuing Appropriations Act, 2015, Congressional Record December 11, 2014, p. H9838.

[15] Consolidated Appropriations Act, 2016, P.L. 114-113, Division H, Title II, Section 225.

[16] Centers for Medicare and Medicaid Services, memorandum regarding “Risk Corridors Proration Rate for 2014,” October 1, 2015, https://www.cms.gov/CCIIO/Programs-and-Initiatives/Premium-Stabilization-Programs/Downloads/RiskCorridorsPaymentProrationRatefor2014.pdf.

[17] Centers for Medicare and Medicaid Services, memorandum regarding “Risk Corridors Payments for 2015,” September 9, 2016, https://www.cms.gov/CCIIO/Programs-and-Initiatives/Premium-Stabilization-Programs/Downloads/Risk-Corridors-for-2015-FINAL.PDF.

[18] Centers for Medicare and Medicaid Services, memorandum regarding “Risk Corridors Payment and Charge Amounts for the 2015 Benefit Year,” https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/2015-RC-Issuer-level-Report-11-18-16-FINAL-v2.pdf.

[19] Land of Lincoln Mutual Health Insurance Company v. United States, Court of Federal Claims No. 16-744C, ruling of Judge Charles Lettow, November 10, 2016, https://ecf.cofc.uscourts.gov/cgi-bin/show_public_doc?2016cv0744-47-0.

[20] Ibid.

[21] Moda Health Plan v. United States, Court of Federal Claims No. 16-649C, ruling of Judge Thomas Wheeler, February 9, 2017, https://ecf.cofc.uscourts.gov/cgi-bin/show_public_doc?2016cv0649-23-0.

[22] Ibid., p. 2.

[23] Ibid., pp. 34-39.

[24] CMS, “Risk Corridors Payments for 2015.”

[25] 31 U.S.C. 1304(a)(1).

[26] Government Accountability Office, 3 Principles of Federal Appropriations Law 14-39, http://www.gao.gov/assets/210/203470.pdf.

[27] Congressional Research Service, memo to Sen. Marco Rubio on the risk corridor program, January 5, 2016, http://www.rubio.senate.gov/public/_cache/files/1dc92ef8-c340-4cfd-95c0-67369a557f1e/2AA5EF8F125279800BFABC8B8BA37072.05.24.2016-crs-rubio-memo-risk-corridors-1-5-16-1-redacted.pdf.

[28] Justice Department Office of Legal Counsel, “Appropriate Source for Payment of Judgment and Settlements in United States v. Winstar Corp.,” July 22, 1998, Opinions of the Office of Legal Counsel in Volume 22, https://www.justice.gov/sites/default/files/olc/opinions/1998/07/31/op-olc-v022-p0141.pdf, p. 153.

[29] CMS, “Risk Corridors Payments for 2015.”

[30] Amy Goldstein, “Obama Administration May Use Obscure Fund to Pay Billions to ACA Insurers,” Washington Post September 29, 2016, https://www.washingtonpost.com/national/health-science/obama-administration-may-use-obscure-fund-to-pay-billions-to-aca-insurers/2016/09/29/64a22ea4-81bc-11e6-b002-307601806392_story.html?utm_term=.361888177f81.

[31] Testimony of CMS Acting Administrator Andy Slavitt before House Energy and Commerce Health Subcommittee Hearing on “The Affordable Care Act on Shaky Ground: Outlook and Oversight,” September 14, 2016, http://docs.house.gov/meetings/IF/IF02/20160914/105306/HHRG-114-IF02-Transcript-20160914.pdf, pp. 84-89.

[32] Letter from House Energy and Commerce Committee Chairman Fred Upton et al. to Health and Human Services Secretary Sylvia Burwell regarding risk corridor settlements, September 20, 2016, https://energycommerce.house.gov/news-center/letters/letter-hhs-regarding-risk-corridors-program.

[33] House Oversight and Government Reform Committee, staff report on “Obamacare’s Taxpayer Bailout of Health Insurers and the White House’s Involvement to Increase Bailout Size,” July 28, 2014, http://oversight.house.gov/wp-content/uploads/2014/07/WH-Involvement-in-ObamaCare-Taxpayer-Bailout-with-Appendix.pdf.

[34] Ibid., pp. 22-29.

[35] OLC, “Appropriate Source of Payment,” p. 141.

[36] H.Res. 676 of the 113th Congress gave the Speaker the authority “to initiate or intervene in one or more civil actions on behalf of the House…regarding the failure of the President, the head of any department or agency, or any other officer or employee of the executive branch, to act in a manner consistent with that official’s duties under the Constitution and the laws of the United States with respect to implementation of any provision of” PPACA. Section 2(f)(2)(C) of H.Res. 5, the opening day rules package for the 114th Congress, extended this authority for the duration of the 114th Congress.

[37] Motion for Leave to File Amicus Curiae on behalf of the United States House of Representatives, Health Republic Insurance Company v. United States, October 14, 2016, http://www.speaker.gov/sites/speaker.house.gov/files/documents/2016.10.13%20-%20Motion%20-%20Amicus%20Brief.pdf?Source=GovD.

[38] Ibid., p. 2.

Unwinding the Worst of Obamacare: How to End Medicaid Expansion

A PDF of this document is available on the Palmetto Promise Institute website.

As Congress prepares to consider legislation repealing and replacing Obamacare in 2017, unwinding that law’s massive expansion of Medicaid should stand at the top of the Congressional agenda. The source of most of the law’s spending, Medicaid expansion has resulted in exploding enrollment, creating state budget shortfalls that legislatures will need to remedy in 2017.

Moreover, Obamacare’s expansion of Medicaid to the able-bodied has undermined Medicaid’s original mission to provide services to the most vulnerable in society—including seniors and individuals with disabilities. The law effectively discriminates against vulnerable populations, providing states with more federal funding to cover the able-bodied than individuals with disabilities. Sadly, even as able-bodied beneficiaries have flooded into Medicaid, hundreds of thousands of individuals with disabilities continue to suffer long waits for needed care.

Congressional Republicans have put forward proposals seeking to reform Medicaid, transforming the program into a system of block grants or per capita allotments that will provide greater flexibility to states in exchange for a fixed federal spending commitment. However, such reforms are necessary—but not sufficient—in reforming the Medicaid program. First and foremost, Congress should take immediate action to unwind Obamacare’s Medicaid expansion, re-orienting the program to serve the most vulnerable populations for which it was originally designed.

 

History of Medicaid and Obamacare

As originally enacted into law in 1965, the Medicaid program provided federal matching funds to states to cover certain discrete populations, including the blind, seniors, individuals with disabilities, and needy parents. Obamacare changed the program fundamentally by expanding the program to all low-income adults; under Section 2001 of the law, all those with incomes under 138 percent of the federal poverty level (FPL) qualified for Medicaid coverage.[1] The statute as written made expansion mandatory for all states participating in Medicaid. States could decline to expand Medicaid, but in so doing, they would have had to forfeit all federal Medicaid funds, including funds for their existing aged, blind, and disabled populations.

In June 2012, the Supreme Court struck down the mandatory nature of Medicaid expansion as unconstitutionally coercive. Speaking for a seven-member majority, Chief Justice John Roberts concluded that “the threatened loss of 10 percent of a state’s overall budget [i.e., the federal share of Medicaid spending]…is economic dragooning that leaves states with no real option but to acquiesce in the Medicaid expansion.”[2] The Court left the expansion, and the rest of the law, intact, but prohibited the federal government from withholding all Medicaid funds from any states that chose not to pursue the categorical expansion to all adults with incomes under 138 percent FPL.

Because the Supreme Court ruling gave them a free choice about whether or not to embrace Obamacare’s Medicaid expansion, states—the “laboratories of democracy”—have taken different approaches. Some states, fearing that the federal government will renege on its promised high levels of funding, declined to expand. Some states passed a traditional Medicaid expansion, ratifying Obamacare’s massive new entitlement as its authors intended. Other states have utilized a system of premium assistance—also called the “private option”—that uses Medicaid dollars to subsidize private Exchange insurance coverage for individuals qualified for Medicaid under the Obamacare expansion.

Whether through the “private option” or traditional Medicaid, outcomes for states embracing Obamacare’s massive expansion of Medicaid to the able-bodied have been little different. States that have embraced Obamacare’s expansion have faced spiking enrollment and skyrocketing costs, all while perpetuating a system that encourages discrimination against the most vulnerable. Policy-makers should closely examine these cautionary tales as they look to rescind and replace Obamacare.

 

Exploding Enrollment, Skyrocketing Spending

The evidence among those states that have expended Medicaid demonstrates the massive effects on state budgets—due in large part to skyrocketing enrollment. A recent report by the Foundation for Government Accountability showed how the Medicaid rolls exploded in states that chose to expand the program under Obamacare. In a whopping 24 states that decided to expand, state Medicaid programs exceeded the highest enrollment projections:

  • Arizona predicted a maximum enrollment of 297,000; by September 2016, 397,879 had enrolled in Medicaid;
  • Arkansas predicted a maximum enrollment of 215,000; by October 2016, enrollment had reached 324,318;
  • California predicted a maximum enrollment of 910,000; by May 2016, enrollment had more than quadrupled prior maximum projections, reaching 3,842,200;
  • Colorado predicted a maximum enrollment of 187,000; by October 2016, enrollment hit 446,135;
  • Connecticut predicted a maximum enrollment of 113,000; by December 2015, 186,967 had enrolled;
  • Hawaii predicted a maximum enrollment of 35,000; by June 2015, enrollment had exceeded that projection, reaching 35,622;
  • Illinois predicted a maximum enrollment of 342,000; by April 2016, nearly double that amount—650,653—were enrolled;
  • Iowa predicted a maximum enrollment of 122,900; by February 2016, enrollment had reached 139,119;
  • Kentucky predicted a maximum enrollment of 188,000; by December 2015, enrollment more than doubled the initial expectation, reaching 439,044;
  • Maryland predicted a maximum enrollment of 143,000; by December 2015, enrollment reached 231,484;
  • Michigan predicted a maximum enrollment of 477,000; by October 2016, enrollment exceeded that projection, reaching 630,609;
  • Minnesota predicted a maximum enrollment of 141,000; by December 2015, enrollment hit 207,683;
  • Nevada predicted a maximum enrollment of 78,000; enrollment more than doubled those maximum projections, reaching 187,110 by September 2015;
  • New Hampshire predicted a maximum of enrollment of 45,500; by August 2016, enrollment reached 50,150;
  • New Jersey predicted a maximum enrollment of 300,000; twelve months after expansion began, in January 2015, enrollment totaled 532,917;
  • New Mexico predicted a maximum enrollment of 140,095; by December 2015, enrollment had reached 235,425;
  • New York predicted a maximum enrollment of 76,000; by December 2015, nearly four times as many had enrolled—a grand total of 285,564;
  • North Dakota predicted a maximum enrollment of 13,591; by March 2016, a total of 19,389 had enrolled;
  • Ohio predicted a maximum enrollment of 447,000; by August 2016, enrollment hit 714,595;
  • Oregon predicted a maximum enrollment of 245,000; by December 2015, enrollment hit 452,269;
  • Pennsylvania predicted a maximum enrollment of 531,000; by April 2016, enrollment had hit 625,970;
  • Rhode Island predicted a maximum enrollment of 39,756; in December 2015, enrollment reached 59,280;
  • Washington state predicted a maximum enrollment of 262,000; by July 2016, enrollment had more than doubled the highest enrollment projections, reaching 596,873; and
  • West Virginia predicted a maximum enrollment of 95,000; enrollment in December 2015 hit 174,999.[3]

While Medicaid is considered a counter-cyclical program—one in which enrollment typically rises during recessions, as household incomes shrink and individuals lose access to employer-sponsored coverage—Obamacare’s Medicaid expansion went into effect at a time of steady, albeit slight, economic growth. In other words, Medicaid enrollment under the Obamacare expansion could eventually exceed these figures—even as the actual enrollment numbers themselves exceeded projections prior to implementation, in some cases by several multiples.

By contrast, enrollment in health insurance Exchanges remains far below expectations set at the time of the law’s passage. Just before Obamacare passed in March 2010, the Congressional Budget Office (CBO) concluded that in 2016, the Exchanges would enroll a total of 21 million Americans.[4] For the first half of 2016, the Exchanges averaged enrollment of only 10.4 million—less than half the original CBO projection.[5]

Moreover, an analysis of Exchange enrollees shows enrollment concentrated largely among the individuals who qualify for the largest subsidies. According to an analysis conducted by the consulting firm Avalere Health, 81% of eligible individuals with income below 150 percent FPL—who are eligible for both subsidized premiums and reduced cost-sharing—have selected an Exchange plan.[6] On the other hand, only 16% of those with incomes between 300 and 400 percent FPL—who qualify for modest premium subsidies, but not reduced cost-sharing—have enrolled in Exchange coverage, while only 2% of individuals with incomes above 400 percent FPL—who do not qualify for subsidies at all—have signed up.[7] When it comes to both Medicaid expansion and Exchange coverage, the evidence suggests that only those individuals who receive free, or heavily subsidized, insurance have signed up in great numbers.

Just as enrollment for subsidized Medicaid under Obamacare dramatically exceeded expectations, so too have per-enrollee health costs for Medicaid participants. In the official 2014 report on the state of Medicaid’s finances, government actuaries acknowledged for the first time that per-enrollee costs for Obamacare’s newly eligible Medicaid enrollees ($5,488) exceeded those of previously eligible Medicaid participants ($4,914).[8] Actuaries had previously assumed that per-enrollee costs for the newly eligible population would be 30 percent lower than spending on existing populations—but the actual data suggested otherwise.[9] At the time, the actuaries believed some of the higher Medicaid spending arose because of pent-up demand—newly insured individuals requesting care for long-ignored medical conditions—a phenomenon they suggested might fade over time.[10]

But contrary to the expectations of government actuaries, costs for newly eligible beneficiaries continued to increase for a second straight year in 2015. Whereas the gap between per-enrollee costs for newly eligible beneficiaries and existing beneficiaries stood at approximately $500 in 2014, in the following year the gap grew to over $1,000—an average cost of $6,366 for every newly enrolled adult, versus $5,159 for every adult previously eligible for Medicaid.[11] As a result, the Congressional Budget Office likewise increased their estimates of per-enrollee spending on Obamacare’s Medicaid expansion—at least in the short term.[12] CBO still believes that per-enrollee spending on Obamacare’s Medicaid expansion will stabilize at lower levels over time, despite the evidence that actual costs continue to exceed prior assumptions by sizable margins.

The combination of higher-than-expected enrollment and higher-than-expected enrollee costs has created a “double whammy” for state budgets. While the federal government paid 100 percent of the cost to cover Obamacare’s Medicaid expansion population for the law’s first three years, states must contribute 5 percent of costs for the newly eligible beginning in 2017, rising to 10 percent by 2020—a share proving larger than expected, and one placing fiscal strains on states.

With the new entitlement costing much more than expected, states may have to cut other critically important spending priorities to continue funding Obamacare’s expansion of Medicaid to able-bodied adults. In Kentucky, costs for fiscal years 2017 and 2018 are now estimated at $257 million—more than double the original estimate of $107 million.[13] As a result, education, transportation, corrections, and other priorities will receive $150 million less from the state budget. Ohio’s budget for Medicaid expansion more than doubled from the $55.5 million originally projected, likewise robbing other important state spending programs.[14]

Even Democrats serving in state legislatures have expressed alarm at the rising tide of spending associated with Obamacare’s Medicaid expansion, and the other programs being cannibalized to pay for this new entitlement. In Oregon, facing a $500 million Medicaid-imposed budgetary shortfall over the next three years, Democratic state Senator Richard Devlin noted that “the only way to keep this [budget situation] manageable is to keep those costs under control, get people off Medicaid.”[15] In New Mexico, also facing pressures due to higher-than-expected enrollment, Democratic state Senator Howie Morales expressed anguish over the fiscal choices:

When you’re looking at a state budget and there are only so many dollars to go around, obviously it’s a concern. The most vulnerable of our citizens—the children, our senior citizens, our veterans, individuals with disabilities—I get concerned that those could be areas that get hit.[16]

Sen. Morales’ comments eloquently describe the plight that legislators face. States that expand Medicaid may have to cut important programs for individuals with disabilities, seniors, and the most vulnerable—to provide additional taxpayer funds for an expansion of Medicaid to able-bodied adults.

 

Undermining the Most Vulnerable

Supporters’ claims to the contrary, Medicaid expansion actually undermines principles of social justice and fairness—in which our society focuses the safety net first and foremost on those unable to provide for themselves. Expanding Medicaid under Obamacare serves only to endorse a horrifically unfair system created by the law, which effectively discriminates against individuals with disabilities—prioritizing coverage of able-bodied adults over protecting the most vulnerable in society.[17]

How does this happen in practice?

In 2013, the congressionally-appointed Commission on Long-Term Care heard testimony about the significant numbers of individuals with disabilities on waiting lists for home- and community-based services (HCBS).[18] Because coverage of HCBS—as opposed to institutional care in a nursing home—remains an optional service for state Medicaid programs, Americans in 42 states remain on lists waiting for access to home-based care.[19] More than 582,000 individuals—including nearly 350,000 with intellectual and developmental disabilities, over 155,000 aged and/or disabled individuals, over 58,000 children, more than 14,000 individuals with physical disabilities, and more than 4,000 Americans with traumatic brain injuries—remain on Medicaid waiting lists.[20] All these individuals could benefit from home-based care that would improve their quality of life, and could keep them from requiring more costly nursing home care in the future—yet they must wait in the Medicaid queue, in many cases for years on end.

Yet even as more than half a million Americans with disabilities wait for service, Obamacare prioritizes coverage of able-bodied adults over treating the most vulnerable—providing states as much as 45 cents on the dollar more to cover the able-bodied than individuals with disabilities. In 2017, the law provides a federal match for expansion populations—that is, individuals with incomes under 138 percent of the federal poverty level—of 95 percent, dipping slightly to 94 percent in 2018, 93 percent in 2019, and 90 percent in 2020 and future years.[21] Conversely, states wishing to expand coverage to individuals with disabilities—to eliminate their Medicaid waiting lists—will receive only the normal Medicaid matching rate, which for the current fiscal year ranges from 50 percent to 75 percent, based on states’ relative income.[22] In other words, in 2017, states will receive at least 20 cents, and as much as 45 cents, more on the dollar for covering able-bodied adults than they will ending waiting lists for individuals with disabilities seeking care.

Sadly, some states have responded to Obamacare’s perverse incentives in predictable ways. In the few years since the law took effect, the most vulnerable in society have suffered, while able-bodied adults received a new, taxpayer-funded entitlement:

  • A recent report from Illinois found that 752 individuals with disabilities died while awaiting access to home- and community-based services since Obamacare’s expansion took effect. Ironically enough, on the very day that Illinois voted to expand Medicaid to the able-bodied early, it also cut funding for medication and services provided to special needs children.[23]
  • In Arkansas, while Gov. Asa Hutchinson pledged to cut his state’s waiting list for individuals with disabilities in half, instead it has grown by 25 percent—even as Hutchinson has embraced Medicaid expansion to the able-bodied. The individuals waiting for care include ten-year-old Skylar Overman, whose mother worries she will die before she ever receives access to the in-home care she needs.[24]
  • In Ohio, Gov. John Kasich’s administration cut Medicaid eligibility for 34,000 individuals with disabilities, even while expanding the program to the able-bodied.[25]

Any law that results in these types of inequities—the most vulnerable cast aside to hasten access to care for the able-bodied—cannot be considered compassionate or just.

The disparities and perverse incentives present in Obamacare apply to South Carolina just as much as they do in other states. The law provides massive incentives for South Carolina to expand Medicaid to these able-bodied adults—many of whom may be unemployed or under-employed—rather than ending waiting lists for individuals with disabilities. In fiscal year 2017, South Carolina will receive a 71.3 percent match from the federal government for the traditional Medicaid program—including coverage for individuals with disabilities.[26] Yet Obamacare will provide a 95 percent match should the state choose to expand Medicaid to able-bodied adults. Effectively, the law provides South Carolina with nearly 25 cents more on the dollar should the state discriminate against the most vulnerable in our society.

South Carolina has rightly rejected the effective discrimination perpetuated by Obamacare, for multiple reasons. The state has a list of 5,656 individuals with disabilities waiting to receive HCBS.[27] Providing enough funding to end the Medicaid waiting list should stand as the state’s pressing health care priority—not expanding health coverage to able-bodied adults, many of whom would exceed the income limits to qualify for Medicaid if they pursued full-time employment. The fact that Washington does not agree with South Carolina’s decision to prioritize the most vulnerable—because federal officials want the state to put the able-bodied, rather than individuals with disabilities, at the head of the Medicaid line—is a reason for Washington to change its priorities, not South Carolina.

 

Not a Panacea for Hospitals

In many states debating the future of Medicaid under Obamacare, hospital associations have served as the biggest supporters of expansion. Hospitals claim that expanding Medicaid will result in substantial improvements to their bottom line, making the difference between facilities remaining open or shutting their doors. Unfortunately, however, Medicaid expansion will not make a meaningful impact on hospitals’ bottom line.

In September 2016, staff at the non-partisan Congressional Budget Office (CBO) released a report illustrating the minimal impact of Medicaid expansion on hospitals’ profitability.[28] The paper analyzed the effects of several changes associated with Obamacare on two variables: hospitals’ aggregate profit margin nationwide, and the percentage of hospitals with negative margins. The analysis estimated these two factors in 2025, and compared hospital profitability with 2011, before most of Obamacare’s major provisions took effect.

The CBO analysis found that, under the best possible scenario, hospitals will fare no better in 2025 than they did prior to Obamacare’s major provisions taking effect—and they could fare much worse. A scenario that coupled the law’s Medicare payment reductions with its coverage expansions yielded a best-case scenario similar to the status quo ante: about one quarter of hospitals with negative profit margins (26% in 2025, versus 27% in 2011), and an aggregate margin of 6.0% in both cases.[29] However, should hospitals fail to achieve the productivity gains contemplated under Obamacare, margins will fall significantly—with as many as half of all hospitals having a negative profit margin by 2025, and the industry as a whole barely profitable.[30] Thanks to Obamacare, hospitals will struggle mightily just to tread water—and many may end up sinking financially.

The CBO paper also specifically examined whether all states expanding Medicaid would make a material impact on its analysis. Would a broader expansion of insurance coverage overcome the damaging fiscal effects of Obamacare’s Medicare payment reductions? CBO concluded that broader Medicaid expansion would have a minor impact:

Differing assumptions about the number of states that expand Medicaid coverage have a small effect on our projections of aggregate hospitals’ margins. That is in part because the hospitals that would receive the greatest benefit from the expansion of Medicaid coverage in additional states are more likely to have negative margins, and because in most cases the additional revenue from the Medicaid expansion is not sufficient to change those hospitals’ margins from negative to positive. Moreover, the total additional revenue that hospitals as a group would receive from the newly covered Medicaid beneficiaries…is not large enough relative to their revenues from other sources to substantially alter the projected aggregate margins.[31]

Despite claims from some hospital executives that Medicaid expansion represents a make-or-break financial decision for their industry, non-partisan experts disagree.

The real problem for hospitals lies elsewhere within Obamacare, in the Medicare productivity adjustments that will affect hospitals each and every year. The Medicare actuary, along with other non-partisan experts, has made annual warnings every year since the law’s passage concluding the productivity reductions are unsustainable, and will make most hospitals, skilled nursing facilities, and home health agencies unprofitable in the coming decades.[32] The September CBO report confirms, and further validates, the Medicare actuary’s work highlighting the unrealistic nature of the payment reductions used to fund Obamacare.

As has been explained elsewhere, hospitals made a terribly unwise bargain when negotiating behind closed doors with the Obama Administration: They agreed to annual reductions in their Medicare payments forever in exchange for a one-time increase in the number of insured Americans.[33] Hospital lobbyists themselves know full well that the agreement they negotiated will ultimately destroy the industry.

At a televised event in August 2010, months after the law passed, Chip Kahn—the CEO of the Federation of American Hospitals, which represents the for-profit hospital industry—admitted his knowledge of Obamacare’s long-term effects on the hospital sector.[34] Then-Medicare actuary Richard Foster asked Kahn why hospitals agreed to what appears on its face to be a bad deal: Perpetual Medicare payment reductions in exchange for a one-time increase in insured Americans. Mr. Kahn first claimed that “from the hospital industry standpoint, there never was any kind of illusion that this was some kind of standard that we could meet in terms of improving quality”—even though the law itself assumes that hospitals will become more productive year-over-year, and reduces their Medicare payments accordingly.[35] When pressed on this issue—what will happen to the hospital industry when these year-on-year reductions cascade over time—Mr. Kahn eventually threw up his hands: “Now, you could say, did you make a bad deal? And fortunately, I don’t think I’ll probably be working after 2020. [Laughter.]…I’m glad my contract only goes another six years. [Laughter.]”[36]

The candid comments by the head of the Federation of American Hospitals months after the law passed say it all. In endorsing Obamacare, hospital lobbyists knew they were agreeing to provisions that would decimate their industry in the long run—but didn’t care, because those devastating provisions would only take effect well after they had retired. These incredibly cynical comments provide two additional reasons for legislators not to embrace Medicaid expansion. As both the CBO analysis and Mr. Kahn’s comments indicate, expanding Medicaid will not solve hospitals’ financial difficulties, which arise from a self-inflicted blow—namely, agreeing to massive Medicare payment reductions that overwhelm the comparatively small revenue gain associated with Medicaid expansion. But while expanding Medicaid will not save hospitals in the long term, it will serve to sink state budgets, leaving them with the worst of both worlds on the fiscal front.

 

Work Disincentives

Supporters of Medicaid expansion claim that the additional federal funds generated by expansion have created jobs and economic growth. In reality, expanding Medicaid has only created additional disincentives for work, according to non-partisan economic experts.

Many studies claiming Medicaid expansion will create jobs represent one-sided—and therefore highly biased—analysis, examining the federal revenue flowing into states as a result of expansion without studying the impact of the tax increases necessary to generate said revenue. However, many studies—including a seminal analysis undertaken by President Obama’s former chief economic adviser, Christina Romer—find that the economic damage—in technical terms, the deadweight losses associated with Obamacare’s tax increases—will vastly outweigh any job gains associated with Medicaid expansion.[37]

Ironically, one of the architects of Obamacare disputes the economic theories put forward by Medicaid expansion proponents. In a New York Times op-ed, former Obama Administration advisor Zeke Emanuel stated that “Health care is about keeping people healthy or fixing them up when they get sick. It is not a jobs program.”[38] Likewise, two Harvard economists note that viewing the health system as a jobs program will ultimately increase spending and raise health costs, limiting access for the poor: “Treating the health care system like a (wildly inefficient) jobs program conflicts directly with the goal of ensuring that all Americans have access to care at an affordable price.”[39]

Rather than creating jobs, the Congressional Budget Office (CBO) believes that Medicaid expansion will discourage work. In part of its 2014 update on Obamacare’s effects on the labor supply—in which CBO asserted that the law as a whole will reduce the supply of labor provided by the equivalent of 2.5 million jobs by 2024—the budget office noted that “expanded Medicaid eligibility under [the law] will, on balance, reduce incentives to work.”[40] For instance, individuals who exceed Medicaid eligibility limits by even one dollar could face hundreds, or thousands, of dollars in premiums and co-payments to obtain subsidized Exchange coverage; such workers will likely work fewer hours to keep their income below eligibility caps.

Medicaid expansion will discourage work precisely because most of the participants in the expansion are able-bodied adults of working age. According to analysis conducted by the liberal-leaning Urban Institute, nearly nine in ten individuals (88.1%) who would benefit from Medicaid expansion in South Carolina represent adults without dependent children.[41] Moreover, the vast majority of South Carolinians to be covered under expansion would come within the ages of 19-55—prime working ages for most Americans. More than one-quarter (27.6%) of would-be beneficiaries of expansion are aged 19-24, with a further 21.9% aged 25-34, and more than one-third (35.5%) aged 35-54.[42]

The Urban Institute data strongly suggest that the vast majority of the potential beneficiaries from Medicaid expansion in South Carolina constitute individuals who could be in work, or preparing for work. Indeed, many South Carolinians working full-time would generate enough income not to qualify for benefits under Medicaid expansion. In 2016, 138 percent of the federal poverty level represents an income of just under $16,400 for an individual.[43] A South Carolinian working a full-time job (40 hours per week, 50 weeks per year) at a wage of $8.25 per hour would earn $16,500 annually, thereby exceeding the limit to qualify for Medicaid benefits.

However, CBO believes the Medicaid “benefit cliff” will discourage individuals from working, precisely because they wish to remain eligible for benefits. A December 2015 CBO paper quantified this impact: Analysts concluded that Obamacare’s Medicaid expansion will reduce beneficiaries’ labor force participation by about 4 percent, by “creat[ing] a tax on additional earnings for those considering job changes” that would raise their income above the threshold for eligibility.[44]

While Obamacare’s massive expansion of Medicaid to the able-bodied discourages work and will reduce the labor supply, unwinding the expansion will produce salutary economic effects. Tennessee’s decision to roll back a Medicaid coverage expansion in 2005 encouraged more individuals to join the labor force, in order to obtain employer-sponsored health coverage.[45] If states wish to grow their economies and encourage work, unwinding Obamacare provides a better approach to achieving those objectives.

“Private Option” Results in Greater Public Spending

While some supporters of Medicaid expansion believe that the so-called “private option”—using Medicaid dollars to purchase Exchange coverage for beneficiaries—represents an efficient use of taxpayer dollars, evidence suggests otherwise. In 2012, immediately following the Supreme Court ruling that made Medicaid expansion optional for states, the Congressional Budget Office (CBO) considered expansion through health insurance Exchanges significantly more costly than expansion through traditional Medicaid:

For the average person who does not enroll in Medicaid as a result of the [Supreme] Court’s decision and enrolls in an Exchange instead, estimated federal spending will rise by roughly $3,000 in 2022—the difference between estimated additional Exchange [premium and cost-sharing] subsidies of about $9,000 and estimated Medicaid savings of roughly $6,000.[46]

Providing Medicaid beneficiaries private coverage through the insurance Exchanges could cost approximately 50% more, according to CBO’s 2012 estimate—a concern other non-partisan experts have flagged.

Government auditors have raised significant concerns that the “private option” waiver method of providing coverage improperly wastes taxpayer funds. In an August 2014 report, the Government Accountability Office (GAO) noted that, when approving the first instance of this “private option” model in Arkansas, the federal Department of Health and Human Services (HHS) “did not ensure budget neutrality,” which is required under federal law, in three key areas:

  • “HHS approved a spending limit for the demonstration that was based, in part, on hypothetical costs—significantly higher payment amounts the state assumed it would have to make to providers if it expanded coverage under the traditional Medicaid program—without requesting any data to support the state’s assumptions.” GAO concluded that these higher payment assumptions increased the program’s budget caps by $778 million—or nearly 20% of the approximately $4.0 billion, three-year budget for the program.
  • “HHS gave Arkansas the flexibility to adjust the spending limit if actual costs under the demonstration proved higher than expected…one which HHS has not provided in the past.”
  • “HHS in effect waived its cost-effectiveness requirement that providing premium assistance to purchase individual coverage on the private market prove comparable to the cost of providing direct coverage under the state’s Medicaid plan—further increasing the risk that the demonstration will not be budget-neutral.”[47]

The GAO report illustrates how, in order to ensure that Arkansas endorsed Obamacare’s massive new entitlement, federal officials raised the budgetary caps required under law so high that they became nearly meaningless—and then gave Arkansas officials discretion to raise them even higher. Such actions represent a disservice to taxpayers in all states, including South Carolina. The GAO report demonstrates why unwinding the law’s Medicaid expansion—in all its forms, including the “private option”—represents the wisest way to protect taxpayer funds.

 

How to Unwind Obamacare’s Medicaid Expansion: Congress

As Congress considers legislation to repeal Obamacare in January 2017, it should embark on a three-step approach to unwind the law’s massive Medicaid expansion:

  • First, Congress should take action to freeze enrollment in the Medicaid expansion immediately after enactment of the repeal bill. Freezing enrollment will hold those currently on Medicaid harmless, while beginning a process to roll back the higher levels of spending associated with Medicaid expansion.
  • Second, Congress should roll back the enhanced federal match for expansion populations, consistent with budget reconciliation legislation that Congress passed, and President Obama vetoed, during the 114th Congress.[48] Ending the enhanced federal match by 2019 will eliminate the discrimination inherent in Obamacare—whereby states receive a higher match to cover able-bodied adults than individuals with disabilities.
  • Third, Congress and states should reorient Medicaid towards the vulnerable populations for which the program was originally designed. Added flexibility from Congress, and the incoming Trump Administration, will allow states to achieve additional savings in their Medicaid programs—savings that will permit states to achieve other important priorities, like reducing waiting lists for individuals with disabilities seeking access to home-based care.

While proposals to transform Medicaid into a block grant or per capita allotment would give states welcome flexibility from Washington’s dictates, lawmakers must focus first on unwinding Obamacare’s Medicaid expansion—and eliminating distortions to the program caused by same. Any block grant or Medicaid funding formula that uses the years 2014 through 2017 as a “base year” will perpetuate the inequities caused by the Obamacare expansion—the massive enrollment of able-bodied adults, and the increased spending by states that used the prospect of a 100% federal match to increase Medicaid reimbursements. States that made the policy choice to keep Medicaid focused on the most vulnerable in society should not be penalized by a block grant formula that rewards those states who embraced Obamacare’s expansion of Medicaid to the able-bodied.

 

How to Unwind Obamacare’s Medicaid Expansion: The States

The states also have a role, albeit a limited one, in the undoing of Obamacare’s massive Medicaid expansion. As state legislatures reconvene, they can:

  • Continue to resist calls for expanding Medicaid to able-bodied adults. No state is expected to expand or choose a “private option” scheme in their new legislative terms, but fiscally responsible legislators should nevertheless arm themselves with the facts of this paper and prepare for misguided calls for subjecting more states to the excessive costs of Medicaid expansion.
  • Pass resolutions memorializing Congress to resist attempts to retain any of the core principles of Obamacare, including Medicaid expansion, as having a negative impact on state budgets and state policies. Both with respect to the costs of Medicaid expansion, and with respect to skyrocketing premiums in health insurance Exchanges, states and consumers alike are begging for relief from Obamacare. If enough states call for a top to bottom repeal and replace of Obamacare, including Medicaid expansion, consumers will win.
  • Prepare for possible common sense solutions, formerly known as “Obamacare off-ramps,” that will insure freedom for the insured without bullying businesses or individuals into plans they don’t like and doctors they don’t want. Members of both the United States House and Senate previously introduced such plans in the last Congress.[49] The new Trump Department of Health & Human Services, and specifically the Centers for Medicare and Medicaid Services (CMS), should provide guidance on blanket waivers designed to maximize flexibility for state Medicaid programs immediately upon taking office.[50]

 

Need for Reform

Even prior to Obamacare, Medicaid stood as a program in need of significant reform. The program has nearly tripled as a share of state budgets since 1987, yet provides beneficiaries with care of questionable quality.[51] Results from Oregon suggest that newly enrolled individuals in Medicaid used the emergency room at rates 40 percent higher than the uninsured—a disparity that persisted over time—yet did not achieve measurable improvement in their physical health outcomes.[52] With high (and growing) levels of spending coupled with subpar outcomes, states should use the flexibility promised from the Trump Administration to rethink their approach to Medicaid.

However, such efforts should come only after Congress has first backed down Obamacare’s massive expansion of Medicaid to the able-bodied. Restoring Medicaid as a safety net program for the most vulnerable in society would unwind more than $1 trillion in projected spending over the coming decade providing coverage to the able-bodied.[53] Just as important, it would remove the inequities created by Obamacare, and put all states on a level playing field for the reformed Medicaid program that should follow.

 

[1] Patient Protection and Affordable Care Act, Public Law 111-148, as amended by the Health Care and Education Reconciliation Act, Public Law 111-152, http://housedocs.house.gov/energycommerce/ppacacon.pdf, Section 2001(a).

[2] NFIB v. Sebelius, 567 U.S. __ (2012).

[3] Jonathan Ingram and Nicholas Horton, “Obamacare Expansion Enrollment Is Shattering Projections,” Foundation for Government Accountability, November 16, 2016, https://thefga.org/download/ObamaCare-Expansion-is-Shattering-Projections.PDF, p. 5.

[4] Congressional Budget Office, estimate of H.R. 4872, Health Care and Education Reconciliation Act, in concert with H.R. 3590, Patient Protection and Affordable Care Act, March 20, 2010, https://www.cbo.gov/sites/default/files/111th-congress-2009-2010/costestimate/amendreconprop.pdf, Table 4, p. 21.

[5] Centers for Medicare and Medicaid Services, “First Half of 2016 Effectuated Enrollment Snapshot,” October 19, 2016, https://www.cms.gov/Newsroom/MediaReleaseDatabase/Fact-sheets/2016-Fact-sheets-items/2016-10-19.html.

[6] Avalere Health, “The State of Exchanges: A Review of Trends and Opportunities to Grow and Stabilize the Market,” report funded by Aetna, October 2016, http://go.avalere.com/acton/attachment/12909/f-0352/1/-/-/-/-/20161005_Avalere_State%20of%20Exchanges_Final_.pdf, Figure 3, p. 6.

[7] Ibid.

[8] The numbers in parentheses represent revised 2014 data cited in the 2015 actuarial report, based on actual spending patterns. The numbers initially cited in the 2014 actuarial report were $5,514 for newly eligible adults, and $4,650 for previously eligible adults.

[9] Centers for Medicare and Medicaid Services Office of the Actuary, “2014 Actuarial Report on the Financial Outlook for Medicaid,” report to Congress, 2014, https://www.medicaid.gov/medicaid/financing-and-reimbursement/downloads/medicaid-actuarial-report-2014.pdf, pp. 36-37.

[10] Ibid.

[11] Centers for Medicare and Medicaid Services Office of the Actuary, “2015 Actuarial Report on the Financial Outlook for Medicaid,” report to Congress, 2015, https://www.medicaid.gov/medicaid/financing-and-reimbursement/downloads/medicaid-actuarial-report-2015.pdf, p. 27.

[12] For an analysis of the ways that the Medicare actuary’s office and CBO have changed their baseline projections of Medicaid spending over time, see Brian Blase, “Evidence Is Mounting: The Affordable Care Act Has Worsened Medicaid’s Structural Problems,” Mercatus Center, September 2016, https://www.mercatus.org/system/files/mercatus-blase-medicaid-structural-problems-v1.pdf, pp. 15-20.

[13] Christina Cassidy, “Rising Cost of Medicaid Expansion is Unnerving Some States,” Associated Press October 5, 2016, http://bigstory.ap.org/article/4219bc875f114b938d38766c5321331a/rising-cost-medicaid-expansion-unnerving-some-states.

[14] Ibid.

[15] Christina Cassidy, “Medicaid Enrollment Surges, Stirs Worry about State Budgets,” Associated Press July 19, 2015, http://www.bigstory.ap.org/article/c158e3b3ad50458b8d6f8f9228d02948/medicaid-enrollment-surges-stirs-worry-about-state-budgets.

[16] Ibid.

[17] See also Chris Jacobs, “How Obamacare Undermines American Values: Penalizing Work, Citizenship, Marriage, and the Disabled,” Heritage Foundation Backgrounder No. 2862, November 21, 2013, http://www.heritage.org/research/reports/2013/11/how-obamacare-undermines-american-values-penalizing-work-marriage-citizenship-and-the-disabled.

[18] The author served as an appointee to the commission, whose work can be found at www.ltccommission.org.

[19] Kaiser Family Foundation, “Waiting List Enrollment for Medicaid Section 1915(c) Home- and Community-Based Services Waivers,” Kaiser Commission on Medicaid and the Uninsured 2015 survey, http://kff.org/health-reform/state-indicator/waiting-lists-for-hcbs-waivers/?currentTimeframe=0&sortModel=%7B%22colId%22:%22Location%22,%22sort%22:%22asc%22%7D.

[20] Ibid.

[21] Section 2001(a) of PPACA.

[22] “Federal Financial Participation in State Assistance Expenditures,” Federal Register November 25, 2015, pp. 73781-82, Table 1, https://aspe.hhs.gov/sites/default/files/pdf/167966/FMAP17.pdf.

[23] Nicholas Horton, “Hundreds on Medicaid Waiting List in Illinois Die While Waiting for Care,” Illinois Policy November 23, 2016, https://www.illinoispolicy.org/hundreds-on-medicaid-waiting-list-in-illinois-die-while-waiting-for-care-2/.

[24] Jason Pederson, “Waiver Commitment Wavering,” KATV June 15, 2016, http://katv.com/community/7-on-your-side/waiver-commitment-wavering.

[25] Chris Jacobs, “Obamacare Takes Care from Disabled People to Subsidize Able-Bodied, Working-Age Men,” The Federalist November 18, 2016, http://thefederalist.com/2016/11/18/obamacare-takes-care-disabled-people-subsidize-able-bodied-working-age-men/.

[26] “Federal Financial Participation,” Table 1.

[27] Kaiser Family Foundation, “Waiting List Enrollment.”

[28] Tamara Hayford et al., “Projecting Hospitals’ Profit Margins Using Several Alternative Scenarios,” Congressional Budget Office Working Paper 2016-04, September 2016, https://www.cbo.gov/sites/default/files/114th-congress-2015-2016/workingpaper/51919-Hospital-Margins_WP.pdf.

[29] Ibid., Table 6, p. 29.

[30] Ibid.

[31] Ibid., p. 34.

[32] For the most recent version, see John Shatto and Kent Clemens, “Projected Medicare Expenditures under an Illustrative Alternative Scenario,” Office of the Actuary, Centers for Medicare and Medicaid Services, June 22, 2016, https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/ReportsTrustFunds/Downloads/2016TRAlternativeScenario.pdf.

[33] Chris Jacobs, “The Report Every State Legislator Should Read,” National Review September 27, 2016, http://www.nationalreview.com/article/440411/obamacare-medicaid-expansion-hospitals-wont-benefit-says-cbo.

[34] American Enterprise Institute, “Medicare after Reform: the 2010 Medicare Trustees Report,” August 6, 2010, video available through C-SPAN at https://www.c-span.org/video/?c4402939/chip-kahn.

[35] Ibid.

[36] Ibid.

[37] Chris Conover, “Will Medicaid Expansion Create Jobs?” Forbes February 25, 2013, http://www.forbes.com/sites/chrisconover/2013/02/25/will-medicaid-expansion-create-jobs/#73893e3e3d25.

[38] Ezekiel Emanuel, “We Can Be Healthy and Rich,” New York Times February 2, 2013, http://opinionator.blogs.nytimes.com/2013/02/02/we-can-be-healthy-and-rich/.

[39] Kate Baicker and Amitabh Chandra, “The Health Care Jobs Fallacy,” New England Journal of Medicine June 28, 2012, http://www.nejm.org/doi/full/10.1056/NEJMp1204891.

[40] Congressional Budget Office, “The Budget and Economic Outlook: 2014 to 2024,” February 2014, http://cbo.gov/sites/default/files/cbofiles/attachments/45010-Outlook2014_Feb.pdf, Appendix C: Labor Market Effects of the Affordable Care Act: Updated Estimates, pp. 117-27.

[41] Genevieve M. Kenney et al., “Opting in to the Medicaid Expansion Under the ACA: Who Are the Uninsured Adults Who Could Gain Health Insurance Coverage?” Urban Institute, August 2012, p. 9, Appendix Table 2, http://www.urban.org/sites/default/files/alfresco/publication-pdfs/412630-Opting-in-to-the-Medicaid-Expansion-under-the-ACA.PDF.

[42] Ibid., p. 8, Appendix Table 1.

[43] “Annual Update of the HHS Poverty Guidelines,” Federal Register January 25, 2016, pp. 4036-37, https://www.gpo.gov/fdsys/pkg/FR-2016-01-25/pdf/2016-01450.pdf.

[44] Edward Harris and Shannon Mok, “How CBO Estimates Effects of the Affordable Care Act on the Labor Market,” Congressional Budget Office Working Paper 2015-09, December 2015, https://www.cbo.gov/sites/default/files/114th-congress-2015-2016/workingpaper/51065-ACA_Labor_Market_Effects_WP.pdf, p. 12.

[45] Craig Garthwaite, Tal Gross, and Matthew Notowidigdo, “Public Health Insurance, Labor Supply, and Employment Lock,” National Bureau of Economic Research, NBER Working Paper 19220, July 2013, http://www.nber.org/papers/w19220.

[46] Congressional Budget Office, “Estimates for the Insurance Coverage Provisions of the Affordable Care Act Updated for the Recent Supreme Court Decision,” July 2012, https://www.cbo.gov/sites/default/files/112th-congress-2011-2012/reports/43472-07-24-2012-CoverageEstimates.pdf, p. 4.

[47] Government Accountability Office, “Medicaid Demonstrations: HHS’ Approval Process for Arkansas’ Medicaid Waiver Raises Cost Concerns,” Report GAO-14-689R, August 8, 2014, http://www.gao.gov/assets/670/665265.pdf, p. 3.

[48] Section 207 of H.R. 3762, Restoring Americans’ Health Care Freedom Reconciliation Act of 2015.

[49] Palmetto Promise Institute, “King v. Burwell: The Obamacare Off-Ramp?” Health Care Fast Facts May 2015, http://www.kbcsandbox4.com/palmetto/wp-content/uploads/2015/05/King-v-Burwell-Fast-Facts.pdf.

[50] Chris Jacobs, “Reforming Medicaid, Beginning on Day One,” Chris Jacobs on Health Care December 12, 2016, http://www.chrisjacobshc.com/2016/12/12/reforming-medicaid-beginning-on-day-one/.

[51] National Association of State Budget Officers, Fiscal Survey of States: Spring 2016, https://higherlogicdownload.s3.amazonaws.com/NASBO/9d2d2db1-c943-4f1b-b750-0fca152d64c2/UploadedImages/Reports/Spring%202016%20Fiscal%20Survey%20of%20States-S.pdf, p. 63; National Association of State Budget Officers, 1996 State Expenditure Report, April 1997, https://higherlogicdownload.s3.amazonaws.com/NASBO/9d2d2db1-c943-4f1b-b750-0fca152d64c2/UploadedImages/SER%20Archive/ER_1996.PDF, Table 3, p. 11.

[52] Amy Finklestein et al., “Effect of Medicaid Coverage on ED Use—Further Evidence from Oregon’s Experiment,” New England Journal of Medicine October 20, 2016, http://www.nejm.org/doi/full/10.1056/NEJMp1609533; Katherine Baicker, et al., “The Oregon Experiment—Effects of Medicaid on Clinical Outcomes,” New England Journal of Medicine May 2, 2013, http://www.nejm.org/doi/full/10.1056/NEJMsa1212321.

[53] Congressional Budget Office, baseline estimates for federal subsidies for health insurance, March 2016, https://www.cbo.gov/sites/default/files/recurringdata/51298-2016-03-healthinsurance.pdf, Table 3, p. 5.

Fulfilling the Promise of Obamacare Repeal

A PDF of this document is available here.

 

For years, the American people have suffered from the ill effects of Obamacare’s federal intrusions into the health care system. Millions of Americans received cancellation notices telling them that the plans they had, and liked, would disappear—a direct violation of President Obama’s repeated promises.[1] Insurance premiums have skyrocketed, rising nearly 50 percent in 2014, followed by another increase of over 20 percent this year.[2] Insurance options have disappeared, with Americans in approximately one-third of all U.S. counties having the “choice” of only one insurer in 2017.[3]

But as the 115th Congress begins, the new Republican majority, and President-elect Donald Trump, have pledged to bring the American people desperately needed relief, by fulfilling their long-stated promise to repeal Obamacare. Congressional leaders have stated their intention to bring forward legislation that repeals key portions of Obamacare using budget reconciliation procedures. Such legislation would likely resemble the reconciliation bill that the prior 114th Congress passed, but President Obama vetoed on January 8, 2016.

That legislation, H.R. 3762 of the last Congress, repealed funding for Obamacare’s new entitlements—Medicaid expansion to the able-bodied, and coverage subsidies for individuals of low and moderate incomes purchasing coverage on insurance Exchanges—effective January 1, 2018, approximately two years after enactment. It repealed all of the law’s tax increases—including the tax penalties associated with the individual and employer mandates—beginning January 1, 2016, effectively coinciding with the date of enactment. The bill also included other important provisions, restricting federal Medicaid payments to certain providers.[4]

Critics have argued that, having voted for this legislation once under President Obama, Members of Congress should not pass this bill again, sending it to President Trump’s desk for immediate signature.[5] These critics argue that Congress cannot repeal Obamacare’s costly insurance regulations under the special budget reconciliation procedures, which require all provisions in reconciliation legislation to have a significant budgetary impact. The critics fear that passing such legislation would effectively nullify Obamacare’s individual and employer mandates immediately, and its subsidies eventually, while keeping in place its costly insurance regulations that have significantly raised premiums. They believe that these steps would exacerbate adverse selection—a scenario whereby only sick individuals purchase health insurance coverage—de-stabilize insurance markets, and lead more insurers to drop out of insurance Exchanges altogether.

Those concerns, while legitimate, are misplaced on several fronts. First, Congress has not yet litigated whether or not some or all of the major Obamacare insurance regulations are budgetary in nature, and can be considered as part of reconciliation legislation. Second, Congress can and should take steps to modify last year’s reconciliation bill in ways that will stabilize insurance markets in the near-term, and create a transition to alternative legislation Congress constructs. Third, the incoming Trump Administration has significant regulatory powers within its purview, which can minimize the adverse selection effects critics fear from repeal legislation, and modify the federal mandates that have driven up premiums in recent years.

While not perfect, and less ideal than starting from scratch, last year’s reconciliation legislation represents a solid base from which to construct a legislative and regulatory framework for repealing Obamacare. It also represents the fastest approach for Congress to deliver on the promise it has made to its constituents for over six years: Unwinding an unaffordable and unworkable health care law.

 

What Congress Should Do

Last year’s reconciliation measure provides a good starting point for Congress when drafting repeal legislation to consider this year. However, Congress should attempt both to expand and revise the measure. These efforts would both mitigate against any adverse selection concerns, and stabilize insurance markets while Congress considers alternative legislation.

Expand Reconciliation to Insurance Regulations:               Critics have claimed that Obamacare’s major insurance regulations “were not altered in H.R. 3762; they could not be altered in a reconciliation bill taken up in 2017, either,” due to procedural restrictions inherent in the budget reconciliation process.[6] Such a definitive assertion is at best premature. Observers have noted that “Congress chose not to litigate” the issue of whether and what restrictions are budgetary in nature, and therefore eligible for repeal in reconciliation legislation, when considering H.R. 3762 in the fall of 2015.[7]

However, Congress can, and should, choose to litigate those issues with the Senate parliamentarian now. Rulings by the Senate parliamentarian will guide lawmakers as they determine which provisions of repeal legislation meet budget reconciliation guidelines, and can therefore be approved using a simple, 51-vote majority without being subject to the 60-vote threshold used for other legislation subject to a filibuster.

The Congressional Budget Office, think-tanks, and other actuarial organizations have produced estimates showing the significant costs of many of Obamacare’s insurance mandates—including requirements related to pre-existing conditions; essential health benefits; community rating requirements; actuarial value; medical loss ratios; preventive care coverage requirements; and other major mandates. The Obama Administration itself has produced cost estimates for several of the law’s mandates—and argued twice before the Supreme Court that its regulatory mandates are critical to the law’s structure.[8]

Congress can and should expand the scope of last year’s reconciliation bill to include the major insurance regulations. Doing so would be consistent with both the existing scoring estimates and past practice under budget reconciliation. Moreover, expanding the scope of repeal to include the largest insurance mandates would mitigate against adverse selection effects that might result if Congress repealed the individual mandate while leaving the major insurance regulations in place.

Freeze Enrollment in Entitlements:            Consistent with the transition period provided for in the 2015 reconciliation legislation, any repeal measure should also include steps to freeze enrollment in the law’s new entitlements. Such actions would be particularly pertinent to Obamacare’s massive expansion of Medicaid—the source of most of the law’s spending, and the vast majority of its coverage expansions.[9]

Research indicates that past states that froze enrollment in Medicaid allowed the vast majority of enrollees to transition off of the program, and into work, within a short period of time.[10] Moreover, another study published by the National Bureau of Economic Research concluded that Tennessee’s decision to roll back its unsustainable Medicaid expansion in 2005 led to “large increases in [the] labor supply” and increases in employment, as individuals dis-enrolled from Medicaid looked for—and obtained—employment, and employer-sponsored health insurance.[11] Freezing enrollment would hold existing beneficiaries harmless, while beginning to transition away from Obamacare’s unsustainable levels of spending—and encouraging economic activity and job growth.

Beginning this year, states that expanded Medicaid under Obamacare will also face added fiscal burdens, as they must finance a portion (in 2017, 5 percent) of the cost of coverage for the first time. Even Democratic state legislators in “blue states” like Oregon and New Mexico have raised concerns about what the cost of this massive expansion of Medicaid to the able-bodied will do to other important state programs targeting “the most vulnerable of our citizens.”[12] For all these reasons, Congress should insert language into the reconciliation freezing enrollment upon enactment—or perhaps shortly after enactment, to allow expansion states time to submit amendments to their existing state plans reflecting this legislative change.

Congress should also explore freezing enrollment in the law’s program of Exchange subsidies. In the spring of 2015, as the Supreme Court considered the case of King v. Burwell—which affected subsidies provided to individuals in states using the federal insurance Exchange, healthcare.gov—multiple Members of Congress introduced legislation that would have frozen enrollment. These bills would have allowed individuals who qualified for subsidies prior to the Court’s ruling to continue to receive them for a transitional period of time, but made other individuals ineligible for such subsidies.[13]

Though the Supreme Court ultimately upheld the subsidies in King v. Burwell, ruling that the words “an Exchange established by the State” also referred to an Exchange run by the federal government, Congress could utilize a similar regime in the reconciliation bill with respect to insurance subsidies—that is, freezing eligibility and enrollment effective the date of the bill’s enactment.[14] However, Congress should only act to freeze eligibility for insurance subsidies if it believes doing so would not cause existing insurance market risk pools to deteriorate during the transition period.

Appropriate Cost-Sharing Subsidies:            Any repeal measure should include a temporary, time-limited appropriation for cost-sharing subsidies currently in dispute. Those subsidies reimburse insurers for the expense of cost-sharing reductions—lower deductibles and co-payments—provided to certain low-income enrollees under Obamacare. In the case of House v. Burwell, the House of Representatives has argued that the text of Obamacare nowhere provides an explicit appropriation for the cost-sharing subsidies, and that the Obama Administration violated the Constitution by funding this spending without an express appropriation.

On May 12, 2016, United States District Court Judge Rosemary Collyer agreed with the House’s position, imposing an injunction (stayed pending appeal) prohibiting the Administration from appropriating funds for the cost-sharing subsidies.[15] The Court of Appeals for the District of Columbia is currently considering the Obama Administration’s appeal of Judge Collyer’s ruling, with further actions on hold until the new Administration takes office.

Some insurers argue that, should the incoming Trump Administration withdraw the cost-sharing subsidies, they have the right to terminate their plans from the Exchanges immediately. The arguments that insurers can withdraw from the markets in 2017 lack merit.[16] Furthermore, analysts have warned for months that an incoming Administration could withdraw the cost-sharing subsidies unilaterally upon taking office.[17] Insurers saw fit to ignore those warnings, and signed up to offer 2017 coverage knowing full well that the cost-sharing subsidies could disappear on short notice, through either court rulings or regulatory action by a new Administration.

However, to provide certainty, Congress should appropriate funds for the cost-sharing subsidies as part of the repeal bill—but only for the length of the transition period provided for in that measure. The Trump Administration should encourage Congress to appropriate funds for the transition period. Once Congress does so, the Trump Administration’s Justice Department can move to dismiss the Obama Administration’s appeal of the case against the House of Representatives, conceding the point that the executive never had authority to appropriate funds for cost-sharing subsidies absent express direction by Congress.

Utilize the Congressional Review Act:            The election outcome notwithstanding, President Obama’s outgoing Administration continues to use the regulatory process to attempt to “box in” his successor. On December 22, 2016, the Administration published a Notice of Benefit and Payment Parameters for the 2018 plan year.[18] In doing so, the Administration specifically waived provisions of the Congressional Review Act, which generally requires a 60-day delayed effective date for major rules. The Department of Health and Human Services (HHS) claimed that such a delay was impracticable for good cause reasons.[19] The 2018 Notice of Benefit and Payment Parameters will therefore take effect 30 days following its display, on January 17, 2017—during President Obama’s last week in office. As a result, President Trump will be unable simply to revoke this regulation unilaterally upon taking office.

However, the Congressional Review Act does provide a vehicle for Congress, in concert with a President Trump, to take action revoking the newest Obamacare regulation. Specifically, the Act provides that a resolution of disapproval, passed by both houses of Congress, will have the effect of nullifying the rule or administrative action proposed.[20] Of particular import, the Congressional Review Act provides for expedited consideration of resolutions of disapproval in the Senate; those limits on debate preclude filibusters, meaning that resolutions of disapproval require a simple, 51-vote majority to pass, rather than the usual 60 votes for legislation subject to a filibuster.

Congress should explore using the Congressional Review Act to pass a resolution of disapproval nullifying the Obama Administration’s last-minute 2018 Notice of Benefit and Payment Parameters. Regardless of whether or not Congress strikes down this last-minute rule, the Trump Administration should act expeditiously—including through use of the “good cause” exemption the Obama Administration cited to rush through its own regulations last month—to provide needed relief to consumers.

 

What the Administration Should Do

The Trump Administration can also play its part in bringing about the promise of repeal, by acting in concert with Congress to undo the effects of Obamacare’s major insurance mandates. Consistent with the actions Congress should take listed above, the incoming Administration should immediately use flexibility to provide relief from Obamacare’s regulatory regime. Whether through a new 2018 Notice of Benefit and Payment Parameters, a series of interim final regulations, or both, these regulations would provide a vehicle for incorporating many of the changes needed to undo Obamacare’s harmful effects, including those listed below.

While the Administration cannot unilaterally change the law—such actions lie solely within the purview of Congress—it can and should take steps to soften the impact of existing mandates, and provide maximum flexibility wherever possible. These steps would stabilize insurance markets during the period following repeal, and provide for an orderly transition to an alternative regime.

Limit Open Enrollment:      Obamacare gives the Secretary of HHS the authority to “require an Exchange to provide for…annual open enrollment periods, as determined by the Secretary for calendar years after the initial enrollment period.”[21] The law requires insurers to accept all applicants without regard to pre-existing conditions or health status—in industry parlance, guaranteed issue—but only within certain limits. Specifically, health insurers may “restrict enrollment in coverage described in such subsection [i.e., guaranteed issue coverage] to open or special enrollment periods.”[22] In other words, the requirement that insurers accept all applicants only applies during open enrollment periods—and the HHS Secretary has the sole power to determine when, and for how long, those open enrollment periods run.

The existing Code of Federal Regulations states that for the 2018 benefit year, open enrollment for individual health insurance will run from November 1, 2017 through January 31, 2018—the exact same three-month period as the 2016 and 2017 open enrollment periods.[23] The incoming Administration can—and should—issue new regulations limiting those open enrollment periods to a much narrower window, to prevent individuals from “gaming the system” and enrolling only after they incur costly medical conditions.

At minimum, it appears eminently reasonable for the new Administration to shorten the open enrollment window down to 30 days—a significant reduction from 2016 and 2017, which saw open enrollment last for one-quarter of the year. If logistical obstacles can be overcome—i.e., could Exchanges process applicants in a shorter period?—the Administration could restrict the open enrollment period even further, to a period of perhaps a couple of weeks. Other observers have suggested tying open enrollment to a period surrounding an individual’s birth date, thus preventing a surge of applicants at one particular point in the year.

Narrowing the length of open enrollment periods, coupled with restrictions on special enrollment periods outlined below, will provide a more controlled and contained environment for insurers to issue policies. Limiting enrollment periods will mitigate against an insurance market that requires carriers to issue policies without imposing financial penalties on individuals who fail to purchase insurance—indeed, will mitigate against the adverse selection insurers suffer from currently, even with the individual mandate in full effect. Because Obamacare gives the Secretary of HHS extremely broad authority to define “open enrollment periods”—other than stating these must occur annually, the statute includes few prescriptions on administrative authority—the Trump Administration should use this authority to maximum effect.

Restrict Special Enrollment Periods:            Insurers have raised numerous complaints about individuals using special periods outside open enrollment to obtain coverage, incur large medical claims, and then drop that coverage upon regaining health. Early in 2016, Blue Cross Blue Shield calculated that special enrollment period customers were 55 percent more costly than those enrolling during the usual annual enrollment period. Likewise, Aetna found that one-quarter of its entire enrollment came from these “special” enrollment periods, and that said enrollees remained on the rolls for an average of fewer than four months—an indication that many only enrolled in the first place to obtain coverage for a specific medical condition or ailment.[24]

Even as insurers demonstrate that individuals have abused special enrollment periods to incur costly medical bills and subsequently cancel coverage, the Obama Administration actually exacerbated the problem its last-minute 2018 Notice of Benefit and Payment Parameters. That rule expanded the number of special enrollment periods, codifying an additional five exemptions allowing eligible individuals to qualify for coverage outside of open enrollment periods.[25]

That said, the Obama Administration has taken some steps to restrict abuse of special enrollment periods. In June 2016, it implemented a process announced in February 2016, which requires documentation from applicants seeking special enrollment periods for the most common conditions—a move, loss of coverage, marriage, birth, or adoption.[26] The Centers for Medicare and Medicaid Services (CMS) claims this documentation requirement reduced the number of special enrollment period applicants by 20 percent.[27] However, a separate effort to require verification of special enrollment period eligibility prior to enrollment will not begin until this coming June, with results only coming in spring 2018.[28]

With respect to special enrollments, the incoming Administration should 1) eliminate all special enrollment periods, other than those required under existing law; and/or 2) accelerate the process of pre-enrollment verification for all special enrollment periods.[29]

Use Exchange User Fees to Lower Premiums:     In its Notice of Benefit Parameters, the Obama Administration has annually imposed a 3.5 percent surcharge, dubbed an “Exchange user fee,” on issuers offering coverage using healthcare.gov, the federally-run Exchange, which those insurers then pass on to consumers. The 2018 version of the document, released December 22, specifically suggested that the 3.5 percent fee paid by insurers (and ultimately by consumers) now exceeds the costs associated with running the federal Exchange:

We have received feedback suggesting that the FFEs [federally-facilitated Exchanges] would be able to increase enrollment by allocating more funds to outreach and education, a benefit to both consumers and issuers. We sought comment on how much funding to devote to outreach and education, and on whether HHS should expressly designate a portion or amount of the FFE user fee to be allocated directly to outreach and enrollment activities, recognizing the need for HHS to continue to adequately fund other critical Exchange operations, such as the call center, healthcare.gov, and eligibility and enrollment activities.[30]

Some commenters regarding the Exchange user fee proposal specifically requested that the Exchange “user fee rate should decrease over time.” HHS rejected this approach for 2018. It did note that “we do anticipate gaining economies of scale from functions with fixed costs, and if so, may consider reducing the FFE user fee based on increased enrollment and premiums in the future.”[31]

Upon taking office, the Trump Administration should act immediately to ensure that the Exchange user fee funds essential Exchange operations only. With the Exchanges now in their fourth year of operation, HHS will not need to spend as much on technological infrastructure as the Department did while standing up the Exchange—and should not, as the Obama Administration suggested, spend the difference on new “slush funds” designed to promote enrollment outreach.

Because the Exchange user fee is based on a percentage of premium, this year’s 20 percent spike in premiums for Obamacare plans has significantly increased funding for the federal Exchange as it is.[32] Moreover, the vast majority of Exchange participants—84 percent, per the most recent enrollee data—receive federal subsidies for their health insurance premiums.[33] Because those federal subsidies directly relate to premium costs, federal taxpayers—and not enrollees themselves—are in many cases paying for any additional, and unnecessary, spending undertaken by the federal Exchange.

To save taxpayers, and to lower premiums for all consumers, the Trump Administration should take immediate steps to reduce the Exchange user fee to the minimum necessary to support Exchange operations—and instruct insurers to rebate the difference to consumers in the form of lower premiums.

Revise Medical Loss Ratio:  Obamacare requires insurers to spend a minimum percentage of premiums on medical claims—a medical loss ratio (MLR).[34] Insurers in the individual market face an 80 percent MLR, while employer plans have an 85 percent requirement. Plans that do not meet the minimum MLR thresholds must return the difference to beneficiaries in the form of rebates.

During Obamacare’s first several years, the MLR requirements have not proven a concern to insurers—largely because they significantly under-estimated premiums for 2014, 2015, and 2016. In fact, the average MLR for individual market plans skyrocketed from 62.3% in 2011 to 93.3% in 2015.[35] Because enrollees proved sicker than anticipated, insurers have paid out a high percentage of premiums in medical claims—indeed, in some cases, have paid out more in claims than they received in premium payments from enrollees (i.e., an MLR over 100%).

However, should the Trump Administration desire to provide additional flexibility for insurers, it could take a more expansive view of “activities that improve health care quality,” considered equivalent to medical claims paid under the MLR formula.[36] Obamacare required the National Association of Insurance Commissioners (NAIC) to, by December 31, 2010, “establish uniform definitions of the activities” under the MLR, including the definition of activities to improve health care quality.[37] However, the statute makes those definitions “subject to the certification of the Secretary,” and while then-HHS Secretary Kathleen Sebelius accepted the NAIC recommendations, the new Administration is not necessarily obliged to do so.

The interim final rule regarding the medical loss ratio requirement provides a roadmap for a Trump Administration to provide regulatory flexibility regarding the MLR, including the definition of “activities that improve health care quality.”[38] The new Administration could also provide relief regarding agents’ and brokers’ fees and commissions—an issue HHS acknowledged in the rule, but did little to ameliorate—and taxes and fees paid by insurers due to regulatory and other requirements.

Reform State Innovation Waivers:            Section 1332 of Obamacare provides for “state innovation waivers,” which can take effect beginning on or after January 1, 2017. The waivers allow states to obtain exemptions from most of the law’s major insurance requirements, as well as the employer and individual mandates, to provide an alternative system of health insurance for its residents. However, the statute requires that any waiver must:

  1. “Provide coverage that is at least as comprehensive as the coverage” defined under the law, as certified by the Medicare actuary;
  2. “Provide coverage and cost-sharing protections against excessive out-of-pocket spending that are at least as affordable” as the law;
  3. “Provide coverage to at least a comparable number of its residents;” and
  4. “Not increase the federal deficit.”[39]

The Obama Administration released a final rule regarding the process for applying for a Section 1332 waiver in early 2012.[40] However, it did not release information regarding the substance of the waivers themselves until late 2015—and then did so only through informal guidance, not a formal regulation subject to notice-and-comment.[41]

The December 2015 guidance exceeded the requirements of the statute in several ways. First, it said the Administration would not consider potential combined savings from a Section 1332 state innovation waiver when submitted in conjunction with a Medicaid Section 1115 reform waiver. In other words, when meeting the deficit neutrality requirement of Section 1332, Medicaid savings could not be used to offset higher costs associated with Exchange reforms, or vice versa.[42]

The guidance also said the Obama Administration would impose additional tests with respect to coverage and affordability—not just examining the impact on state populations as a whole, but effects on discrete groups of individuals.[43] For instance, the guidance noted that “waivers that reduce the number of people with insurance coverage that provides both an actuarial value equal to or greater than 60 percent and an out-of-pocket maximum that complies with Section 1302(c)(1) of [Obamacare] would fail” the affordability requirement.[44] These new mandates effectively prohibit states from using waiver programs to expand access to more affordable catastrophic coverage for individuals.

Due to the four statutory requirements listed above, the Section 1332 waiver program suffers from inherent shortcomings.[45] But because the added restrictions proposed in December 2015 came through informal regulatory guidance, the Trump Administration can and should immediately withdraw that guidance upon taking office. It should also work immediately to establish a more flexible rubric for states wishing to utilize Section 1332 waivers—with respect to both the application process itself and more flexible insurance design that can expand access and affordability for a state’s residents.

Withdraw Contraception Mandate:            Among the “early benefits” of the law taking effect six months after its enactment was a mandate for preventive care. Specifically, the law requires first-dollar coverage (i.e., without cost-sharing) of several preventive services, including women’s preventive health screenings.[46]

On December 20, 2016, the Health Resources and Services Administration (HRSA) released the most recent women’s preventive services guidelines. These guidelines, as before, required that “the full range of female-controlled U.S. Food and Drug Administration approved contraceptive methods, effective family planning practices, and sterilization procedures be available as part of contraceptive care.”[47]

The Trump Administration should upon taking office withdraw the HRSA benefit mandates—including the requirement to provide contraception coverage. While these particular mandates may have a slight impact on premiums, removing them would reduce premiums nonetheless. More importantly, they would restore the rights of conscience to those individuals and organizations who have been forced to violate their deeply-held religious beliefs to cover contraception and other procedures they object to.[48]

Modify Essential Health Benefits and Actuarial Value:        Among Obamacare’s many new mandated insurance benefits, two in particular stand out. First, the law provides for a series of “essential health benefits”—ten categories of health services that all qualified plans must cover.[49] While the essential health benefits address the breadth of health insurance coverage, actuarial value—or the percentage of annual health expenses paid by an insurance policy on average—addresses the depth of that coverage. The law categorizes individual health plans in four “tiers” based on actuarial value: Bronze plans with an average actuarial value of 60 percent; silver plans, 70 percent; gold plans, 80 percent; and platinum plans, 90 percent.[50]

Both directly and indirectly, the essential health benefits and actuarial value requirements raise premiums—by forcing individuals to buy richer coverage, and then by inducing additional demand for health care through that richer coverage. The Administration’s own rule regarding essential health benefits admitted that the law’s requirements include provisions not previously covered by most forms of health insurance, including “rehabilitative and habilitative services and devices.”[51] Likewise, a study in the journal Health Affairs concluded that the actuarial value requirements would raise premiums, as most pre-Obamacare individual market policies did not meet the new mandated benefit thresholds.[52]

However, the final rules regarding essential health benefits and plan actuarial value provide opportunities to expand benefit flexibility.[53] For instance, the new Administration could provide states with more options for declaring benchmark plans that meet the essential health benefit requirements under the statute. The new Administration could also expand the de minimis variation standards for actuarial value measures required by the law.[54] Allowing for additional variation and flexibility could have a significant impact in reducing premiums, as the Congressional Budget Office concluded in 2009 that the essential benefits and actuarial value standards would collectively raise premiums by 27 to 30 percent, all else equal.[55]

Enhanced Flexibility for Businesses:             On September 13, 2013, the Treasury Department issued Notice 2013-54, which stated that an arrangement whereby an employer reimburses some or all of an employee’s expenses for the purchase of individual health insurance—whether through a Health Reimbursement Arrangement (HRA) or some other means—would be considered a group health plan.[56] As a result, businesses using HRAs need to meet all of Obamacare’s regulatory reforms, such as prohibiting annual limits on the dollar value of essential health benefits.[57] Group health plans failing to meet those requirements trigger a penalty of $100 per day, per individual.[58]

This provision sparked widespread uproar when it first went into effect in July 2015, as the Obama Administration threatened fines of $36,500 per employee for employers who helped fund their employees’ health coverage.[59] Members of Congress introduced standalone legislation exempting small businesses from this requirement.[60] This provision was eventually incorporated into the 21st Century Cures Act, which President Obama himself signed into law on December 13, 2016.[61] As a result, small businesses with under 50 employees can now provide contributions to their workers’ individual health insurance premiums without triggering Obamacare’s regulatory regime.

Expanding upon the precedent of a law President Obama himself signed, the Trump Administration should withdraw Notice 2013-54, build on Congress’ actions, and allow businesses of all sizes the ability to reimburse employees’ premium costs without triggering massive fines. Actions in this vein would have salutary benefits in two respects: They would remove more businesses from Obamacare’s onerous regulatory requirements, while encouraging the use of defined contribution health insurance for employees.

 

Next Steps and the Pathway Forward

Following more than six years of frustration for the American people, the promise of repealing Obamacare is finally within reach. While passing legislation that unwinds Obamacare in an orderly, stable manner will require policy-makers to act with care, Congress and the new Trump Administration can use last year’s reconciliation legislation as the basis for action. Specifically, Congress should:

  • Seek to expand the scope of last year’s reconciliation legislation to encompass Obamacare’s major insurance regulations, consistent with budgetary scores and past practice and precedents within the Senate;
  • Add a provision to last year’s reconciliation legislation freezing enrollment in Medicaid expansion, effective either upon enactment or shortly thereafter;
  • Explore adding a provision to last year’s reconciliation legislation freezing enrollment in Exchange subsidies, provided doing so will not de-stabilize insurance markets;
  • Appropriate funds for the cost-sharing subsidies in reconciliation legislation, but only for the defined length of the Obamacare transition period; and
  • Explore use of the Congressional Review Act to pass a resolution of disapproval nullifying the Obama Administration’s last-minute Notice of Benefit and Payment Parameters for 2018.

Likewise, the Trump Administration can take several regulatory steps to enhance flexibility and provide certainty during the transition period:

  • Limit annual open enrollment to the shortest period feasible, and in no case longer than one month;
  • Restrict the use of special enrollment periods, by withdrawing all those added by the Obama Administration and not included in statute, and/or requiring pre-enrollment verification for all special enrollment periods;
  • Provide that, for states using the federal Exchange, any portion of the 3.5 percent Exchange user fee not used to cover annual operating costs be refunded to enrollees, thus lowering their premiums;
  • Revise the medical loss ratio requirements to provide more flexibility for insurers;
  • Immediately withdraw the December 2015 guidance regarding Section 1332 state innovation waivers, and provide maximum flexibility within the existing statutory requirements for states seeking to mitigate the harmful effects of Obamacare’s insurance mandates;
  • Withdraw the contraception mandate that raises premiums and hinders freedom of conscience;
  • Modify essential health benefits and actuarial value requirements to provide maximum flexibility within the statutory framework;
  • Expand upon Congress’ efforts allowing small businesses to reimburse their employees’ health insurance premiums without facing massive fines, by withdrawing the September 2013 IRS notice and extending flexibility to as many employers as possible; and
  • Drop the Obama Administration’s appeal of House v. Burwell once Congress provides a temporary, time-limited appropriation for cost-sharing subsidies as part of the repeal reconciliation bill.

Collectively, this menu of actions would help to unwind most of Obamacare’s harmful effects, provide for an orderly transition, and pave the way for Congress to consider and pass alternative legislation designed to lower health care costs. The promise of Obamacare repeal is within reach; it’s time for Congress and the new Administration to seize it.

 

 

[1] “Policy Notifications and Current Status, by State,” Associated Press December 26, 2013, http://finance.yahoo.com/news/policy-notifications-current-status-state-204701399.html; Angie Drobnic Holan, “Lie of the Year: ‘If You Like Your Health Care Plan, You Can Keep It,’” Politifact December 12, 2013, http://www.politifact.com/truth-o-meter/article/2013/dec/12/lie-year-if-you-like-your-health-care-plan-keep-it/.

[2] Drew Gonshorowski, “How Will You Fare in the Obamacare Exchanges?” Heritage Foundation Issue Brief No. 4068, October 16, 2013, http://www.heritage.org/research/reports/2013/10/enrollment-in-obamacare-exchanges-how-will-your-health-insurance-fare; Department of Health and Human Services, “Health Plan Choice and Premiums in the 2017 Health Insurance Marketplace,” ASPE Research Brief, October 24, 2016, https://aspe.hhs.gov/sites/default/files/pdf/212721/2017MarketplaceLandscapeBrief.pdf.

[3] Cynthia Cox and Ashley Semanskee, “Preliminary Data on Insurer Exits and Entrants in 2017 Affordable Care Act Marketplaces,” Kaiser Family Foundation, August 28, 2016, http://kff.org/health-reform/issue-brief/preliminary-data-on-insurer-exits-and-entrants-in-2017-affordable-care-act-marketplaces/.

[4] Section 206 of H.R. 3762 had the effect of preventing Medicaid plans from providing reimbursements to certain providers, including Planned Parenthood.

[5] Joe Antos and Jim Capretta, “The Problems with ‘Repeal and Delay,’” Health Affairs January 3, 2017, http://healthaffairs.org/blog/2017/01/03/the-problems-with-repeal-and-delay/.

[6] Ibid.

[7] Paul Winfree and Brian Blase, “How to Repeal Obamacare: A Roadmap for the GOP,” Politico November 11, 2016, http://www.politico.com/agenda/story/2016/11/repeal-obamacare-roadmap-republicans-000230.

[8] Ibid.

[9] Congressional Budget Office, baseline estimates for federal subsidies for health insurance, March 2016, https://www.cbo.gov/sites/default/files/recurringdata/51298-2016-03-healthinsurance.pdf, Table 3, p. 5; Edmund Haislmaier and Drew Gonshorowski, “2015 Health Insurance Enrollment: Net Increase of 4.8 Million, Trends Slowing,” Heritage Foundation Issue Brief No. 4620, October 31, 2016, http://thf-reports.s3.amazonaws.com/2016/IB4620.pdf.

[10] Jonathan Ingram, Nic Horton, and Josh Archambault, “Welfare to Work: How States Can Unwind Obamacare Expansion and Restore the Working Class,” Forbes December 3, 2014, http://www.forbes.com/sites/theapothecary/2014/12/03/welfare-to-work-how-states-can-unwind-obamacare-expansion-and-restore-the-working-class/#455cad6923ec.

[11] Craig Garthwaite, Tal Gross, and Matthew Notowidigdo, “Public Health Insurance, Labor Supply, and Employment Lock,” National Bureau of Economic Research Working Paper 19220, July 2013, http://www.nber.org/papers/w19220.

[12] Christina Cassidy, “Medicaid Enrollment Surges, Stirs Worry about State Budgets,” Associated Press July 19, 2015, http://www.bigstory.ap.org/article/c158e3b3ad50458b8d6f8f9228d02948/medicaid-enrollment-surges-stirs-worry-about-state-budgets.

[13] See for instance Section 4 of Winding Down Obamacare Act, S. 673 (114th Congress), by Sen. Ben Sasse (R-NE), and Section 4(b) of Preserving Freedom and Choice in Health Care Act, S. 2016 (114th Congress), by Sen. Ron Johnson (R-WI).

[14] King v. Burwell, 576 U.S. __ (2015).

[15] United States District Court for the District of Columbia, Civil Action No. 14-1967, House v. Burwell, ruling by Judge Rosemary Collyer, May 12, 2016, https://ecf.dcd.uscourts.gov/cgi-bin/show_public_doc?2014cv1967-73.

[16] The contract between CMS and insurers on the federal Exchange notes that insurers developed their products based on the assumption that cost-sharing reductions “will be available to qualifying enrollees,” and can withdraw if they are not. However, under the statute, enrollees will always qualify for the cost-sharing reductions—that is not in dispute. The House v. Burwell case instead involves whether or not insurers will receive federal reimbursements for providing the cost-sharing reductions to enrollees. This clause was poorly drafted by insurers’ counsel, and therefore has no applicability to House v. Burwell; insurers have no ability to withdraw from Exchanges in 2017, even if the Trump Administration stops reimbursing insurers. See https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/Plan-Year-2017-QHP-Issuer-Agreement.pdf, V.b, “Termination,” p. 6.

[17] Chris Jacobs, “What if the Next President Cuts Off Obamacare Subsidies for Insurers?” Wall Street Journal May 5, 2016, http://blogs.wsj.com/washwire/2016/05/05/what-if-the-next-president-cuts-off-obamacare-subsidies/.

[18] Department of Health and Human Services, interim final rule regarding “2018 Notice of Benefit and Payment Parameters,” Federal Register December 22, 2016, https://www.gpo.gov/fdsys/pkg/FR-2016-12-22/pdf/2016-30433.pdf.

[19] Ibid., pp. 94159-60.

[20] 5 U.S.C. 802. For more information, see Maeve Carey, Alissa Dolan, and Christopher Davis, “The Congressional Review Act: Frequently Asked Questions,” Congressional Research Service Report R43992, November 17, 2016, https://fas.org/sgp/crs/misc/R43992.pdf.

[21] 42 U.S.C. 13031(c)(6)(B), as codified by Section 1311(c)(6)(B) of Patient Protection and Affordable Care Act, P.L. 111-148.

[22] Section 2702(b)(1) of the Public Health Service Act, 42 U.S.C. 300gg-1(b)(1), as modified by Section 1201(2)(A) of PPACA.

[23] 45 C.F.R. 155.410(e)(2).

[24] Paul Demko, “Gaming Obamacare,” Politico January 12, 2016, http://www.politico.com/story/2016/01/gaming-obamacare-insurance-health-care-217598.

[25] 2018 Notice of Benefit and Payment Parameters, pp. 94127-31.

[26] Centers for Medicare and Medicaid Services, “Fact Sheet: Special Enrollment Confirmation Process,” February 24, 2016, https://www.cms.gov/Newsroom/MediaReleaseDatabase/Fact-sheets/2016-Fact-sheets-items/2016-02-24.html.

[27] Centers for Medicare and Medicaid Services, “Pre-Enrollment Verification for Special Enrollment Periods,” https://www.cms.gov/cciio/resources/fact-sheets-and-faqs/downloads/pre-enrollment-sep-fact-sheet-final.pdf.

[28] Ibid.

[29] 42 U.S.C. 13031(c)(6)(C), as codified by Section 1311(c)(6)(C) of PPACA, requires the Secretary to establish special enrollment periods for individual coverage as specified by the Health Insurance Portability and Accountability Act of 1996 (HIPAA) for group coverage, codified at 26 U.S.C. 9801.

[30] 2018 Notice of Benefit and Payment Parameters, p. 94138.

[31] Ibid., p. 94138.

[32] HHS published an average 2017 premium increase for healthcare.gov states of 25 percent, and a median increase of 16 percent. See HHS, “Health Plan Choice and Premiums in 2017,” Table 2, p. 6.

[33] Centers for Medicare and Medicaid Services, “First Half of 2016 Enrollment Snapshot,” October 19, 2016, https://www.cms.gov/Newsroom/MediaReleaseDatabase/Fact-sheets/2016-Fact-sheets-items/2016-10-19.html.

[34] Section 2718 of the Public Health Service Act, 42 U.S.C. 300gg-18, as revised by PPACA Sections 1001(1) and 10101(f).

[35] Centers for Medicare and Medicaid Services, “The 80/20 Rule Increases Value for Consumers for Fifth Year in a Row,” November 18, 2016, https://www.cms.gov/CCIIO/Resources/Forms-Reports-and-Other-Resources/Downloads/Medical-Loss-Ratio-Annual-Report-2016-11-18-FINAL.pdf.

[36] Section 2718(a)(3) of the Public Health Service Act, 42 U.S.C. 300gg18(a)(3), as revised by PPACA Sections 1001(1) and 10101(f).

[37] Section 2718(c) of the Public Health Service Act, 42 U.S.C. 300gg-18(c), as revised by PPACA Sections 1001(1) and 10101(f).

[38] Department of Health and Human Services, interim final rule regarding “Implementing Medical Loss Ratio Requirements under the Patient Protection and Affordable Care Act,” Federal Register December 1, 2010, https://www.gpo.gov/fdsys/pkg/FR-2010-12-01/pdf/2010-29596.pdf.

[39] 42 U.S.C. 18052(b)(1)(A), as codified by Section 1332(b)(1)(A) of PPACA.

[40] Departments of Treasury and Health and Human Services, final rule regarding “Application, Review, and Reporting Process for Waivers for State Innovation,” Federal Register February 27, 2012, https://www.gpo.gov/fdsys/pkg/FR-2012-02-27/pdf/2012-4395.pdf.

[41] Departments of Treasury and Health and Human Services, guidance regarding “Waivers for State Innovation,” Federal Register December 16, 2015, https://www.gpo.gov/fdsys/pkg/FR-2015-12-16/pdf/2015-31563.pdf.

[42] Ibid., p. 78134.

[43] Ibid., p. 78132.

[44] Ibid., p. 78132.

[45] Chris Jacobs, “What’s Blocking Consensus on Health Care?” Wall Street Journal July 17, 2015, http://blogs.wsj.com/washwire/2015/07/17/whats-blocking-consensus-on-health-care/.

[46] Section 2713 of the Public Health Service Act, 42 U.S.C. 300gg-13, as revised by PPACA Section 1001(1).

[47] Health Resources and Services Administration, “Women’s Preventive Services Guidelines,” December 20, 2016, https://www.hrsa.gov/womensguidelines2016/index.html.

[48] United States Conference of Catholic Bishops, “The HHS Mandate for Contraception/Sterilization Coverage: An Attack on Rights of Conscience,” January 20, 2012, http://www.usccb.org/issues-and-action/religious-liberty/conscience-protection/upload/preventiveqanda2012-2.pdf.

[49] 42 U.S.C. 18022, as codified by Section 1302 of PPACA.

[50] 42 U.S.C. 18022(d), as codified by Section 1302(d) of PPACA.

[51] Department of Health and Human Services, final rule on “Standards Related to Essential Health Benefits, Actuarial Value, and Accreditation,” Federal Register February 25, 2013, https://www.gpo.gov/fdsys/pkg/FR-2013-02-25/pdf/2013-04084.pdf, pp. 12860-61.

[52] Jon Gabel, et al., “More Than Half of Individual Health Plans Offer Coverage That Falls Short of What Can Be Sold through Exchanges as of 2014,” Health Affairs May 2012, http://content.healthaffairs.org/content/early/2012/05/22/hlthaff.2011.1082.abstract.

[53] HHS, final rule on “Essential Health Benefits and Actuarial Value.”

[54] 42 U.S.C. 18022(d)(3), as codified by Section 1302(d)(3) of PPACA.

[55] Congressional Budget Office, letter to Sen. Evan Bayh regarding health insurance premiums, November 30, 2009, https://www.cbo.gov/sites/default/files/111th-congress-2009-2010/reports/11-30-premiums.pdf, pp. 9-10.

[56] Internal Revenue Service, Notice 2013-54, September 13, 2013, https://www.irs.gov/pub/irs-drop/n-13-54.pdf.

[57] Section 1563(f) of PPACA added Section 9815 to the Internal Revenue Code, which incorporated most of the regulatory requirements of the law to group health plans.

[58] 26 U.S.C. 4980D(b)(1).

[59] Grace-Marie Turner, “Small Businesses Threatened with $36,500 IRS Fines for Helping Employees with Health Costs,” Forbes June 30, 2016, http://www.forbes.com/sites/gracemarieturner/2015/06/30/small-businesses-threatened-with-36500-irs-fines-for-helping-employees-with-health-costs/#53750b3d4a0e.

[60] The Small Business Healthcare Relief Act, introduced by Reps. Charles Boustany (R-LA) and Mike Thompson (D-CA), H.R. 2911 of the 114th Congress; a companion measure was introduced by Sens. Chuck Grassley (R-IA) and Heidi Heitkamp (D-ND) as S. 1697 of the 114th Congress.

[61] Section 18001 of 21st Century Cures Act, P.L. 114-255.

Big Hospitals’ Obamacare Hypocrisy

As Republicans prepare legislation to repeal Obamacare, the health care industrial complex has raised a host of concerns. Notably, two hospital associations recently released a report highlighting the supposed negative implications of the reconciliation bill Congress passed, and President Obama vetoed, late last year.

While the hospitals allege that repealing Obamacare would decimate their industry, their report cleverly omits four inconvenient truths.

1. They Pushed Bad Ideas Because They Expect Bailouts

Kahn gave a simple, yet cynical, reply: “You could say, did you make a bad deal, and fortunately, I don’t think I’ll probably be working after 2020 [Laughter.]….I’m glad my contract only goes another six years. [Laughter.]”

Fast-forward those six years to earlier this fall, when the Congressional Budget Office (CBO) analyzed the effects of various Obamacare provisions on hospital margins. The report concluded that even under the best-case scenario—in which hospitals achieve a level of efficiency non-partisan experts doubt they can reach—the revenue from Obamacare’s coverage expansions will barely offset the negative effects of the productivity adjustments. Under the worst-case scenario, more than half of hospitals could become unprofitable by 2025, and the entire industry could face negative profit margins.

Kahn knew full well in August 2010 that Obamacare would eventually decimate his industry, through the cumulative effect of year-over-year reductions in Medicare payments. The laughter during his comments demonstrates Kahn thought it was one big joke. He and his colleagues cynically calculated first that they wouldn’t be around when those payment reductions really started to bite; and second that Congress would bail the hospitals out of their own bad deal—essentially, that hospitals are “too big to fail.”

2. Hospitals Supported Raiding Medicare to Pay for Obamacare

Last year’s reconciliation bill essentially undid the fiscal legerdemain that allowed Obamacare to pass in the first place. In the original 2010 legislation, Democrats used savings from Medicare both to improve the solvency of Medicare (at least on paper) and to fund the new entitlements.

The reconciliation bill would have repealed the new entitlements, and—in a truly novel concept—used Obamacare’s Medicare savings to…save Medicare. Instead, the hospital industry wants to continue the budget gimmickry that allows Medicare money to be spent twice and used for other projects.

3. Hospitals Believe Entitlements Are for Them, Not You

In theory, individuals receiving cash contributions in lieu of Medicaid coverage could improve their health in all sorts of ways—buy healthier food, obtain transportation to a higher-paying job, move to a better apartment closer to parks and recreation. But who would object to giving patients cash to improve their health instead of insurance? You guessed it: Hospitals.

Hospitals view Medicaid as their entitlement, not their patients’. That’s why hospitals have worked so hard for Obamacare’s Medicaid expansion. It’s also why they wouldn’t support diverting money from coverage into other programs (e.g., education, housing, nutrition, etc.) that could actually improve patients’ health more than insurance, which has been demonstrated not to improve physical health outcomes.

4. Insisting Health Care Is Their Personal Jobs Program

Hospitals will claim that repealing Obamacare will cost industry jobs, just as they pushed for states to expand Medicaid as a way to create jobs. But economic experts on both sides of the aisle find this argument frivolous at best. As Zeke Emanuel, a former Obama administration official, has noted: “Health care is about keeping people healthy or fixing them up when they get sick. It is not a jobs program.”

The health-care sector seems to believe they have a God-given right to consume at least one-sixth of the economy (and growing). Rebutting hospitals’ argument—that they, and only they, can create jobs—might represent the first step in lowering health costs, which would help non-health sectors of the economy grow more quickly.

This post was originally published at The Federalist.

John Cornyn Illustrates Republicans’ Obamacare Problem in One Tweet

As the Senate’s second-ranking Republican, John Cornyn holds significant sway in policy-making circles. In his third term, and serving on both the judiciary and finance committees—the latter of which has jurisdiction over Medicare and Medicaid—Cornyn should have a good working knowledge of health policy.

All of that makes this tweet, sent Friday from his account, so surprising.

The tweet essentially complains that Obamacare wreaked massive havoc on the health care system, while leaving 30 million uninsured. It’s similar to the Catskills joke cited by Woody Allen in “Annie Hall”: “The food at this place is really terrible—and such small portions!”

Observers on Twitter noted the irony. Some asked Cornyn to support more government spending on subsidies; some asked him to have his home state of Texas expand Medicaid; some asked for a single-payer system that would “end” the problem of uninsurance entirely.

For that matter, increasing the mandate tax to thousands of dollars, or putting people in jail if they do not purchase coverage, would also reduce the number of uninsured. Does that mean Cornyn would support those efforts?

It’s the Costs, Stupid!

Insurance Does Not Equal Access: The narrow networks and high deductibles plaguing Obamacare exchange plans—imposed because federally mandated benefits force insurers to find other ways to cut costs—impede access to care, making finding an in-network physician both more difficult and more costly.

Similarly for Medicaid—the prime source of Obamacare’s coverage expansions—beneficiaries themselves don’t even consider a Medicaid card “real insurance,” because they cannot find a physician who will treat them: “You feel so helpless thinking, something’s wrong with this child and I can’t even get her into a doctor….When we had real insurance, we would call and come in at the drop of a hat.”

Insurance Does Not Equal Better Health: The Oregon Health Insurance Experiment compared a group of individuals selected from a random lottery to enroll in Medicaid with similarly situated individuals who did not win the lottery and did not enroll in coverage. It found that Medicaid coverage brought no measurable improvement in physical health outcomes. Likewise, prior studies have suggested that, for health outcomes Medicaid coverage may be worse than having no health insurance at all.

Obama Promised to Lower Costs—And Failed to Deliver: During his 2008 campaign, Barack Obama didn’t promise to reduce the number of uninsured by a certain amount. He did, however, promise to cut the average family’s health insurance costs and premiums by an average of $2,500 per year. On that count, his health law failed miserably. Since the law passed, employer-sponsored coverage has risen by more than $4,300 per family. Exchange policies spiked dramatically in 2014, when the law’s mandated benefits took effect, and are set to rise again this coming year.

Voters Care Most About Costs: Prior polling data indicates that, by a more than two-to-one margin, voters prioritize the cost of health care (45 percent) over the lack of universal coverage (19 percent). Likewise, voters prefer a health plan that would lower costs without guaranteeing universal coverage to a plan that would create universal coverage while increasing costs by a 13-point margin.

Buying into a Liberal Shibboleth

The responses from liberals to Cornyn’s tweet indicate the extent to which health coverage has become a shibboleth on the Left. There are few things liberals will not do—from spending more money on subsidies, to creating a single-payer system, to expanding coverage to illegal immigrants—to ensure everyone has a health insurance card. (Some liberals might object to putting people in jail for not buying health coverage. Might.)

So, apparently, does John Cornyn. Rather than pledging to lower health costs—Americans’ top health care goal—or questioning the effectiveness of Democrats’ focus on health insurance above all else, his tweet looks like pure kvetching about a problem he has no interest in solving. If one wants to understand Republicans’ problems on health care—both their poor messaging, and their single-minded policy focus on replicating liberal solutions in a slightly-less-costly manner—they need look no further than this one tweet.

This post was originally published at The Federalist.

Speaker Ryan Protects Congress’ “Power of the Purse”

This morning, Speaker Ryan’s office announced that it had filed an amicus curiae brief in one of the pending lawsuits regarding Obamacare’s risk corridors — this one filed by Health Republic. Here’s a quick explainer on the filing and its importance:

What’s Happening? Filed by a failed Oregon co-op, the Health Republic case was the first case filed over unpaid risk corridor claims, back in February. Over the summer, the Justice Department moved to dismiss the case — but solely on the grounds that the case was not yet ripe to be heard by the federal courts.

In the past few weeks, as filing deadlines in other, later risk corridor cases arose, the Justice Department shifted tactics by embarking on a more robust defense. In those later filings, Justice argued not only that insurers do not have a claim for unpaid risk corridor funds now, but that they will not ever have a claim to those funds — because Obamacare never included an explicit appropriation for risk corridors in the law itself, and because Congress further clarified its position when it explicitly made the program budget-neutral in December 2014.

Speaker Ryan’s filing today officially makes the court hearing the Health Republic case aware of the Justice Department’s new position. It argues that the Health Republic case, like the other risk corridor cases, should not just be dismissed due to lack of ripeness, but should be dismissed with prejudice on the merits.

Why Does It Matter? The House’s filing today matters for three reasons:

  1. It signifies the willingness of Congress to intervene to protect its institutional prerogatives — namely its “power of the purse,” which it has exercised in this case, by explicitly denying the transfer of taxpayer funds to the risk corridor program;
  2. It officially makes the court aware of the arguments on the merits — making it tougher for the Justice Department subsequently to settle the claims, as some within the Administration apparently wish to do; and
  3. It introduces a new legal precedent NOT previously cited by the Justice Department in its other risk corridor briefs earlier this month — specifically, the case of Highland Falls-Fort Montgomery School District v. United States. In that case, a statute created an entitlement to benefits for school districts, but Congress later appropriated less than the full amount under the statutory formula — causing the Highland Falls district to sue to obtain the shortfall. That lawsuit was dismissed by the Court of Appeals for the Federal Circuit, which found that “we have great difficulty imagining a more direct statement of congressional intent than the instructions in the appropriations statutes at issue here.” In other words, when Congress speaks with a clear voice — as it did by choosing to make the risk corridor program budget-neutral — Congress gets the last word.

In keeping with the Highland Falls precedent, I’ll give Congress, in the form of Speaker Ryan’s amicus filing, the last word here as well:

Allegedly in light of a non-existent “litigation risk,” HHS recently took the extraordinary step of urging insurers to enter into settlement agreements with the United States in order to receive payment on their meritless claims. In other words, HHS is trying to force the U.S. Treasury to disburse billions of dollars of taxpayer funds to insurance companies even though DOJ has convincingly demonstrated that HHS has no legal obligation (and no legal right) to pay these sums. The House strongly disagrees with this scheme to subvert Congressional intent by engineering a massive giveaway of taxpayer money.