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.

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.

Legislative Bulletin: Updated Summary of Obamacare “Stability” Legislation

On Monday, Sen. Lamar Alexander (R-TN) and others introduced their latest version of an Obamacare “stability” bill. In general, the bill would appropriate more than $60 billion in funds to insurance companies, propping up and entrenching Obamacare rather than repealing it.

Also on Monday, the Congressional Budget Office released its analysis of the updated legislation. In CBO’s estimate, the bill would increase the deficit by $19.1 billion, while marginally increasing the number of insured Americans (by fewer than 500,000 per year).


Stability Fund
: Provides $500 million in funding for fiscal year 2018, and $10 billion in funding for each of fiscal years 2019, 2020, and 2021, for invisible high-risk pools and reinsurance payments. The $500 million this year would provide administrative assistance to states to establish such programs, with the $10 billion in each of the following three years maintaining them.

Grants the secretary of Health and Human Services (HHS), in consultation with the National Association of Insurance Commissioners, the authority to allocate the funds to states—which some conservatives may be concerned gives federal bureaucrats authority to spend $30.5 billion wherever they choose.

Includes a provision requiring a federal fallback for 2019 (and only 2019) in states that choose not to establish their own reinsurance or invisible high-risk program. Moreover, these federal fallback dollars must be used “for market stabilization payments to issuers.” Some conservatives may be concerned that this provision—which, like the rest of the $30 billion in “stability funds,” did not appear in the original Alexander-Murray legislation—undermines state flexibility, by effectively forcing states to bail out insurers, whether they want to or not.

Cost-Sharing Reduction Payments: The bill appropriates roughly $30-35 billion in cost-sharing reduction (CSR) payments to insurers, which subsidizes their provision of discounts on deductibles and co-payments to certain low-income individuals enrolled on insurance exchanges.

Last October, President Trump announced he would halt the payments to insurers, concluding the administration did not have authority to do so under the Constitution. As a result, the bill includes an explicit appropriation, totaling roughly $3-4 billion for the final quarter of 2017, and $9-10 billion for each of years 2019, 2020, and 2021, based on CBO spending estimates. This language represents a change from the original Alexander-Murray bill, which appropriated payments for 2018 and 2019 only.

For 2018, the bill appropriates CSRs only for 1) states choosing the Basic Health plan option (which gives states a percentage of Obamacare subsidies as a block grant to cover low-income individuals) and 2) insurers for which HHS determines, in conjunction with state insurance commissioners, that the insurer assumed the payment of CSRs when setting rates for the 2018 plan year. This language represents a change from the original Alexander-Murray bill, which set up a complicated system of rebates that would have allowed insurers potentially to pocket billions of dollars by retaining “extra” CSR payments for 2018.

Some conservatives may be concerned that, because insurers understood for well over a year that a new administration could terminate these payments in 2017, the agreement would effectively subsidize their flawed assumptions. Some conservatives may be concerned that action to continue the flow of payments would solidify the principle that Obamacare, and therefore insurers, are “too big to fail,” which could only encourage further risky behavior by insurers in the future.

Hyde Amendment: With respect to the issue of taxpayer dollars subsidizing federal insurance plans covering abortion, the bill does not apply the Hyde Amendment protections retrospectively to the 2017 CSR payments, or to the (current) 2018 plan year. With respect to 2019 through 2021, the bill prohibits federal funding of abortions, except in the case of rape, incest, or to save the life of the mother. However, the bill does allow states to use state-only dollars to fund other abortions, as many state Medicaid managed care plans do currently.

According to the pro-abortion Guttmacher Institute, with respect to coverage of abortions in state Medicaid plans:

  • 32 states and the District of Columbia follow the federal Hyde Amendment standard, funding abortion only in the cases of rape, incest, or to save the life of the mother;
  • One state provides abortion only in the case of life endangerment; and
  • 17 states provide coverage for most abortions—five voluntarily, and 12 by court order.

State Waiver Processes: The bill would streamline the process for approving state innovation waivers, authorized by Section 1332 of Obamacare. Those waivers allow states to receive their state’s exchange funding as a block grant, and exempt themselves from the individual mandate, employer mandate, and some (but not all) of Obamacare’s insurance regulations.

Specifically, the bill would:

  • Extend the waivers’ duration, from five years to six, with unlimited renewals possible;
  • Prohibit HHS from terminating waivers during their duration (including any renewal periods), unless “the state materially failed to comply with the terms and conditions of the waiver”;
  • Require HHS to release guidance to states within 60 days of enactment regarding waivers, including model language for waivers—a change from the 30 days included in the original Alexander-Murray bill;
  • Shorten the time for HHS to consider waivers from 180 days to 120—a change from 90 days in the original Alexander-Murray bill;
  • Allow a 45-day review for 1) waivers currently pending; 2) waivers for areas “the Secretary determines are at risk for excessive premium increases or having no health plans offered in the applicable health insurance market for the current or following plan year”; 3) waivers that are “the same or substantially similar” to waivers previously approved for another state; and 4) waivers related to invisible high-risk pools or reinsurance, as discussed above. These waivers would initially apply for no more than three years, with an extension possible for a full six-year term;
  • Allow governors to apply for waivers based on their certification of authority, rather than requiring states to pass a law authorizing state actions under the waiver—a move that some conservatives may be concerned could allow state chief executives to act unilaterally, including by exiting a successful waiver on a governor’s order.

State Waiver Substance: On the substance of innovation waivers, the bill would rescind regulatory guidance the Obama administration issued in December 2015. Among other actions, that guidance prevented states from using savings from an Obamacare/exchange waiver to offset higher costs to Medicaid, and vice versa.

While supporting the concept of greater flexibility for states, some conservatives may note that, as this guidance was not enacted pursuant to notice-and-comment, the Trump administration can revoke it at any time—indeed, should have revoked it last year. Additionally, the bill amends, but does not repeal, the “guardrails” for state innovation waivers. Under current law, Section 1332 waivers must:

  • “Provide coverage that is at least as comprehensive as” Obamacare coverage;
  • “Provide coverage and cost-sharing protections against excessive out-of-pocket spending that are at least as affordable” as Obamacare coverage;
  • “Provide coverage to at least a comparable number of [a state’s] residents” as under Obamacare; and
  • “Not increase the federal deficit.”

Some conservatives have previously criticized these provisions as insufficiently flexible to allow for conservative health reforms like Health Savings Accounts and other consumer-driven options.

The bill allows states to provide coverage “of comparable affordability, including for low-income individuals, individuals with serious health needs, and other vulnerable populations” rather than the current language in the second bullet above. It also clarifies that deficit and budget neutrality will operate over the lifetime of the waiver, and that state innovation waivers under Obamacare “shall not be construed to affect any waiver processes or standards” under the Medicare or Medicaid statutes for purposes of determining the Obamacare waiver’s deficit neutrality.

The bill also makes adjustments to the “pass-through” language allowing states to receive their exchange funding via a block grant. For instance, the bill adds language allowing states to receive any funding for the Basic Health Program—a program states can establish for households with incomes of between 138-200 percent of the federal poverty level—via the block grant.

Some conservatives may view the “comparable affordability” change as a distinction without a difference, as it still explicitly links affordability to Obamacare’s rich benefit package. Some conservatives may therefore view the purported “concessions” on the December 2015 guidance, and on “comparable affordability” as inconsequential in nature, and insignificant given the significant concessions to liberals included elsewhere in the proposed legislative package.

Catastrophic Plans: The bill would allow all individuals to purchase “catastrophic” health plans, beginning in 2019. The legislation would also require insurers to keep those plans in a single risk pool with other Obamacare plans—a change from current law.

Catastrophic plans—currently only available to individuals under 30, individuals without an “affordable” health plan in their area, or individuals subject to a hardship exemption from the individual mandate—provide no coverage below Obamacare’s limit on out-of-pocket spending, but for “coverage of at least three primary care visits.” Catastrophic plans are also currently subject to Obamacare’s essential health benefits requirements.

Outreach Funding: The bill requires HHS to obligate $105.8 million in exchange user fees to states for “enrollment and outreach activities” for the 2019 and 2020 plan years—a change from the original legislation, which focused on the 2018 and 2019 plan years. Currently, the federal exchange (healthcare.gov) assesses a user fee of 3.5 percent of premiums on insurers, who ultimately pass these fees on to consumers.

In a rule released in December 2016, the outgoing Obama administration admitted that the exchange is “gaining economies of scale from functions with fixed costs,” in part because maintaining the exchange costs less per year than creating one did in 2013-14. However, the Obama administration rejected any attempt to lower those fees, instead deciding to spend them on outreach efforts. The agreement would re-direct portions of the fees to states for enrollment outreach.

Some conservatives may be concerned that this provision would create a new entitlement for states to outreach dollars. Moreover, some conservatives may object to this re-direction of funds that ultimately come from consumers towards more government spending. Some conservatives may support taking steps to reduce the user fees—thus lowering premiums, the purported intention of this “stabilization” measure—rather than re-directing them toward more government spending, as the agreement proposes.

The bill also requires a series of biweekly reports from HHS on metrics like call center volume, website visits, etc., during the 2019 and 2020 open enrollment periods, followed by after-action reports regarding outreach and advertising. Some conservatives may view these myriad requirements first as micro-management of the executive, and second as buying into the liberal narrative that the Trump administration is “sabotaging” Obamacare, by requiring minute oversight of the executive’s implementation of the law.

Cross-State Purchasing: Requires HHS to issue regulations (in consultation with the National Association of Insurance Commissioners) within one year regarding health care choice compacts under Obamacare. Such compacts would allow individuals to purchase coverage across state lines.

However, because states can already establish health care compacts amongst themselves, and because Obamacare’s regulatory mandates would still apply to any such coverage purchased through said compacts, some conservatives may view such language as insufficient and not adding to consumers’ affordable coverage options.

Consumer Notification: Requires states that allow the sale of short-term, limited duration health coverage to disclose to consumers that such plans differ from “Obamacare-approved” qualified health plans. Note that this provision does not codify the administration’s proposed regulations regarding short-term health coverage; a future Democratic administration could (and likely will) easily re-write such regulations again to eliminate the sale of short-term plans, as the Obama administration did in 2016.

CBO Analysis of the Legislation

As noted above, CBO believes the legislation would increase the deficit by $19.1 billion, while increasing the number of insured Americans marginally. In general, while CBO believed that changes to Obamacare’s state waivers program would increase the number of states applying for waivers, they would not have a net budgetary impact.

However, the bill does include one particular change to Obamacare Section 1332 waivers allowing existing waiver recipients to request recalculation of their funding formula. According to CBO, only Minnesota qualifies under the statutory definition, and could receive $359 million in additional funding between 2018 and 2022. Some conservatives may be concerned that this provision represents a legislative earmark that by definition can only affect one state.

With respect to the invisible high-risk pools and reinsurance, CBO believes the provisions would raise spending by a net of $26.5 billion, offset by higher revenues of $7 billion. The budget office estimated that the entire country would be covered by the federal fallback option in 2019, because “it would be difficult for other states [that do not have waivers currently] to establish a state-based program in time to affect premiums.”

For 2020 and 2021, CBO believes that 60 and 80 percent of the country, respectively, would be covered by state waivers; “the remainder of the population in those years would be without a federally-funded reinsurance program or invisible high-risk pool.” The $7 billion in offsetting savings referenced in CBO’s score comes from lower premiums, and thus lower spending on federal premium subsidies. In 2019, CBO believes “about 60 percent of the federal cost for the default federal reinsurance program would be offset by other sources of savings.”

CBO believes that, under the bill, premiums would be 10 percent lower in 2019, and 20 percent lower in 2020 and 2021, compared to current law. Some conservatives may note that lower premiums relative to current law does not equate to lower premiums relative to 2018 levels. Particularly because CBO expects elimination of the individual mandate tax will raise premiums by 10 percent in 2019, many conservatives may doubt that premiums will go down in absolute terms, notwithstanding the sizable spending on insurer subsidies under the bill.

CBO noted that premium changes would largely affect unsubsidized individuals—i.e., families with incomes more than four times the federal poverty level ($100,400 for a family of four in 2018)—a small portion of whom would sign up for coverage as a result of the reductions. However, “in states that did not apply for a waiver, premiums would be the same under current law as under the legislation starting in 2020.”

Moreover, even in states with a reinsurance waiver, CBO believes that insurers will “tend to set premiums conservatively to hedge against uncertainty” regarding the reinsurance programs—meaning that CBO “expect[s] that total premiums would not be reduced by the entire amount of available federal funding.”

As noted in prior posts, CBO is required by law to assume full funding of entitlement spending, including cost-sharing reductions. Therefore, the official score of the bill included no net budget impact for the CSR appropriation. However, Alexander received a supplemental letter from CBO indicating that, compared to a scenario where the federal government did not make CSR payments, appropriating funds for CSRs would result in a notional deficit reduction of $29 billion.

The notional deficit reduction arises because, in the absence of CSR payments, insurers would “load” the cost of reducing cost-sharing on to health insurance premiums—thus raising premium subsidies for those who qualify for them. CBO believes these higher subsidies would entice more families with incomes between two and four times the federal poverty definition ($50,200-$100,400 for a family of four in 2018) to sign up for coverage. Compared to a “no-CSR” baseline, appropriating funds for CSRs, as the bill would do, would reduce spending on premium subsidies, but it would also increase the number of uninsured by 500,000-1,000,000, as some families receiving lower subsidies would drop coverage.

Lastly, the expanded sale of catastrophic plans, coupled with provisions including those plans in a single risk pool, would slightly improve the health of the overall population purchasing Obamacare coverage. While individuals cannot receive federal premium subsidies for catastrophic coverage, enticing more healthy individuals to sign up for coverage will improve the exchanges’ overall risk pool slightly, lowering federal spending on those who do qualify for exchange subsidies by $849 million.

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.

There He Goes Again: Lamar Alexander Misrepresents His Obamacare Bailout

As Ronald Reagan might say, “There you go again.” Last week, Sen. Lamar Alexander (R-TN) published an op-ed in the Washington Examiner making claims about the Obamacare “stabilization” bill he developed with Sen. Patty Murray (D-WA).

The article tells a nice story about how conservatives should support the bill, but alas, one can consider it just that: A story. The article includes several material omissions and outright false statements about the legislation and its impact. Below are the facts and full context that Alexander wouldn’t dare admit about his bill.

Fact: In reality, the Congressional Budget Office in its score of the Alexander-Murray bill said the exact opposite:

Simply comparing outcomes with and without funding for CSRs [cost-sharing reduction payments], CBO and [the Joint Committee on Taxation] expect that federal costs in 2018 would be higher with funding for CSRs because premiums for 2018 have already been finalized and rebates related to CSRs would be less than the CSR payments themselves. [Emphasis mine.]

Insurers have already finalized their premiums for 2018 (in most states, open enrollment ends this Friday, December 15), and when doing so assumed cost-sharing reductions would not be paid. If Congress now turns around and appropriates those payments for 2018, insurers would have the possibility to “double-dip.” That means getting paid twice by the federal government to provide lower cost-sharing to low-income individuals.

While CBO believes insurers will return some of the “extra” subsidies they receive to the federal government—$3.1 billion worth, according to their estimate—they also believe that insurers will keep some portion of the excess, as much as $4-6 billion worth. That dynamic explains why CBO believes federal spending will increase, not decrease, as Alexander claims, if Congress appropriates cost-sharing reduction payments for 2018.

Fact: The $194 billion figure has no bearing to the Alexander-Murray legislation. Elsewhere in the op-ed, Alexander admits his bill would include “two years of temporary cost-sharing reduction payments.” If these payments would be “temporary,” then why cite a purported savings figure for an entire decade? Is Alexander trying to elide the fact that he wants to continue both Obamacare and these taxpayer payments to insurance companies in perpetuity?

Claim: “This bill includes new waiver authority for states to come up with their ideas to reduce premiums.”

Fact: The bill includes precious little new waiver authority for states. On substance, it retains virtually all of the “guardrails” in Obamacare that make implementing conservative ideas—like consumer-driven health-care options that use health savings accounts—impossible in a state waiver. While the bill does provide for a faster process for the federal government to consider waiver applications, without changing the substance of what provisions states can waive, the bill would just result in conservative states getting their waivers rejected more quickly.

Fact: This provision appears nowhere in the Alexander-Murray measure. Instead, it comprises a separate bill, introduced by senators Susan Collins (R-ME) and Bill Nelson (D-FL). And that bill, as originally introduced, would appropriate not $10 billion in reinsurance funds, but “only” $4.5 billion.

Some conservatives may find it bad enough that, in addition to appropriating roughly $20-25 billion straight to insurance companies in the Alexander-Murray bill, Alexander now wants a second source of taxpayer funds to subsidize insurers. Moreover, by more than doubling the amount of reinsurance funds compared to the original Collins-Nelson bill, Alexander seems to be engaging in a bidding war with himself to determine the greatest amount of taxpayers’ money he can shovel insurers’ way.

Claim: “Almost all House Republicans have already voted for its provisions earlier this year.”

At this point readers may question why Alexander made such a series of incomplete, misleading, and outright false claims in his op-ed. One other tidbit might explain the article’s dissociation with the truth.

Fact: Since 2013, the largest contributor to Alexander’s re-election campaign and leadership PAC has been…Blue Cross Blue Shield.

This post was originally published at The Federalist.

Six Reasons the Mandate “Deal” Is Bad Health Policy

After their member lunch Tuesday, Senate Republican leadership announced they would work to include a repeal of Obamacare’s individual mandate as part of tax reform. The Senate leaders also announced they would bring the Obamacare “stability” legislation written by Sens. Lamar Alexander (R-TN) and Patty Murray (D-WA) to the floor for a vote.

Repealing Obamacare’s tax on individuals who do not buy health coverage, and using the proceeds to reduce taxes overall, may represent sound tax policy. However, for several reasons, both the mandate repeal, and the “stability” legislation linked to it, represent unsound health policy.

1. This Will Raise Premiums

For these reasons, a tax reform bill repealing the individual mandate cannot repeal the regulations that caused premiums to more than double over the past four years, and necessitated the mandate in the first place. As I previously noted, repealing a penalty that encourages healthy people to purchase insurance, while retaining the regulations that have attracted a sicker-than-average population to Obamacare’s insurance exchanges, will raise premiums—the only question is by how much.

2. It Bails Out Insurers—And Obamacare

The “stability” legislation would provide two years of cost-sharing reduction (CSR) subsidies to health insurers, which reimburse them for the cost of discounting deductibles and co-payments to certain insurers. Three years ago, the House of Representatives sued the Obama administration challenging the constitutionality of these payments, which the House contended were being made without an explicit appropriation from Congress.

In May 2016, Judge Rosemary Collyer agreed. While she stayed her ruling stopping the payments while the Obama administration appealed, the Trump administration used her logic—that the payments lacked a constitutional appropriation—to halt the payments unilaterally last month.

3. This Establishes De Facto Single Payer

In choosing to appropriate CSR funds mere weeks after the Trump administration cancelled the payments, a Republican Congress would send a very clear message: Health insurers—and Obamacare itself—are too big to fail.

This message to health insurers, who last year ignored the risk that CSR payments would disappear, will only encourage them to take further reckless risks, knowing the federal government will provide a backstop if they fail. In other words, a Republican Congress would create a de facto single-payer health system, by establishing the principle that insurers are too big to fail.

Some might argue, as Alexander did Tuesday, that the “stability” fund will lower premiums and mitigate the effects from repealing the mandate outlined above. In one sense, throwing taxpayer funds at a problem will always “fix” it—at least in the short term. But with our nation $20 trillion in debt and repeated years of federal deficits, the federal government has a diminishing ability to spend other people’s money to “solve” problems. Moreover, in the longer term, a Republican Congress will have set an incredibly dangerous—and costly—precedent by telling insurers the federal government will cover their losses.

4. Insurers Could Reap Billions in Windfall Profits

The CBO score also provided some sense of the money insurers might keep. The Alexander-Murray bill would appropriate roughly $7-9 billion in CSR funds for the coming plan year. Yet CBO believes insurers would return only about $3.1 billion in rebates back to the federal government, meaning the insurers themselves could keep some, or all, of the remaining $4-6 billion. All this after insurer profits nearly doubled during the Obama era, to $15 billion per year.

5. There’s Not Enough Flexibility for States

Over and above the question of bailing insurers out of their strategic mistakes by making CSR payments, the Alexander-Murray bill provides nowhere near enough flexibility for states in return. The bill provides for several process improvements regarding applications for state innovation waivers under Obamacare, but it does not fundamentally change the substance of those waivers.

States must still provide as many individuals with health insurance as Obamacare, and much provide a benefit package “of comparable affordability” as Obamacare coverage. Because the Alexander-Murray bill does not substantively change Obamacare’s regulatory straight-jacket, it still will not allow states to provide consumer-driven health care options, or plans that might have lower premiums for consumers.

6. This Means Federal Funding of Plans that Pay for Abortion

If the above six reasons weren’t enough evidence of the questionable policy merits of the mandate “deal,” the video should serve as the coup de grace. That the bill’s sponsor seemed blissfully unaware of all the policy implications of a bill he sponsored—and worked feverishly to sell to his colleagues—should function as a warning to lawmakers. In their haste to pass a tax bill, they are blundering into some serious strategic and policy errors in health policy, which could come back to bite them for many years to come.

This post was originally published at The Federalist.

CBO Confirms “Stability” Bill Provides a Multi-Billion Dollar Insurer Bailout

Upon release of the Congressional Budget Office (CBO) analysis of the “stability” bill he and Sen. Patty Murray (D-WA) introduced last week, Senate Health, Education, Labor, and Pensions Committee Chairman Lamar Alexander (R-TN) issued a statement claiming that “we have language in our proposal to make sure that benefits go to consumers and to taxpayers and not to insurance companies” and that “the Congressional Budget Office has found that our proposal benefits taxpayers and benefits consumers, not insurance companies. The specific benefit to the taxpayers is $3.1 billion.”

Unfortunately, Alexander is only half correct. The CBO score reveals that the Alexander-Murray bill would provide some benefit to consumers, but it would also provide a direct, taxpayer-funded bailout to insurers that will likely match, and could well exceed, the benefit to consumers. Overall, insurers could  receive a windfall of $4 to $5 billion—more than the “specific benefit” to taxpayers.

In other words, overall federal spending will rise because insurers will pocket some portion of the CSR payments rather than rebating that money back to taxpayers and consumers.

Allowing Health Insurers’ ‘Double Dipping’

The report addresses language in Section 3(b) of the Alexander-Murray bill (pages 13-18), intended to prevent “double dipping” for plan year 2018 as it relates to cost-sharing reduction payments. As CBO noted, premiums for the 2018 plan year have already been finalized, with open enrollment starting next week.

In most states, insurers submitted significantly higher premium rates, because they assumed they would not receive CSR payments from the federal government. However, including a CSR appropriation at this late date would allow insurers to “double dip”—receiving both the direct CSR payments and the higher premiums that they calculated in the belief that they would not receive CSR funding.

  • In a September report, CBO concluded that spending on CSR payments would total $9 billion for fiscal year 2018.
  • In that same September report, CBO assumed that, if CSR payments went away, premiums would rise “by an average of roughly 15 percent.” Based on a total of $52 billion in federal insurance subsidies ($47 billion in premium subsidies, plus $5 billion for the basic health program), a 15 percent increase would equal roughly $7.8 billion in higher subsidy payments.
  • Conversely, CBO said yesterday the federal government would receive only $3.1 billion in rebates back from insurers relating to CSR payments for plan year 2018.

Under their best-case scenario, insurers could pocket up to $4 to $5 billion—nearly $8 billion in “excess” premium subsidies, offset by only $3.1 billion in rebates. (Because insurers have to reduce cost-sharing for qualified enrollees regardless, the $9 billion in CSR payments would be considered a “wash.”)

That best-case scenario appears somewhat unrealistic. Some states specifically instructed insurers to assume CSR payments continue, so carriers would not receive “excess” premium subsidies in those states. Regardless, the fact that the $7 to $8 billion in “excess” subsidies dwarfs the $3.1 billion in rebates provided to taxpayers indicates the extent to which insurers would pocket the extra government spending.

A Better Solution: No Bailouts

Given CBO’s conclusions with respect to the Alexander-Murray bill, it is difficult to see how any legislation can resolve the problem of giving windfalls to insurers for the 2018 plan year. Because plan premiums are already set for the upcoming year, and in most cases assume that the federal government will not make CSR payments, there is no feasible way to make those payments yet prevent “double dipping” by insurers. In other words, any bill providing cost-sharing reduction payments for 2018 will by definition give insurers a massive bailout.

This post was originally published at The Federalist.

Legislative Bulletin: Summary of Alexander-Murray “Stability” Bill

On Tuesday afternoon, Senate Health, Education, Labor, and Pensions Committee Chairman Lamar Alexander (R-TN) announced he had reached an agreement in principle with Ranking Member Patty Murray (D-WA) regarding an Obamacare “stabilization” package. Unfortunately, legislative text has not yet been released (UPDATE: bill text was released late Tuesday evening), but based on press reports, Twitter threads, and a summary circulating on Capitol Hill, here’s what is in the final package:

Cost-Sharing Reduction Payments:             The bill appropriates roughly $25-30 billion in cost-sharing reduction payments to insurers, which offset their costs for providing discounts on deductibles and co-payments to certain low-income individuals enrolled on insurance Exchanges. Late last Thursday, President Trump announced he would halt the payments to insurers, concluding the Administration did not have authority to do so under the Constitution. As a result, the bill includes an explicit appropriation, totaling roughly $3-4 billion for the rest of this calendar year, and $10-11 billion for each of years 2018 and 2019, based on Congressional Budget Office spending estimates.

For 2018 only, the bill includes language allowing states to decline the cost-sharing reduction payments—if they previously approved premium increases that assumed said payments would not be made. If states do not decline the payments, they must certify that said payments will “provide a direct financial benefit to consumers”—that is, they will result in lower premium rates, and/or rebates to consumers. The bill also includes clarifying language regarding the interactions between any such rebates and premium tax credit levels under Obamacare.

Some conservatives may be concerned that, because insurers understood for well over a year that a new Administration could terminate these payments in 2017, the agreement would effectively subsidize their flawed assumptions. Some conservatives may be concerned that action to continue the flow of payments would solidify the principle that Obamacare, and therefore insurers, are “too big to fail,” which could only encourage further risky behavior by insurers in the future. Moreover, some conservatives may be concerned that, absent Hyde Amendment protections, these payments would subsidize federal insurance plans covering abortion.

State Waiver Processes:     The bill would streamline the process for approving state innovation waivers, authorized by Section 1332 of Obamacare. Those waivers allow states to receive their state’s Exchange funding as a block grant, and exempt themselves from the individual mandate, employer mandate, and some (but not all) of Obamacare’s insurance regulations.

Specifically, the agreement would:

  1. Extend the waivers’ duration, from five years to six, with unlimited renewals possible;
  2. Prohibit HHS from terminating waivers during their duration (including any renewal periods), unless “the state materially failed to comply with the terms and conditions of the waiver;”
  3. Require HHS to release guidance to states within 30 days of enactment regarding waivers, including model language for waivers;
  4. Shorten the time the Department of Health and Human Services to consider waivers from 180 days to 90;
  5. Allow a 45 day review for 1) waivers currently pending; 2) waivers for areas “the Secretary determines are at risk for excessive premium increases or having no health plans offered in the applicable health insurance market for the current or following plan year; and 3) waivers that are “the same or substantially similar” to waivers previously approved for another state. These waivers would initially apply for no more than three years, with an extension possible for a full six-year term;
  6. Allow governors to apply for waivers based on their certification of authority, rather than requiring states to pass a law authorizing state actions under the waiver—a move that some conservatives may be concerned could allow state chief executives to act unilaterally, including by exiting a successful waiver on a governor’s order.

State Waiver Substance:    On the substance of innovation waivers, the bill would regulatory guidance issued by the Obama Administration in December 2015. Among other actions, that guidance prevented states from using savings from an Obamacare/Exchange waiver to offset higher costs to Medicaid, and vice versa. While supporting the concept of greater flexibility for states, some conservatives may note that, as this guidance was not enacted pursuant to notice-and-comment, the Trump Administration can revoke it at any time—indeed, should have revoked it months ago.

Additionally, the bill amends—but does not repeal—the “guardrails” for state innovation waivers. Under current law, Section 1332 waivers must:

  1. “Provide coverage that is at least as comprehensive as” Obamacare coverage;
  2. “Provide coverage and cost-sharing protections against excessive out-of-pocket spending that are at least as affordable” as Obamacare coverage;
  3. “Provide coverage to at least a comparable number of [a state’s] residents” as under Obamacare; and
  4. “Not increase the federal deficit.”

Some conservatives have previously criticized these provisions as insufficiently flexible to allow for conservative health reforms like Health Savings Accounts and other consumer-driven options.

The bill allows states to provide coverage “of comparable affordability, including for low-income individuals, individuals with serious health needs, and other vulnerable populations” rather than the current language in the second bullet above. It also clarifies that deficit and budget neutrality will operate over the lifetime of the waiver, and that state innovation waivers under Obamacare “shall not be construed to affect any waiver processes or standards” under the Medicare or Medicaid statutes for purposes of determining the Obamacare waiver’s deficit neutrality.

The bill also makes adjustments to the “pass-through” language allowing states to receive their Exchange funding via a block grant. For instance, the bill adds language allowing states to receive any funding for the Basic Health Program—a program states can establish for households with incomes of between 138-200 percent of the federal poverty level—via the block grant.

Some conservatives may view the “comparable affordability” change as a distinction without a difference, as it still explicitly links affordability to Obamacare’s rich benefit package. Some conservatives may therefore view the purported “concessions” on the December 2015 guidance, and on “comparable affordability” as inconsequential in nature, and insignificant given the significant concessions to liberals included elsewhere in the proposed legislative package.

Catastrophic Plans:              The bill would allow all individuals to purchase “catastrophic” health plans, and keep those plans in a single risk pool with other Obamacare plans. However, this provision would not apply until 2019—i.e., not for the upcoming plan year.

Catastrophic plans—currently only available to individuals under 30, individuals without an “affordable” health plan in their area, or individuals subject to a hardship exemption from the individual mandate—provide no coverage below Obamacare’s limit on out-of-pocket spending, but for “coverage of at least three primary care visits.” Catastrophic plans are also currently subject to Obamacare’s essential health benefits requirements.

Outreach Funding:               The bill requires HHS to obligate $105.8 million in Exchange user fees to states for “enrollment and outreach activities” for the 2018 and 2019 plan years. Currently, the federal Exchange (healthcare.gov) assesses a user fee of 3.5 percent of premiums on insurers, who ultimately pass these fees on to consumers. In a rule released last December, the outgoing Obama Administration admitted that the Exchange is “gaining economies of scale from functions with fixed costs”—in part because maintaining the Exchange costs less per year than creating one did in 2013-14. However, the Obama Administration rejected any attempt to lower those fees, instead deciding to spend them on outreach efforts. The agreement would re-direct portions of the fees to states for enrollment outreach.

Some conservatives may be concerned that this provision would create a new entitlement for states to outreach dollars. Moreover, some conservatives may object to this re-direction of funds that ultimately come from consumers towards more government spending. Some conservatives may support taking steps to reduce the user fees—thus lowering premiums, the purported intention of this “stabilization” measure—rather than re-directing them toward more government spending, as the agreement proposes.

The bill also requires a series of bi-weekly reports from HHS on metrics like call center volume, website visits, etc., during the 2018 and 2019 open enrollment periods, followed by after-action reports regarding outreach and advertising. Some conservatives may view these myriad requirements first as micro-management of the executive, and second as buying into the liberal narrative that the Trump Administration is “sabotaging” Obamacare, by requiring minute oversight of the executive’s implementation of the law.

Cross-State Purchasing:     Requires HHS to issue regulations (in consultations with the National Association of Insurance Commissioners) within one year regarding health care choice compacts under Obamacare. Such compacts would allow individuals to purchase coverage across state lines. However, because states can already establish health care compacts amongst themselves, and because Obamacare’s regulatory mandates would still apply to any such coverage purchased through said compacts, some conservatives may view such language as insufficient and not adding to consumers’ affordable coverage options.

What Obama’s Campaign Group Won’t Tell You About Obamacare

Organizing for Action, President Obama’s campaign group, is out this morning with its first advertisement promoting Obamacare. The ad claims to tell the “facts” surrounding the law, but here’s what it doesn’t tell you:

Claim: “Free Preventive Care for 34 Million”

Fact: Obamacare forces insurers to cover preventive services without a co-payment, but just because some services now don’t have a co-payment doesn’t mean they’re “free.” Mandates like the one surrounding preventive care are raising health insurance premiums. Earlier this month, CBS News reported that “Obamacare may cost more than experts previously thought, according to a survey of 900 employers.” What’s more, the preventive services mandate also forces religious organizations to violate their deeply held beliefs and provide employees with contraceptive products they find morally objectionable.

Claim: “$150 Average Rebate in 2012”

Fact: This talking point refers to Obamacare’s medical-loss ratio provision, which imposes price controls on insurance companies, forcing them to pay rebates to consumers if they do not meet Obamacare’s arbitrary standards. The Kaiser Family Foundation reported last year that rebates would be issued to plans covering 3.4 million people, or only about 1 percent of the population. The Kaiser report admitted that the rebates “are not particularly large in many instances.” While candidate Obama promised that premiums would go down by $2,500 by the end of his first term, the average employer premium has actually gone up by $3,065—from $12,680 in 2008 to $15,745 in 2012, according to Kaiser data.

Claim: “Up to 50% of Small Business Insurance Covered”

Fact: The ad claims that Obamacare’s small business tax credit—which funds a portion of health insurance premiums—is having a major impact. But a May 2012 Government Accountability Office (GAO) report found that only about 170,000 small businesses claimed the Obamacare tax credit—far less than expectations of up to 4 million trumpeted by supporters. The report also makes clear that the credit’s complexity and bureaucracy discouraged small businesses from applying for the credit. Here’s what tax preparers quoted in the GAO report said about the tax credit:

Any credit that needs a form that takes 25 lines and seven work sheets to build those 25 lines is too complicated.…

[Small business owners] are trying to run their businesses and operate and make a profit, and when you tell them they need to take two, three, four hours to gather this information, they just shake their head and say, “No, I’m not going to do it.”

In other words, bureaucracy, complexity, and regulations have stifled the small business tax credit—an apt metaphor for the law as a whole.

This post was originally published at The Daily Signal.

Weekly Newsletter: September 8, 2008

The Outlook Ahead

Congress returns from its annual summer vacation today with several health-related issues on the agenda for the month of September. Specifically, additional Medicaid funding could be included in economic “stimulus” legislation, and a massive expansion of the State Children’s Health Insurance Program (SCHIP) could come up for another vote. Finally, an agreement-in-principle that negotiators reached on mental health parity legislation could receive a final vote if disputes surrounding the bill’s pay-fors can be resolved.

Many conservatives may be concerned about the Medicaid spending provisions (H.R. 5268), which would provide more than $10 billion in aid to states without providing any “stimulus”—as federal spending would merely supplant state outlays. At a time when the federal government’s budget deficit stands at least eight times the size of states’ combined budget deficits, conservatives may question why the federal government should be asked to bail out states facing fiscal difficulties much smaller by comparison.

Just as important, many conservatives may be concerned that this giveaway to states would not be accompanied by any substantive reforms to a Medicaid program that often fails to provide adequate care to the vulnerable patients it was designed to serve. In many cases, bureaucratic obstacles discourage providers from participating, resulting in limited access and months-long waits for beneficiaries, while fraud remains a persistent problem in several states. Some conservatives may believe that time on the legislative calendar debating a Medicaid bailout should instead be used to discuss more comprehensive structural reforms to the program—so that the poorest beneficiaries are not subjected to more of the same from a government health system that does not work for many.

On SCHIP, many conservatives may retain concerns about a significant expansion of the program— which, according to an Congressional Budget Office score, would now cost significantly more than the $35 billion expansion (H.R. 3963) vetoed by the President last fall. At a time of economic uncertainty for many Americans, conservatives may not support a substantial increase in federal tobacco taxes, which would be borne primarily by working-class families, as a way to increase the government’s role in health care. In addition, many conservatives continue to support Administration guidance designed to ensure that states enroll poor children first before expanding their SCHIP programs to wealthier families, and oppose any efforts by Congressional Democrats to repeal this important principle.

In addition to the concerns that some conservatives may have regarding the increases in insurance premiums caused by mental health parity legislation, conservatives may also be concerned about the way in which the bill’s more than $3 billion price tag will be financed. During House consideration of a mental health parity bill (H.R. 1424) in March, many conservatives objected to provisions—restrictions on physician-owned specialty hospitals, and increased drug rebates demanded from pharmaceutical companies—that undermined free markets in health care and expanded government price controls. The mental health bill is currently attached to tax extenders legislation in the Senate, which remains deadlocked over unrelated disputes; if the impasse over tax provisions continues, it remains unclear which direction or form the mental health legislation may take.

The RSC has prepared two new Policy Briefs, providing an update on SCHIP enrollment statistics and analyzing the premium support provisions within SCHIP.

Uninsured Numbers Show Need for Entitlement Reform

During the recess, the Census Bureau released its annual report on income and health insurance coverage during 2007. The report found that the number of uninsured declined by 1.3 million in 2007 when compared to the previous year, due largely to a 2.8 million increase in the number of Americans receiving coverage under various public programs, particularly Medicaid and Medicare.

Some conservatives may believe the significant growth in the number of Americans receiving government-run health insurance coverage provides another reason to re-examine entitlement spending and reform the health care system. In particular, market-based health reforms have the potential to slow the growth of health costs that threaten both America’s fiscal future and the financial well-being of many families.

The RSC has released an updated Policy Brief analyzing the new Census data, as well as a new Policy Brief highlighting the impact of illegal immigrants—who constitute as much as one-fifth of the uninsured in America—on the health care system.

Cooking the Books

During the recess, the Department of Health and Human Services’ Inspector General released a report criticizing the auditing process undertaken by the Centers for Medicare and Medicaid Services (CMS) with respect to the integrity of purchases of durable medical equipment (DME). The report stated that CMS’ guidance to the external auditors hired to examine DME claims failed to implement a rigorous level of scrutiny, and that as a result the level of questionable claims was significantly higher than CMS had first reported. Responding to the IG report, Ways and Means Health Subcommittee Chairman Pete Stark (D-CA) said that “to look better to the public, [CMS] cook[s] the books;” he called the agency “incompetent.”

However, three weeks earlier Mr. Stark himself made dubious claims with respect to Medicare reform and President Bush’s tax relief. During debate on the resolution (H.Res. 1368) turning off the Medicare “trigger” mechanism, Mr. Stark claimed that extending the Bush tax relief would cost $100 trillion over 75 years—about three times’ Medicare’s unfunded obligations over that period—such that forgoing an extension of the tax relief provisions would somehow end Medicare’s long-term financial difficulties. However, a report by the liberal Center for Budget and Policy Priorities cites the 75-year cost of the tax relief as $13.6 trillion—less than one-seventh the number cited by Stark in debate—and explicitly states that Medicare and health costs pose a greater threat to the nation’s fiscal solvency than the President’s tax relief. Asked repeatedly to provide a source of information justifying Stark’s statement, Ways and Means Committee staff could not substantiate his comments, or provide an explanation for the $86 trillion higher figure.