Analyzing the Trump Administration’s Proposed Insurer Bailout

The more things change, the more they stay the same. On a Friday, the Trump administration issued a little-noticed three paragraph statement that used seemingly innocuous language to outline a forthcoming bailout of health insurers—this one designed to avoid political controversy prior to the president’s re-election campaign.

Republicans like Sen. Marco Rubio (R-FL) quite rightly criticized President Obama for wanting to bail out health insurers via a crony capitalist boondoggle. They should do the same now that Trump wants to waste billions more on a similar tactic that has all the stench of the typical Washington “Swamp.”

Explaining the President’s Drug Pricing Proposal

At present, drug manufacturers pay rebates to PBMs in exchange for preferred placement on an insurer’s pharmacy formulary. PBMs then share (most of) these rebates with insurers, who pass them on to beneficiaries. But historically, PBMs have passed those rebates on via lower premiums, rather than via lower drug prices to consumers.

For instance, Drug X may have a $100 list price (the “sticker” price that Manufacturer Y publicly advertises), but Manufacturer Y will pay a PBM a $60 rebate to get Drug X on the PBM’s formulary list. It sounds like a great deal, one in which patients get the drug for less than half price—except that’s not how it works at present.

Instead, the PBM uses the $60 rebate to lower premiums for everyone covered by Insurer A. And the patient’s cost-sharing is based on the list price (i.e., $100) rather than the lower price net of rebates (i.e., $40). This current policy hurts people whose insurance requires them to pay co-insurance, or who have yet to meet their annual deductible—because in both cases, their cost-sharing will be based on the (higher) list price.

The Policy and Political Problems

The administration’s proposed rule conceded that the proposed change could raise Medicare Part D premiums. The CMS Office of the Actuary estimated the rule would raise premiums anywhere from $3.20 to $5.64 per month. (Some administration officials have argued that premiums may stay flat, if greater pricing transparency prompts more competition among drug manufacturers.)

The rule presents intertwined practical and political problems. From a practical perspective, the administration wants the rule to take effect in 2020. But the comment period on the proposed rule just closed, and the review of those comments could last well beyond the June 3 date for plans to submit bids to offer Part D coverage next year.

The political implications seem obvious. The administration doesn’t want to anger seniors with Part D premium increases heading into the president’s re-election bid. And while the administration could have asked insurers to submit two sets of plan bids for 2020—one assuming the rebate rule goes into effect next year, and one assuming that it doesn’t—doing so would have made very explicit how much the change will raise premiums, handing Democrats a political cudgel on a hot-button issue.

Here Comes the Bailout

That dynamic led to the Friday announcement from CMS:

If there is a change in the safe harbor rules effective in 2020, CMS will conduct a demonstration that would test an efficient transition for beneficiaries and plans to such a change in the Part D program. The demonstration would consist of a modification to the Part D risk corridors for plans for which a bid is submitted. For CY2020, under the demonstration, the government would bear or retain 95% of the deviation between the target amount, as defined in section 1860D-15(e)(3)(B) of the Social Security Act (the Act) and the actual incurred costs, as defined in section 1860D-15(e)(1) of the Act, beyond the first 0.5%. Participation in the two-year demonstration would be voluntary and plans choosing to participate would do so for both years. Under the demonstration, further guidance regarding the application process would be provided at a later date.

To translate the jargon: Risk corridors are a program in which the federal government subsidizes insurers who incur large losses, and in exchange insurers agree to give back any large gains. I explained how they worked in the Obamacare context here. However, unlike Obamacare—which had a risk corridor program that lasted only from 2014-2016—Congress created a permanent risk corridor program for Medicare Part D.

It all sounds well and good—until you look more closely at the announcement. CMS says it will “bear or retain 95% of the deviation…beyond the first 0.5%.” That’s not a government agency sharing risk—that’s a government agency assuming virtually all of the risk associated with the higher premium costs due to the rebate rule. In other words, a bailout.

Déjà Vu All Over Again

The use of a supposed “demonstration project” to implement this bailout echoes back to the Obama administration. In November 2010, the Obama administration announced it would create a “demonstration project” regarding Medicare Advantage, and Republicans—rightfully—screamed bloody murder.

They had justifiable outrage, because the added spending from the project, which lasted from years 2012 through 2014, seemed purposefully designed to delay the effects of Obamacare’s cuts to Medicare Advantage. Put simply, the Obama administration didn’t want stories of angry seniors losing their coverage due to Obamacare during the president’s re-election campaign, so they used a “demonstration project” to buy everyone’s silence.

In response to requests from outraged Republicans, the Government Accountability Office (GAO) conducted multiple reviews of the Medicare Advantage “demonstration project.” Not only did GAO note that the $8 billion cost of the project “dwarfs all other Medicare demonstrations…in its estimated budgetary impact and is larger in size and scope than many of them,” it also questioned “the agency’s legal authority to undertake the demonstration.” In other words, the Obama administration did not just undertake a massive insurer bailout, it undertook an illegal one as well.

The current administration has yet to release official details about what it proposes to study in its “demonstration project,” but, in some respects, those details matter little. The real points of inquiry are as follows: Whether buying off insurance companies and seniors will aid Trump’s re-election; and whether any enterprising journalists, fiscal conservatives, or other good government types will catch on, and raise enough objections to nix the bailout.

Congress Should Stop the Insanity

On the latter count, Congress has multiple options open to it. It can obtain request audits and rulings from GAO regarding the legality of the “demonstration,” once those details become public. It can explore passing a resolution of disapproval under the Congressional Review Act, which would nullify Friday afternoon’s memo.

It can also use its appropriations power to defund the “demonstration project,” preventing the waste of taxpayer funds on slush funds and giveaways to insurers. Best of all, they can do all three.

Republicans objected to crony capitalism under Democrats—Rubio famously helped block a taxpayer bailout of Obamacare’s risk corridor program back in 2014. Here’s hoping they will do the same thing when it comes to the latest illegal insurer bailout proposed by CMS.

This post was originally published at The Federalist.

Republicans’ Mixed Messages on Federalism

Care to take a guess how many Republican senators are willing to take a stand over federalism? Would you believe just two?

On Monday night, when the Senate considered legislation sponsored by Sen. Susan Collins (R-ME) about “gag clauses” in pharmaceutical contracts, only Utah’s Mike Lee and Kentucky’s Rand Paul voted no. Lee and Paul do not believe the federal government has any business providing for blanket regulation of the health-care sector.

Gag Clauses, Explained

I have experienced the distorted ways the drug pricing system currently operates. When looking to refill a prescription for one of my antihistamines, my insurance benefit quoted me a charge of $170 for a 90- to 100-day supply. But when I went online to GoodRX.com, I found online coupons that could provide me the same product, in the same quantities, for a mere $70-80, depending on the pharmacy I chose.

I found even greater discounts by purchasing in bulk. I ended up buying a nearly one year’s supply of my maintenance medication for $210—little more than the price for a 90-100 day supply originally quoted to me by my insurer. Had I used my insurance card, and refilled the prescription repeatedly, I would have paid approximately $300 more over the course of a year. Because my Obamacare insurance is junk, I have little chance of reaching my deductible this year, short of getting hit by a bus, so it made perfect sense for me to pay with cash instead.

In theory, anyone can go to GoodRX.com (with which I have no relationship except as a satisfied consumer), or other similar websites, to find the cash price of prescription drugs and compare them to the prices quoted by their insurers. But in practice, few try to shop around for prescription drugs.

Why Federalism Matters

In general, conservatives would support efforts to increase transparency within the health-care marketplace, and prohibiting “gag clauses” would do just that. However, some conservatives would also note that the McCarran-Ferguson Act of 1947 devolves the business of regulating insurance, including health insurance, to the states, and that the states could take the lead on whether or not to eliminate “gag clauses” in insurance contracts. Indeed, a majority of states—26 in total—have already done so, including no fewer than 15 state laws passed just this year.

Lee’s office reached out to me several weeks ago for technical assistance in drafting an amendment designed to limit the scope of federal legislation on “gag clauses” to those types of insurance where the federal government already has a regulatory nexus. Lee ultimately offered such an amendment, which prohibited “gag clauses” only for self-insured employer plans—regulated by the federal government under the Employee Retirement Income Security Act of 1974 (ERISA).

Unfortunately, only 11 senators—all Republicans—voted for this amendment, which would have prevented yet another intrusion by the federal government on states’ affairs. Of those 11, only Lee and Paul voted against final passage of the bill, due to the federalism concerns.

More Federalism Violations Ahead?

One of the prime sponsors of the discussion draft? None other than Sen. Bill Cassidy (R-LA), the author of legislation introduced last year that he claimed would “give states significant latitude over how [health care] dollars are used to best take care of the unique…needs of the patients in each state.”

The contradiction between Cassidy’s rhetoric then and his actions now raise obvious questions: How can states get “significant latitude over” their health care systems if Washington-based politicians like Cassidy are constantly butting in with new requirements, like the “surprise medical bill” regulation? Or, to put it another way, why does Cassidy think states are smart enough to manage nearly $1.2 trillion in Obamacare funding, but too stupid to figure out how to solve problems like drug price “gag clauses” and “surprise bills?”

Politics Versus Principle

The widely inconsistent behavior of people like Cassidy raises the possibility that, to some, federalism represents less of a political principle to follow than a political toy to manipulate. When Washington lawmakers want to punt a difficult decision—like how to “repeal” Obamacare while “replacing” it with an alternative that covers just as many people—they can hide behind federalism to defer action to the states.

Reagan had another axiom that applies in this case: That there is no limit to what a person can do if that person does not mind who gets the credit. Lawmakers in literally dozens of states have acted on “gag clauses,” but that matters little to Collins, who wants the federal government to swoop in and take the credit—and erode state autonomy in the process.

It may seem novel to most of official Washington, but if lawmakers claim to believe in federalism, they should stick to that belief, even when it proves inconvenient.

This post was originally published at The Federalist.

What You Need to Know about President Trump’s Drug Pricing Plan

On Friday, President Trump gave a Rose Garden speech outlining his plan, entitled “America’s Patients First,” to combat rising drug prices. The plan incorporates policy ideas included in the president’s budget earlier this year, new proposals, and additional topics for discussion that could turn into more specific ideas in the future.

What’s the Problem?

Surveys suggest public frustration with the cost of prescription drugs. While such costs represent a small fraction of overall spending on health care, several dynamics help the prescription drug issue gain disproportionate attention. First, in any given year, more Americans incur drug costs than hospital costs. Whereas only 7.3 percent of Americans had an inpatient hospitalization in 2013, more than three in five (60.7 percent) had prescription drug expenses.

With more Americans incurring drug costs, and paying a larger percentage of drug costs directly from their pockets, the issue has taken on greater prominence. The rise of coinsurance (i.e., paying a percentage of drug costs, rather than having those costs capped at a set dollar amount) for pricey specialty drugs exacerbates this dynamic.

What Are the Proposed Solutions?

In general, ways to address drug prices fall into three large buckets.

Controlling costs through competition: These solutions would involve bringing down price levels by encouraging generic competition, or substituting one type of drug for another.

Shifting costs: These solutions would alter who pays for drugs among insurers, pharmaceutical benefit managers (PBMs), or consumers. While they may make drugs more “affordable” for consumers, they will not change overall spending levels. In fact, if done poorly, these types of proposals could actually increase overall spending, by encouraging individuals to increase their consumption of costly brand-name drugs.

Drug company and PBM stocks went up Friday following the blueprint’s release, largely because the plan eschews actions in the second bucket. The president’s plan includes a few tweaks to the system of “rebates” (de facto price controls) the Medicaid program uses, but includes none of the major Democratic proposals to use blunt government action to drive down prices.

In fact, the plan criticizes foreign price controls, attacking the “global freeloading” by which other countries gain the research and development benefits of the pharmaceutical industry without paying their “fair share” of those R&D costs. While the plan frequently mentions the disproportionate share of costs American consumers pay, it includes few specific proposals to rebalance these costs to other countries. It also remains unclear whether, if successfully implemented, any such rebalancing would successfully lower prices in the United States.

Other competitive proposals include giving Medicare Part D plans more flexibility to adjust their formularies mid-year to respond to changes in the generic drug marketplace, and prohibiting Part D plans from including “gag clauses.” These clauses prohibit pharmacies from telling consumers that they would actually save money by paying cash for certain drugs, rather than using their insurance.

In the cost-shifting bucket lie several of the proposals incorporated into the president’s budget. For instance, a cap on out-of-pocket expenses for the Medicare Part D prescription drug benefit would provide important relief to seniors with very high annual drug costs. However, to the extent that such a proposal would encourage seniors to over-consume drugs, or purchase more costly brand-name drugs, once they reach such a cap, this proposal could also increase overall Part D spending.

In a similar vein lie proposals about PBMs passing drug rebates directly to consumers at the point of sale. In most cases, PBMs had previously passed on those savings indirectly to insurers in the form of lower premiums. Giving rebates directly to consumers—a practice some insurers have begun to adopt—would provide relief to those with high out-of-pocket costs, but could raise premiums overall, particularly for those with relatively low prescription spending.

What’s Next?

The plan raises more questions than it answers—quite literally. The last and longest section of the blueprint includes 136 separate questions about how the administration should structure and implement some of the proposals discussed in the document.

Some proposals, while eye-catching, seem ill-advised. For instance, the proposal to “evaluate the inclusion of list prices in direct-to-consumer advertising” raises potential First Amendment concerns—government dictating the content of drugmakers’ communications with patients. Moreover, with many Americans viewing health care as a superior good, some consumers may view a more expensive product as “better” than its alternative. In that case this proposal, if ever implemented, could have the opposite of its intended effect, encouraging people to consume more expensive drugs.

The plan did not include the heavy-handed approaches to the prescription drug issue—Medicare price “negotiation” and drug reimportation—that Democrats favor, and that President Trump endorsed in his 2016 campaign. The document also makes clear the iterative nature of the process, with additional proposals likely coming after feedback from industry and others.

But to the extent that Washington has become consumed by the midterm elections fewer than six months away, the high-profile event Friday allowed Republicans and the president to say they have a plan to bring down drug prices—an important political objective in and of itself.

This post was originally published at The Federalist.

Just the Facts on Drug Negotiation

Congressional hearings often serve as elaborate theatrical productions. Members ask pre-written questions, receive formulaic answers, and in many cases use witnesses as props to engage in rhetorical grandstanding. The grandstanding element was on full display Tuesday during the confirmation hearing for Alex Azar, the Health and Human Services Secretary-designee. Sen. Claire McCaskill (D-MO) wanted to beat up on “evil” drug companies, and she wasn’t going to let facts get in her way.

McCaskill spent two minutes attacking pharmaceutical advertisements, including a reference to “the one for erectile dysfunction where they have them in two bathtubs,” before she tackled the issue of Medicare “negotiating” prices with drug companies. At this point she demonstrated ignorance on several issues.

Second, McCaskill failed to grasp that Medicare drug plans already negotiate with pharmaceutical companies, and that the discounts they obtain have helped keep overall premiums for the prescription drug Part D plan low. It may sound radical to McCaskill, who has spent practically her entire adult life working in government, but the private sector can negotiate just like the government, and probably do so more effectively than a government entity.

Third, McCaskill refused to believe that getting the government involved in “negotiating” drug prices would not save money. When Azar explained that removing a provision prohibiting federal bureaucrats from “negotiating” prices wouldn’t save money, McCaskill called his explanation “just crazy” and “nuts.”

It isn’t nuts, it’s economics. Even though McCaskill tried to lecture Azar on economics and markets at the beginning of her questioning, her queries themselves showed very little understanding of either concept. In a negotiation, the ability to drive a hard bargain ultimately derives from the ability to seek out other options. If Medicare must cover all or most prescription drugs, such that it can’t walk away from the proverbial bargaining table, it will by definition be limited in its ability to put downward pressure on prices.

But don’t take my word for it. As Azar pointed out to McCaskill, none other than Peter Orszag, who directed the Office of Management and Budget (OMB) under President Obama — said as much in an April 2007 Congressional Budget Office letter:

By itself, giving the Secretary broad authority to negotiate drug prices would not provide the leverage necessary to generate lower prices than those obtained by PDPs and thus would have a negligible effect on Medicare drug spending. Negotiation is likely to be effective only if it is accompanied by some source of pressure on drug manufacturers to secure price concessions. The authority to establish a formulary, set prices administratively, or take other regulatory actions against firms failing to offer price reductions could give the Secretary the ability to obtain significant discounts in negotiations with drug manufacturers.

Only the ability to limit access to drugs by setting a formulary or imposing  administrative prices, i.e. “negotiating” by dictating prices to drug companies, would have any meaningful impact on pricing levels. But this truth proved inconvenient to McCaskill, who admitted she “refuse[d] to acknowledge it.”

Instead, McCaskill continued haranguing him about the evils of drug companies. She pointed out that one congressman who helped negotiate the prescription drug benefit, Rep. Billy Tauzin (R-LA), “went to run PhRMA after he finished getting it through.”

Indeed he did. And as the head of PhRMA, he bragged about the “rock-solid deal” he cut with the Obama administration to help his industry. Big Pharma’s “deal” as part of Obamacare encouraged seniors to purchase costlier brand-name drugs instead of cheaper generics, which the CBO concluded would raise Part D premiums by nearly 10 percent. And who voted for that “rock-solid deal?” None other than Claire McCaskill.

As the old saying goes: If you have the facts on your side, pound the facts. But if you don’t, pound the table.

The facts indicate that McCaskill voted for a “rock-solid deal” with Big Pharma that raised premiums on millions of seniors, which actually makes her part of the problem, not part of the solution. Of course, that also makes her willingness to grandstand at Tuesday’s hearing, and her unwillingness to face facts she now finds politically inconvenient, less “crazy” than it first seemed.

This post was originally published at The Federalist.

The Problem with Health Care Costs: Third Party Payment

Several recent studies have illustrated the root of health care’s cost problem: In most cases, no one person—let alone one organization—bears sole responsibility for paying the bill. Slowing the growth of health costs may well involve changing those financial incentives—but also requires changing the culture that supports the status quo.

Two examples: A paper by University of Pennsylvania researchers found that 2,300 physicians “submitted claims for service codes that would translate into more than 100 hours per week on services” for Medicare beneficiaries alone; 600 doctors submitted claims totaling more than 168 hours per week—alleging to Medicare that they were working more than 24 hours per day, seven days per week. When it comes to drug costs, another researcher noted an interesting discrepancy: While pharmaceutical prices have increased by double-digit margins the past three years, drug prices net of rebates—that is, drug spending after discounts provided from manufacturers to pharmaceutical benefit managers (PBMs), have grown at much slower rates.

In both cases, the opacity of health care finance—individuals and businesses not knowing what things cost, and benefits not getting passed to consumers—results in hidden gains for intermediaries. In the drug scenario, PBMs negotiate rebates with manufacturers—rebates which they may or may not pass on to insurers, and which insurers may or may not ultimately pass on to consumers. Likewise, the Medicare insurance system—in which most seniors pay little-to-nothing out-of-pocket—can encourage some physicians to “up-code” their claims, knowing their patients will not incur any direct financial penalty.

Additional price transparency would help reveal the pricing disparities created by this “middle-man” issue. For instance, a recent Health Affairs article showed wide variations within states for common medical procedures such as ultrasounds. But transparency alone might not change behavior—or could even push it in the wrong direction.

A JAMA study released last week found that, among patients exposed to a price transparency tool, spending actually increased. As an accompanying editorial noted, “If patients are comparing services based on price for which their share of the cost is $0, the use of a price transparency tool may lead directly to patients selecting the higher-cost options given their likely perception that higher price is a proxy for higher quality and the lack of an incentive to price shop.”

Much of the problem with rising health costs stems from system actors—doctors, insurers, employers, and even patients—all believing that they’re spending other people’s money. Fixing that requires changing incentives so that patients can receive financial benefits from acting as smart purchasers of health care. But it also requires changing the culture, such that patients do not automatically equate the most expensive option as “best.”

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

Legislative Bulletin: Key Amendments to H.R. 3200

On July 14, 2009, the Chairmen of the three House Committees with jurisdiction over health care legislation—Education and Labor Chairman George Miller (D-CA), Energy and Commerce Chairman Henry Waxman (D-CA), and Ways and Means Committee Chairman Charlie Rangel (D-NY)—introduced H.R. 3200. On July 17, the Ways and Means Committee approved the bill by a 23-18 vote, and the Education and Labor Committee approved the bill by a 26-22 vote. The Energy and Commerce Committee approved its version of the legislation on July 31 by a 31-28 margin.

During consideration of H.R. 3200 in the three Committees, many amendments changed the bill text from the legislation as originally introduced. The Republican Conference has prepared the summaries below of the key substantive amendments offered by Republicans and Democrats that were adopted during the three markups.

Amendment Summaries

The list below is by no means exhaustive, and should not be construed as indicating that some or all of the amendments adopted in Committee will be incorporated into any manager’s amendment considered by the Rules Committee. Moreover, at the time the Energy and Commerce Committee completed its markup on July 31, there were as many as 60 additional amendments pending to the bill; at that time, Chairman Waxman indicated that he would hold a second markup in September to allow those amendments to be considered (the precise legislative vehicle for doing so still being unclear) before any synthesis of the respective Committee products is brought to the House floor for consideration.

Education and Labor Amendments

Chairman’s Mark: Prohibits group health plans from “reducing the benefits provided under the plan to a retired participant, or beneficiary of such participant” after the worker retires “unless such restriction is also made with respect to active participants.” Some Members may be concerned that this provision, by restricting employers’ flexibility to adjust retiree health coverage, may encourage firms to drop their health plans entirely—undermining the argument that “If you like your current plan, you can keep it.”

The Chairman’s mark also requires health plans to spend at least 85 percent of their premium revenue on medical claims, or offer rebates to their enrollees. Particularly as the Government Accountability Office noted in a report on this issue that “there is no definitive standard for what a medical loss ratio should be,” some Members may be concerned about this attempt by federal bureaucrats to impose arbitrary price controls on private companies. Some Members may also be concerned that such price controls, by requiring plans to pay out most of their premiums in medical claims, would give carriers a strong (and perverse) disincentive not to improve the health of their enrollees—as doing so would reduce the percentage of spending paid on actual claims below the bureaucrat-acceptable limits.

The Chairman’s mark also prohibits the transfer or use of prescription information, except in very limited circumstances. Some Members may be concerned that these new restrictions would prevent patients from receiving information of benefit to them—for instance, materials regarding less costly generic alternatives.

Courtney: Effective six months after the date of enactment, reduces pre-existing limitation exclusions from one year to three months, and shortens the “look-back” window for determining such exclusions from six months before enrollment to 30 days before enrollment. While supporting efforts such as high-risk pools to allow individuals with pre-existing conditions to obtain coverage, some Members may be concerned that these provisions could raise premiums for employers, potentially prompting some to drop coverage entirely. A similar amendment, offered by Rep. Sutton, was adopted at the Energy and Commerce Committee markup.

Titus: Expands eligibility for small employers seeking to purchase coverage on the Exchange. In 2013, employers with 15 or fewer employees would be eligible to join the Exchange (up from 10 in the base bill), in 2014, employers with 25 or fewer employees would be eligible (up from 20 in the base bill), and in 2015, all employers with 50 or fewer employees could join the Exchange (the base bill permits—but does not require—the Health Choices Commissioner to open the Exchange to employers with more than 20 workers). Adopted by a party-line vote of 29-19.

Scott: Expands the definition of the minimum benefits package to include early and periodic screening, diagnostic, and treatment services (as defined in the Medicaid statute) for all children under 21. Some Members may be concerned that this expansive definition—which includes “such other necessary…measures” to treat physical ailments, regardless of “whether or not such services are covered under the State [Medicaid] plan”—would significantly raise costs for businesses required to offer coverage, and the federal funds needed to subsidize Exchange enrollees receiving such rich benefits. Adopted by a 32-17 vote.

Kucinich: Permits States to seek a waiver of the Employee Retirement Income Security Act (ERISA) for a single-payer system that States may wish to adopt. Such a non-profit system—“under which private insurance duplicating the benefits provided in the single payer program is prohibited”—would operate in lieu of the proposed Exchanges, must provide benefits that meet or exceed federal benefit standards in the bill, and may not result in federal costs “neither substantially greater nor substantially less” than those associated with the underlying bill. While supporting the concept of State flexibility over health care regulations, some Members may be concerned by the provision’s prohibitions on private health insurance, which could cause millions of individuals to lose their current coverage. Adopted by a 27-19 vote.

Energy and Commerce Amendments

Capps: With regard to abortion in the government-run health plan, explicitly permits the Secretary to include abortion in the services offered by government-run plan, and—if the “Hyde amendment” restrictions on federal funding for abortion coverage are not renewed every year in the Labor-HHS appropriations bill—requires that the government-run plan cover abortions.

With regard to the subsidies authorized under the bill, referred to as “affordability credits,” the Capps amendment specifically permits taxpayer subsidies to flow to plans that include abortion, but creates an accounting scheme designed to designate private dollars as abortion dollars and public dollars as non-abortion dollars.  The Capps accounting arrangement is rejected by pro-life organizations, which recognize that it is a clear departure from long-standing federal policy against funding health plans that include abortion (e.g., Federal Employee Health Benefits plan, Medicaid, SCHIP, DOD, etc).

Other provisions in the Capps amendment appear to prevent State laws from being overturned and prohibit the Secretary from mandating that all plans include abortion.  Although in apparent conflict with the anti-mandate language, the Capps amendment also requires that a plan that includes abortion be made available in every region—which could in turn lead to mandates that abortion clinics be established to “protect” access to abortions. Adopted by a party-line 30-28 vote, with six Democrats opposing.

Pallone: Includes language intended to serve as a placeholder for introduction of the Community Living Assistance Services and Supports (CLASS) Act (H.R. 1721), much of which lies within the jurisdiction of the Ways and Means Committee (and was therefore not germane to the sections considered by Energy and Commerce). That bill would create a new entitlement to long-term care services, financed by a new “Independence Fund” generated from beneficiary premiums. The Fund would be excluded from the federal budget for purposes of both the President and Congress, and subject to a “lock-box” that would prohibit any legislation from diverting monies from the Fund without the consent of 3/5 of the Senate.

Under H.R. 1721, the plan would have a level monthly premium of $30, provided individuals enroll in the first year they are eligible to join. (Late enrollees would pay age-adjusted premiums.) All individuals over 18 receiving wage or self-employment income would be automatically enrolled in the program; premiums would be automatically deducted from workers’ wages, and firms would be eligible for a tax credit equal to 25 percent of the administrative cost of withholding. Individuals with incomes below 150 percent of the federal poverty level would pay a nominal monthly premium, subject to a self-attestation form verifying their status. Premiums would not increase so long as the individual remained enrolled in the program (or the program had sufficient reserves for a 20-year period of solvency), and under no circumstance could premiums more than double.

Under H.R. 1721, individuals’ eligibility for benefits would vest after five years. The minimum cash benefit would be $50 per day, with amounts scaled for levels of functional ability—and benefits not subject to lifetime or aggregate limits.

Some Members may be concerned by the concept of creating a new, expansive federal entitlement program when Medicare itself is not actuarially sound and the Medicare Hospital Insurance Trust Fund is scheduled to be insolvent by 2017. Moreover, Members may note that the Congressional Budget Office, in analyzing similar provisions included in Section 191 of legislation considered by the Senate HELP Committee, found that “if the Secretary did not modify the program to improve its actuarial soundness, the program would add to future federal budget deficits in a large and growing fashion beginning a few years beyond the 10-year budget window.”

Rogers: Prohibits any federally sponsored comparative effectiveness research from being used by the federal government to deny or otherwise ration access to health care. A second, similar amendment offered by Rep. Gingrey prohibiting the Centers for Medicare and Medicaid Services from using cost-effectiveness criteria to make coverage determinations was also adopted. (However, Ways and Means Committee Democrats blocked a similar amendment, offered by Rep. Herger, in their markup on a party-line vote of 26-15. Anti-rationing language was not offered in the Education and Labor Committee markup, as the issue falls outside the Committee’s jurisdiction.)

Stupak: Codifies the Hyde/Weldon annual appropriations provision, first enacted in FY 2005 and included in Labor, Health and Human Services Appropriations bills since then, providing conscience protection for health care entities by preventing local entities from discriminating against them if they refuse to provide, pay for, or refer for abortion.  The amendment seeks to protect health care entities/workers from discrimination and participating in health care plans.

Eshoo: Establishes a Food and Drug Administration approval process for generic biosimilars, also referred to as follow-on biologics. Grants a period of exclusivity for brand-name products of 12 years, with a six-month extension possible in cases where a manufacturer agrees to an FDA request for pediatric studies. Gives FDA the authority to issue general or specific guidance documents (subject to a notice-and-comment period) regarding product classifications. Adopted by a 47-11 vote.

Ross: Includes placeholder language amending the small business exemption for the employer mandate, which lies within the jurisdiction of the Ways and Means Committee and technically was not germane to the Energy and Commerce markup. The language would increase the exemption level from $250,000 to $500,000 of overall annual payroll, and provide reduced tax penalties to firms with payroll between $500,000 and $750,000; the full 8 percent payroll tax would apply to firms over the latter threshold. Some Members may still be concerned that this provision would impose costly taxes on businesses in the middle of a recession—taxes which the Congressional Budget Office recently notedcould reduce the hiring of low-wage workers, whose wages could not fall by the full cost of…a substantial pay-or-play fee if they were close to the minimum wage.” Members may also note that the underlying bill includes no annual inflation adjustment for the small business exemption threshold—making the “compromise” agreement increasingly irrelevant over time.

Modifies the sliding-scale affordability subsidy levels, such that individuals with incomes equal to four times the federal poverty level ($88,200 for a family of four) would be expected to pay 12 percent of their income on health coverage, as opposed to 11 percent in the underlying bill. Requires States to pay 10 percent of the cost of the bill’s Medicaid expansion, beginning in 2015; according to the preliminary CBO score of H.R. 3200 as introduced, this provision alone would require States to pay an additional $35.8 billion in matching funds over the next decade. Given that Governors in both parties have already voiced significant concerns about what Tennessee Democrat Gov. Phil Bredesen termed “the mother of all unfunded mandates” being imposed upon States, some Members may be concerned that these provisions would have—as the head of Washington State’s Medicaid program recently suggested—States facing severe financial distress saying, “‘I have to get out of the Medicaid program altogether.’”

Requires the Secretary to negotiate payment rates for the government-run plan, and notes that such payment levels should result “in payment levels that are not lower in the aggregate” than those paid under Medicare. Includes other changes intended to create a “level playing field” with respect to the government-run plan; however, Members may agree with CBO Director Elmendorf, who previously testified that it would be “extremely difficult” to create “a system where a public plan could compete on a level playing field” against private coverage. Clarifies that enrollment in the government-run health plan is voluntary; however, Members may note studies by the Lewin Group have found that up to 114 million Americans could lose their current health coverage due to the creation of a government-run plan.

Establishes a Consumer Operated and Oriented Plan (CO-OP) program to provide grants or loans for the establishment of non-profit insurance cooperatives to be offered through the Exchange, but does not require States to establish such cooperatives. Authorizes $5 billion in appropriations for the Commissioner to make start-up loans or grants to help meet state solvency requirements. Some Members may be concerned that cooperatives funded through federal start-up grants would in time require ongoing federal subsidies, and that a co-op would do for health care what Fannie Mae and Freddie Mac have done for the housing sector.

Establishes a Center for Medicare and Medicaid Payment Innovation, intended to develop budget-neutral payment models that “address a defined population for which there are deficits in care leading to poor clinical outcomes.” Requires qualified plans to offer information regarding end-of-life planning, and notes that such entities “shall not promote suicide, assisted suicide, or the active hastening of death.” Contains provisions intended to retain insurance brokers’ role in enrolling individuals in health plans, as well as other provisions related to State-based Exchanges. Adopted by a party-line 33-26 vote, with three Democrats opposing.

Baldwin: Directs the Secretary of Health and Human Services to develop a formulary for the government-run plan, and requires qualified health plans to contract with pharmaceutical benefit managers (PBMs), which shall disclose prices paid for drugs to the Commissioner. Some Members may be concerned that these provisions would require the disclosure of proprietary price information and could lead to additional federal price controls placed on pharmaceutical companies and/or a restrictive formulary in the government-run health plan. Permits States to establish accountable care organizations within their Medicaid programs, and permits a temporary enhanced federal match (up to 90 percent) for same. Includes language regarding administrative simplification of health care transactions, as well as an expansion of electronic funds transfer payments within Medicare.

Requires that any savings generated from the amendment’s provisions be directed towards increasing affordability subsidies provided in the Exchange. The first of two progressive “unity” amendments attempting to mitigate what liberals viewed as the harmful effects of the Blue Dog proposal to reduce federal insurance subsidies. Adopted by a party-line 32-26 vote, with three Blue Dog Democrats opposing.

Schakowsky: Prohibits Exchange plans from increasing premiums at more than 150 percent of medical inflation levels, unless the plan adds extra benefits or the restriction would threaten its financial viability. Some Members may be concerned that this provision would impose a federal price control that would unfairly target plans enrolling sicker individuals with above-average cost increases. Requires the Secretary of Health and Human Services to negotiate drug prices covered under the Medicare Part D program. Requires that any savings generated from the price controls be directed towards increasing affordability subsidies provided in the Exchange. The second of two progressive “unity” amendments attempting to mitigate what liberals viewed as the harmful effects of the Blue Dog proposal to reduce federal insurance subsidies. Adopted by a party-line 32-23 vote, with two Blue Dog Democrats opposing.

Ways and Means Amendments

Chairman’s Mark: Prohibits the reimbursement of over-the-counter pharmaceuticals from Health Savings Accounts (HSAs), Medical Savings Accounts, Flexible Spending Arrangements (FSAs), and Health Reimbursement Arrangements (HRAs), effective in 2010. Because these savings vehicles are tax-preferred, adopting this prohibition would raise taxes by $8.2 billion over ten years, according to the Joint Committee on Taxation.

Members may be concerned that this provision would first raise taxes, and second—by imposing additional restrictions on savings vehicles popular with tens of millions of Americans—undermines the promise that “If you like your current coverage, you can keep it.” At least 8 million individuals hold insurance policies eligible for HSAs, and millions more participate in FSAs. All these individuals would be subject to additional coverage restrictions—and tax increases—under this provision.

In addition, the Chairman’s mark extends current tax benefits for health insurance—including the exclusion from income and payroll taxes for participants in employer-sponsored coverage, the above-the-line deduction for health insurance premiums paid by self-employed individuals, and FSAs and HRAs—to “eligible beneficiaries,” defined as “any individual who is eligible to receive benefits or coverage under an accident or health plan.” Under current law, while employer-sponsored coverage provided to spouses and children is generally excluded from income, domestic partners do not qualify for similar treatment, as the Internal Revenue Code does not classify them as dependents, and the Defense of Marriage Act (P.L. 104-199) prohibits their classification as spouses. This section would effectively expand the current-law health insurance tax benefits to domestic partners and their children, beginning in 2010; the provisions would reduce revenue by $4 billion over ten years, according to the Joint Committee on Taxation.