One Easy Way to Start Reforming Entitlements

During his election campaign and the subsequent presidential transition, Donald Trump expressed a high degree of discomfort with reducing Medicare benefits. His position ignores the significant financial peril Medicare faces—a whopping $132.2 billion in deficits for the Part A (Hospital Insurance) trust fund over the past eight years.

That said, there is one easy way in which the new administration could advance the cause of entitlement reform: allow individuals—including wealthy individuals, like, say, Donald Trump—to opt out of Medicare.

If you think the government holding benefits hostage to forcibly enroll seniors—even wealthy ones—in taxpayer-funded Medicare sounds more than a little absurd, you wouldn’t be the first one. Several years ago, several conservatives—including former House Majority Leader Dick Armey—filed a lawsuit in federal court, Hall v. Sebelius, seeking to overturn the SSA guidance. The plaintiffs wanted to keep their previous private coverage, and did not wish to lose the benefits of that coverage by being forcibly enrolled in Medicare Part A.

We Have A Roadmap To Remedy This Problem

Unfortunately, both a federal district court and the Court of Appeals for the District of Columbia agreed with the federal government. The majority opinions held that the underlying statute distinguished being “entitled” to Medicare Part A benefits from “enrolling” in Part B, meaning the government was within its rights to deny the plaintiffs an opportunity to opt out of Part A.

However, a dissent at the Court of Appeals by Judge Karen LeCraft Henderson can provide a roadmap for the Trump Administration to remedy the absurd scenario of individuals being forcibly enrolled in a taxpayer-funded program. Judge Henderson held that the Social Security Administration had no statutory authority to prohibit (via its Program Operations Manual System, or POMS) individuals from disclaiming their Medicare Part A benefits. While the law “entitles” individuals to benefits, it does not give SSA authority to force them to claim said benefits. SSA published guidance in its program manual exceeding its statutory grant—without even giving the public the opportunity for notice-and-comment before establishing its policy.

It’s Time To End The SSA’s Kafka-esque Policies

During the Cold War, East German authorities referred to the barriers surrounding West Berlin as the “Anti-Fascist Protective Wall”—implying that the Berlin Wall stood not to keep East Berliners in East Germany, but West Berliners out. One can’t help but notice a similar irony in the Medicare opt-out policies developed by the Social Security Administration. After all, if Medicare is so good, why must SSA hold individuals’ Social Security benefits hostage to keep them enrolled in the program?

The Trump Administration can easily put an end to the Social Security Administration’s Kafka-esque policies—and take one small step towards reforming entitlements—by instructing the new Commissioner of Social Security to work with the Centers for Medicare and Medicaid Services to develop a means for individuals to opt out of the Medicare Part A benefit. The savings from such a policy would likely be modest, but why should the federal government force the expenditure of taxpayer dollars on benefits that the beneficiaries themselves do not wish to receive?

The simple answer: it shouldn’t. Perhaps Bernie Sanders or Elizabeth Warren view forcible enrollment in Medicare as “punishment” for wealthy seniors. But at a time when our nation faces nearly $20 trillion in debt, individuals of significant means—whether Bill Gates, Donald Trump, or even Hillary Clinton—shouldn’t be forced to accept taxpayer-funded benefits. The Trump Administration eliminating this government absurdity would represent a victory for fiscal responsibility—and sheer common sense.

This post was originally published in The Federalist.

How Proposals for Obamacare Subsidies in 2015 Could Cost Taxpayers

In a Think Tank post last week, I explained why the number of unresolved inconsistencies in applications on the federal insurance exchanges probably exceeds the 2.9 million cited in two recent Department of Health and Human Services reports. Recent HHS proposals could allow many income-related inconsistencies to persist in 2015–potentially risking taxpayer funds.

In its proposed rule and related guidance for the 2015 open-enrollment season, the administration made two key decisions about determining re-eligibility for insurance subsidies. First, the guidance indicates that the exchanges would request updated tax return information solely from the IRS to determine eligibility for 2015 subsidies. Currently, the exchanges determine eligibility using information from the Social Security Administration and other income data sources, as well as tax information.

Second, most individuals who do not respond to requests to update their information would remain eligible for subsidies in 2015 at the same amount they received this year. (Their subsidies would not increase because of higher age or any premium changes.) Only individuals whose incomes appear to vastly exceed the thresholds for subsidies—what’s likely to be a “very small” group, HHS said in its guidance–or those who did not authorize the exchanges to review tax return data would not automatically receive subsidies in 2015.

The administration is seeking to streamline the process to determine eligibility, but the HHS inspector general’s investigations found the existing processes to be largely ineffective. An HHS report last week noted nearly 1 million inconsistencies relating to income reporting on applications. Because that includes only the federally run exchanges and only cases handled through Feb. 23, the number of inconsistencies is probably significantly understated. The inspector general’s office also found that HHS had resolved only about 1% of inconsistencies that occurred on the federal exchange between Oct. 1, 2013, and Feb. 23, though the health-reform law requires the department to resolve issues within 90 days.

With 1 million—and probably many more—applications containing inconsistencies over income, further liberalizing the subsidy eligibility criteria could create more problems. At best, individuals with inconsistencies that persist could eventually be forced to repay excess subsidies for 2014 and 2015. At worst, taxpayers could be on the hook for significant amounts of improperly paid subsidies.

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

Morning Bell: Obamacare, Simplified

With open enrollment in Obamacare’s exchanges set to start in fewer than three months, the law’s supporters are attempting to change the subject from Obamacare’s many delays and glitches. Instead, they’re mounting a campaign to sell the unpopular measure to the public.

President Obama yesterday gave a speech on Obamacare, trying to justify the fact that premiums continue to rise, violating his 2008 campaign promise to lower them by $2,500 per family per year. The Kaiser Family Foundation even released a video that attempts to simplify and explain the 2,700-page measure.

But there’s another helpful chart that shows how Obamacare will work, and it’s taken from an official report released by government auditors. Click on the image below to see how the Treasury’s inspector general for tax administration explained the Obamacare enrollment process, in testimony before the House Oversight Committee on Wednesday:

President Obama's Plan to "Simplify" Your Health Care

The process for determining subsidy eligibility could require 21 different steps, involving at least five separate entities—the Social Security Administration, the Department of Homeland Security, the Department of Health and Human Services, the Internal Revenue Service, and state exchanges—and utilizing a process called the Income and Family Size Verification Project.

Given this bureaucratic nightmare, it’s little wonder that another report from government auditors released last month said that “critical” deadlines to create the Obamacare exchanges had been missed. Nor should any be surprised that yesterday, Treasury’s inspector general for tax administration testified it “is concerned that the potential for refund fraud and related schemes could increase” due to Obamacare.

Yet the Obama Administration believes spending more money will solve the problem. Just for the IRS implementation of Obamacare, the Administration requested $439.6 million for nearly 2,000 bureaucrats.

Obama yesterday attempted to portray Obamacare as defending Americans from insurance companies. But who will defend the American people from Obamacare? The law’s confusing maze of programs, regulations, and processes brings to mind Ronald Reagan’s famous maxim that “the nine most terrifying words in the English language are ‘I’m from the government, and I’m here to help.’”

If a picture is normally worth a thousand words, the Obamacare chart above should be worth trillions. Because Congress—seeing that Obamacare is not just too big to fail, but too big to succeed—should refuse to spend a single dime implementing this behemoth of a health care law.

This post was originally published at The Daily Signal.

The CLASS Act’s Untold Story

A PDF copy of this report is available on Sen. John Thune’s website.

Introduction

The Patient Protection and Affordable Care Act (PPACA), the Obama administration’s keystone health care legislation, established a new long-term care insurance entitlement known as the Community Living Assistance Services and Supports (CLASS) Act.1 Documents uncovered through a bicameral congressional investigation show that well before the law’s passage, warning flags were raised within the Department of Health and Human Services (HHS) about the CLASS program’s sustainability in the long-term. The documents also describe the extent to which the Administration may shift costs and administrative burdens for the program onto states and employers.

The CLASS Act created an optional, government-backed, long-term care insurance program that would pay a daily or monthly benefit to enrolled subscribers if they become unable to perform activities of daily living, such as dressing, meal preparation, and personal grooming. Because the program requires a five-year vesting period before subscribers can collect any benefits, the Congressional Budget Office (CBO) calculated that in the first 10 years of the program, the CLASS Act would account for $70 billion in deficit reduction. This calculation was based on the premise that during the initial years of the program, it will take in more revenue in premiums than it pays out in benefits, including the first five years of the program in which no benefits are paid at all.

This $70 billion in CBO-scored “savings” was crucial to garnering support for passage of the health care law. CBO did not make public any estimates on what would happen as the population of subscribers to the program age and the CLASS Act requires increasing amounts of money to be paid out in benefits.

It is now widely acknowledged that the alleged savings from the CLASS Act are illusory. The month after PPACA passed, Rick Foster, Chief Actuary of HHS’ Centers for Medicare and Medicaid Services (CMS), released a report indicating that the CLASS Act was not fiscally sound.2 The chief actuary is a non-partisan, high-ranking official in CMS whose estimates are critical in understanding current health care law and proposed changes to the law.

Senate Budget Committee Chairman Kent Conrad, a supporter of the PPACA legislation, publicly called the CLASS program “a Ponzi scheme of the first order, the kind of thing Bernie Madoff would be proud of.”3 In testimony before Congress, HHS Secretary Kathleen Sebelius conceded that the CLASS program is “totally unsustainable” in its current form.4

But these concessions came long after PPACA had been signed into law. As a result of this investigation, it is now clear that some officials inside HHS warned for months before passage that the CLASS program would be a fiscal disaster. Within HHS the program was repeatedly referred to as “a recipe for disaster” with “terminal problems.” As this report will show, the chief actuary stated on numerous occasions that the program was not fiscally sustainable and would result in what he referred to as an “insurance death spiral.”

According to emails and other documents obtained pursuant to this investigation, senior leadership of HHS and Democratic staff in the Senate and House reviewed these warnings but did not change the law and did not inform the public of the doubts about the CLASS Act. Instead, the officials continued to claim that the program would be sound, sustainable, and actually produce budget savings that could help pay for other parts of the health care law.

While there has been little public discussion of the costs PPACA imposes on employers and states, this investigation revealed for the first time the extent to which HHS both anticipated these costs and yet tried to impose even more burdens. The documents we have obtained demonstrate that officials at HHS knew that the CLASS Act would saddle employers and states with, at minimum, a heavy administrative burden. The emails also reveal discussions inside HHS about combating low participation in the program by requiring employers to participate. HHS anticipated this mandate could be imposed at some future date, and it is possible they will still attempt to impose such a mandate through regulation.

The documents that were produced as part of this investigation were reviewed and analyzed by a working group of Republicans in both houses of Congress. This report is the product of our joint investigatory research and analysis.

Internal HHS Documents Questioned Fiscal Viability of CLASS

While PPACA established the long-term care program, it left many of the important details about the CLASS Act to be decided by HHS through regulation. HHS is required to issue those regulations by October 1, 2012. Until HHS issues those regulations, the public does not know how much subscribers will have to pay in premiums to enroll in the program, what benefits they will receive if they become disabled, or what level of disability will trigger the benefits.

When balancing premiums collected against benefits paid, internal HHS documents show that regulators have long been concerned about the problem of “adverse selection.” If CLASS suffers from adverse selection (also called “anti-selection”), a high proportion of people with long-term care needs enroll in the program and initial premiums will need to be very high to cover costs. Those high premiums will encourage healthy people to drop out of the program, causing premiums to rise again for the sicker individuals who remain. This could result in what is called a premium “death spiral” and massive taxpayer losses.

Internal emails from HHS and CMS show a number of officials raised alarm about the sustainability of the CLASS Act program. Between May and September of 2009, the CMS chief actuary repeatedly stated his concerns to CMS leadership. It appears from the documents that he was later cut out of the discussions regarding the CLASS Act. CMS and Democratic staff on the Senate Committee on Health, Education, Labor and Pensions (HELP) instead turned to CBO, which produced more favorable estimates than the chief actuary. But others within HHS continued to question the viability of the CLASS Act. What follows is a timeline of how these discussions progressed.

May 2009
The Chief Actuary Predicted “Insurance Death Spiral”

The CMS chief actuary first analyzed the adverse selection problem in a May 19, 2009, email. (See Exhibit A.) Commenting on a draft legislative proposal from Senator Kennedy’s office, the chief actuary said, “let me offer a few preliminary comments:

I didn’t see any provision for a Federal subsidy of this program; in other words, the intention appears to be that it would be financed solely through participant premiums and interest earnings. Nonsubsidized, voluntary insurance programs generally involve substantial “antiselection” by those who choose to participate. As summarized below, this could be a terminal problem for this proposal.5

The program is intended to be “actuarially sound,” but at first glance this goal may be impossible. Due to the limited scope of the insurance coverage, the voluntary CLASS plan would probably not attract many participants other than individuals who already meet the criteria to qualify as beneficiaries. While the 5-year “vesting period” would allow the fund to accumulate a modest level of assets, all such assets could be used just to meet benefit payments due in the first few months of the 6th year.

The resulting substantial premium increases required to prevent fund exhaustion would likely reduce the number of participants, and a classic “assessment spiral” or “insurance death spiral” would ensue.

Alternatively, suppose that a significant number of people without any limitations in [activities of daily living] could be persuaded to participate in the program. How many people would be needed to cover the benefit costs for those qualifying as beneficiaries? For the sake of illustration, suppose 10 million people qualify for benefits of $50 per day (annual cost of $182.5 billion). About 234 million people, paying premiums of $65 per month, would be needed to cover this cost (ignoring administrative expenses). The size of the U.S. population aged 20 and over is about 225 million, and about 165 million of these are employed. This rough—but probably not unrealistic—example further calls into question the feasibility of the maximum financing versus the minimum benefits.

The problem identified by chief actuary at the earliest stages of the bill’s consideration remained in the legislation through subsequent drafts. The chief actuary’s concern was that it would not be possible to attract enough people to the program to maintain it as a self-funding program.

The chief actuary’s email does not include the text of the draft language from Senator Kennedy’s office, but it appears from the premium and benefit example used that the first draft of the statutory language may have required $50 a day in benefits and/or premiums of $65 per month. The final version of the CLASS Act gives the Secretary of HHS discretion to set the premiums and benefit levels as long as premiums allow the program to be fiscally sound over 75 years and benefits are at least $50 per day.

June – July 2009
The Administration Supported the CLASS Act Based on Budgetary Gimmicks, Not Long-Term Actuarial Analysis

In the summer of 2009, a series of email exchanges between the chief actuary and the CMS Office of Legislative Affairs show that support for the long-term care program was growing within the Obama administration and among Democrats in Congress, while the chief actuary’s concerns were becoming more emphatic. Despite these concerns,
supporters of the CLASS Act continued to rely on budgetary gimmicks and flawed modeling.

On June 29th, a staffer in the CMS Office of Legislative Affairs forwarded a news story to the chief actuary that discussed how the CLASS Act allegedly would save money. The email noted, “Bottom line, the CLASS Act was scored by CBO with a savings of $58 billion over 10 years, including a $2.5 billion savings in Medicaid.” A follow up email from CMS Legislative Affairs on July 8 said, “the Administration is now officially on record supporting the CLASS Act.” (See Exhibit B.)

The chief actuary responded with a critique of two studies that had been offered in support of the insurance program:

I’ve finished reviewing the two studies provided by Sen. Kennedy’s staff regarding the CLASS proposal. I’m sorry to report that I remain very doubtful that this proposal is sustainable at the specified premium and benefit amounts.

The actuarial study conducted for AARP assumed participation rates based on a portion (40% to 100%) of current rates for 401(k) plans. In practice, I think current experience for participation in employer based long-term care plans would be much more applicable, and such participation is far lower than for 401(k)’s (for fairly obvious reasons). The AARP study emphasized the sensitivity of premium levels to the number of healthy participants. Although the actuaries didn’t model a plan with participation in the few-percentage range, I strongly suspect that the resulting premiums would be so large as to further diminish the number of participants and to fail to achieve the critical mass of participants in average health needed to cover the selection and subsidy costs.

All the analysis in the Moran study is based on an assumption that the CLASS program would be mandatory. The results look legitimate for such a program, but they are not applicable to the voluntary plan proposed for CLASS.

I haven’t been able to talk to CBO yet regarding their participation assumptions. Unless they have a compelling reason to expect greater-than-[long-term care] levels of participation, however, I can’t see how there would be enough workers participating to cover the selection costs for those with existing [activities of daily living] limitations plus the costs for the internal subsidies for students and low-income persons. Thirty-six years of actuarial experience lead me to believe that this program would collapse in short order and require significant federal subsidies to continue. (See Exhibit B.)

The comments by the chief actuary demonstrate that any reduction in the federal budget deficit identified by CBO would be a function of budgetary time-shifting rather than true savings. While programs like Social Security are often analyzed on a 75-year basis of long-term actuarial solvency, congressional rules require CBO to analyze legislative proposals, like the CLASS Act, over a 10-year budget window.

But the CLASS program likely will not even begin collecting premiums until 2013, and five years of participation are required before subscribers are vested in CLASS, so the program is not likely to begin paying out any benefits until 2018. CLASS was therefore scored as a revenue raiser. Using this budget gimmick, the true costs of the program— the subsequent benefit payments—were essentially ignored, because only a few years of benefit payments were within the official 10-year CBO scoring window of 2010-2019.

CLASS Supporters Relied on Flawed Modeling

The internal documents show that advocates of the CLASS program relied on strikingly unrealistic participation estimates. One study noted above, commissioned by AARP and dated March 3, 2008, assumed nearly 50 million Americans would join the program, a level well above current participation in private long-term care insurance. The second, by the Moran Group, assumed participation would be mandatory for everyone.6

As the chief actuary pointed out, those are completely invalid assumptions on which to base estimates of a long-term care insurance program. CBO’s own estimate also assumed participation rates that were higher than long-term care insurance currently has, and higher than the chief actuary believed could plausibly be expected. By relying on unrealistic estimates of how many people would participate in the CLASS program, its supporters masked the program’s underlying viability problems.

Even with these unrealistic assumptions, the AARP-commissioned analysis also concluded that the program’s design flaws “will ultimately lead to … an unsustainable situation with respect to the premiums.” (See Exhibit C.) Emails between Obama administration officials and congressional staff show that AARP, which publicly supported PPACA, has refused to release the entire study. (See Exhibit D.)

To further rebut the AARP and Moran studies, the chief actuary also forwarded to CMS Legislative Affairs staff a report by the American Academy of Actuaries and the Society of Actuaries that substantiated his concerns about the long-term viability of the proposed CLASS program. (See Exhibit E.) The American Academy of Actuaries provided their report to the Senate HELP Committee on July 22, 2009. (See Exhibit E.)

August – September 2009
CMS and Senate HELP Democrats Ignored Warnings about Actuarial Soundness and Pressed Forward with CLASS as a New Entitlement

The chief actuary remained concerned about the soundness of the CLASS program throughout the summer of 2009, and he sought to ensure that his concerns were communicated to the senior people working on health care reform inside HHS as well as the chief architects of the program in Senator Kennedy’s office. On August 14, 2009, the chief actuary sent another email to the CMS Office of Legislative Affairs in which he said:

As you know, I continue to be convinced that the CLASS proposal is not ‘actuarially sound,’ despite Sen. Kennedy’s staff’s good intentions. I assume you’ve conveyed these concerns to the staff but, if not, let me know and we can express the concerns in a memo.

The Office of Legislative Affairs responded, “Yes, both Amy and the HHS Office of Health Reform have been in communication with [a senior democrat staff member] of the HELP Committee relaying your concerns about the actuarial soundness of the CLASS Act.” (See Exhibit F.)

A few weeks later, on August 24, 2009, the chief actuary again asked CMS to consider the American Academy of Actuaries report questioning the CLASS Act’s viability. (See Exhibit B.)

HHS Officials Effectively Silenced the Chief Actuary and Stopped Soliciting His Input

After receiving consistent negative information from the chief actuary about the financial viability of the program, Senator Kennedy’s staff moved to cut out the chief critic of the CLASS Act within HHS from providing any further analysis of the bill. On September 10, 2009, the Director of Policy Analysis in the Immediate Office of the Secretary of HHS emailed the Deputy Assistant Secretary for Planning and Evaluation saying, [a senior democrat staff member] “got back to me, and decided she does not think she needs additional work on the actuarial side.” (See Exhibit G.)

An email the following week, September 16, reiterated Democrats’ position: [a senior democrat staff member] “at HELP has done a lot of work changing the program and per CBO it is now actuarially sound.” (See Exhibit H.) There had been a clear shift from relying on the chief actuary’s 36 years of experience in favor of the flawed 10-year timeframe of CBO.

Despite the shift, the chief actuary continued to be involved in discussions as late as September 23, 2009, when he attended a meeting with CBO in which the structure and cost of the CLASS Act were discussed. (See Exhibit I.) After this date, there were apparently no other email communications from the chief actuary regarding the CLASS Act. There is no indication in the documents that the drafters of the legislation in Congress or HHS ever again sought the chief actuary’s opinion on the program before the law was enacted. However, his questions about the sustainability of the program continued to be raised in published actuarial reports.7

CBO Produced Long-Term Analyses of CLASS; Models Have Yet to Be Made Public

At the same time CLASS supporters began to marginalize the warnings from the chief actuary about the long-term viability of the program, Democratic staff on the Senate HELP Committee worked with CBO to come up with an alternative model to analyze CLASS. On September 9, 2009, an HHS official e-mailed that HELP staff “had CBO do lots and lots of runs out to 50 years to ascertain solvency. [The HELP staff member] is going to send to me to forward on.” (See Exhibit J.)

Congress relies on CBO to estimate the economic impact of proposed laws and in this role it is vital that CBO’s models be completely transparent. The formulas, algorithms and assumptions should be explicitly defined so that Congress and the public can fully understand the basis for their estimates. Yet two years after it was providing analyses to HELP Committee staff, CBO has declined to disclose the models it developed to analyze the CLASS program’s long-term solvency. CBO staff now say that they do not have the capacity to analyze the CLASS Act’s long-term solvency, despite apparently undertaking that analysis for congressional Democrats before the bill’s passage.

On August 15, 2011, HHS did provide an analysis by CBO that congressional staff gave to CMS in September 2009. That analysis is one page of a spreadsheet projecting net premium collections of $59 billion through 2019 – a 10-year budget estimate, not the 50-year solvency estimates referred to by Senate HELP Committee staff. The document does not disclose what participation rates it assumed or how it established the assumed $65 premium rate. (See Exhibit K.)

September – December 2009
HHS’ Office of the Assistant Secretary for Planning and Evaluation Began To Question CLASS but Also Was Ignored

Despite the chief actuary’s email silence after September, others within HHS began to raise red flags about the soundness of the CLASS program. On September 25, 2009, just two days after the CBO meeting with the chief actuary, the Office of the Assistant Secretary for Planning and Evaluation (ASPE) prepared talking points for the CLASS program, including the concern that the program “is still likely to create severe adverse selection problems.” (See Exhibit L.)

On October 22, 2009, ASPE again questioned the viability of the program. One staffer wrote in an email:

You can get a policy through the [Federal Long-Term Care Insurance Program] (albeit underwritten) with a higher benefit, better inflation protection, and lower premium [than CLASS]. I don’t see any reason why anyone would opt for CLASS if they could pass the underwriting. And if you couldn’t make it through underwriting, you could simply enroll in CLASS to cover some of your current or likely future [long-term care] costs. Seems like a recipe for disaster to me… (See Exhibit M.)

This staffer also said: “I can’t imagine that CLASS would not have high levels of adverse selection given the significantly higher premiums compared to similar policies in the private market.” (See Exhibit M.)

HHS Officials’ Public and Private Statements on CLASS Solvency Conflict

During this entire time, public statements by HHS officials gave no hint of the internal concerns voiced within the agency. On October 20, 2009, Richard Frank, Deputy Assistant Secretary for Planning and Evaluation at HHS, gave a public speech at a Kaiser Family Foundation event in which he said:

We’ve, in the department, have modeled this extensively, perhaps more extensively than anybody would want to hear about [laughter] and we’re entirely persuaded that reasonable premiums, solid participation rates, and financial solvency over the 75-year period can be maintained. So it is, on this basis, that the administration supports it that the bill continues to sort of meet the standards of being able to stand on its own financial feet.8

It was around this same time that internal email from Frank’s staff indicated the nonpublic opinion that prospects for the program’s solvency looked more like “a recipe for disaster.”

Figures from the Social Security Chief Actuary Also Lead to Questions of Anti-Selection Problems within CLASS

HHS staff acknowledged that CLASS premiums would need to be less than $100 for the program to be viable. On November 27, 2009, an ASPE staffer commented, “I suspect that these changes would decrease the premium to well under $100, which seems to be the consensus threshold needed to get decent participation and avoid catastrophic adverse selection.” (See Exhibit N.)

But on December 8, ASPE analyzed Social Security Chief Actuary Steve Goss’ actuarial report and noted that estimated monthly premiums were approximately $177 per month (if a certain reenrollment loophole were not closed) or $140 per month (if the loophole were closed). They also noted that after five years, premiums could increase to $332.53 per month. The office concluded its analysis by noting that adverse selection was a serious threat to the program’s viability. (See Exhibit O.)

HHS Officials Question CLASS, but Their Concerns are not Addressed in the Legislation

On December 1, 2009, ASPE had prepared technical comments on the CLASS Act, in which, even before its analysis of the Social Security data, the Office pointed out:

Unlike most private insurance that reimburses policy holders for long-term care expenses, the CLASS benefit is a lifetime cash payment paid daily or weekly once a person meets the eligibility criteria of the program. … The end result could be severe adverse selection that would in turn threaten the long-run solvency of the program. (See Exhibit P.)

The technical comments also included several recommendations from the American Academy of Actuaries to increase the solvency of the program. These included adding a waiting period before benefits kick in; reducing the benefit from lifetime to a fixed number of years; using an established list of activities of daily living to determine the trigger for benefits; and moving from a daily cash benefit to one that makes reimbursements based on services used.

None of those recommendations were adopted in the final language of the bill, and the concerns expressed by ASPE were not addressed or shared with the public.

January 2010
HHS Officials Privately Conceded CLASS May Be Unsustainable, but Failed to Disclose Their Concerns Publicly

In January 2010, HHS staff prepared a list of suggested technical corrections to the CLASS Act that the Department wanted included as the House and Senate reconciled their separate versions of health care reform. However, for both political and procedural reasons, the House was forced to accept the version of health reform – and the CLASS Act – adopted by the Senate on December 24, 2009, and none of the corrections were made.

Chief among the corrections the Department wanted to make was a so-called “failsafe,” which HHS staff described this way:

In the current bills, the Secretary can alter the premiums in response to threats to financial stability of the CLASS program. However, it is possible the authority in the bill to modify premiums will not be sufficient to ensure the program is sustainable. The failsafe provision gives the Secretary authority to alter earnings and vesting provisions of the CLASS Act to further decrease adverse selection and maintain long-run stability. (See Exhibit Q.)

The documents reveal HHS’ concern that the CLASS program as written in the Senate bill – and the version signed into law – would become fiscally unsustainable. Yet at no point between the date of the document – January 4, 2010 – and the day the House voted to pass the Senate health bill – March 21, 2010 – did Secretary Sebelius or any other HHS official publicly air the Department’s concerns that the CLASS program as drafted could be unsustainable.

It appears that the significant fiscal concerns surrounding CLASS may have been silenced within the Department for political reasons and the fear that publicly discussing concerns about CLASS’ sustainability could have jeopardized the bill’s passage in the House.

The technical comments on the January 2010 document raise additional contradictions between HHS’ public and private statements. Throughout 2011, Secretary Sebelius and other HHS officials have repeatedly expressed – and have testified before Congress about – their belief that the CLASS Act legislation gives them the authority they need to construct the program in a fiscally sustainable manner.9 This public assurance stands in marked contrast with the internal corrections document asserting that it is possible the Department’s authority “will not be sufficient to ensure the program is sustainable.”

CLASS May Leave Employers On the Hook for a Failed Entitlement

Even before PPACA became law, HHS and the law’s drafters began to look for ways to pass the costs on to other parties. While it was clear that some of the future projected shortfalls in the program would add to the federal budget deficit and be borne by American taxpayers, other costs would be shifted to employers and the states. The documents show a consistent effort by HHS to impose unfunded mandates on others, so that the cost of some of the questionable decisions made by the law’s drafters would not fall on the federal government.

Employer Participation Creates Compliance and Administrative Burdens

To participate in CLASS, subscribers would pay a yet-to-be-determined premium each month that would be deposited into a trust fund established by the Secretary of the Treasury for the purpose of paying cash benefits to eligible claims. Premiums would be collected either through voluntary employer payroll withholding or by a mechanism determined by the Secretary for those who are self-employed, have more than one employer, or have an employer that does not participate in the automatic enrollment process.

The critical mechanics of how an employer would withhold CLASS program premiums from employees’ paychecks and then transfer those premiums to the U.S. Treasury could place a significant compliance and administrative burden on employers. The complexity and cost of any new payroll deduction and enrollment process could be substantial, especially for small employers.

Documents show that HHS knew of the program’s administrative burden on employers and pressed forward anyway. In the HHS ASPE office’s technical comments on the draft CLASS Act legislation from December 1, 2009, the Department acknowledged:

The collection of premiums is a fiduciary responsibility that requires employers to accurately collect and transmit premiums to the government. Collecting premiums would require a nontrivial change to existing payroll systems and additional responsibilities that employers may be reluctant to take on. (See Exhibit P.)

HHS warned that employer participation in a voluntary enrollment program was likely to be low because CLASS premiums will be difficult for employers to calculate and “employee interest in CLASS may be minimal.” (See Exhibit P.)

What was more, because employers participating in the program would be taking on a fiduciary responsibility, they could be at risk of lawsuits from their workers for calculating premiums incorrectly. Because, as HHS acknowledged, calculating premiums will be “complex” and difficult to implement, such lawsuits could become commonplace. HHS appears to have understood that the prospect of litigation and significant liability might make employers less likely to want to get involved in the program.

The Forthcoming Regulations on CLASS Could Require Employers, at a Minimum, to Provide Enrollment Information

In December 2009, HHS staff discussed how to use the regulatory process to change the not-yet-passed CLASS Act in a way that would make it even more burdensome for employers. Staff were concerned that low participation by employers would lead to fewer people signing up for the program.

One email chain included a discussion about requiring employers to play a more active part in enrollment by requiring them to issue enrollment forms to employees.

A major enrollment issue that needs to be addressed is how to identify the relevant employers/employees (i.e., the self-employed, small employers, and large employers), and determine if statutory requirements are being met. The Department of Labor may be of some assistance. (See Exhibit R.)

Another email from the same month indicates that HHS tried to make last minute changes to a manager’s amendment, though the language never made it into the final version of the amendment. The Deputy Assistant Secretary for Planning and Evaluation suggested:

Employer requirements: In the current formulation of the bill, employers have complete discretion regarding whether to participate in the CLASS program and auto-enroll employees …. The provision introduced in this amendment maintains the original optional participation in autoenrollment, but adds a requirement that employers inform their employees about the CLASS program. (See Exhibit S.)

Nothing in the documents suggests that the Obama administration ever conducted an analysis to quantify how much these proposed unfunded mandates would cost employers in time and resources.

The Administration Considers New Mandates on Employers as a “Solution” to Low Participation

The concern inside HHS about potentially low participation by employers led to an even more burdensome suggestion: mandate that employers over a certain size offer enrollment to employees. As HHS explained, “One possible alternative is to move to a ‘mandated offer’ approach where employers over a certain size (e.g., 50 employees) would be required to offer enrollment.” (See Exhibit P.)

Documents show that the idea that the Administration should solve its participation problem by requiring employers to offer enrollment to employees continued to be a major theme of communications regarding implementation of the program. On December 11, 2009, a staffer in ASPE commented:

I am writing right now about whether we should integrate employers even more into the process by moving to a ‘mandated offer’ approach instead of just ‘mandated information.’ The major problem is that mandating that employers offer information about the program probably will not yield high enough participation; we need to have employers more integrated into the enrollment process and not have them drop off once they simply provide information about the program. (See Exhibit T.)

The recipient of that email responded:

I agree that there is a risk to the entire program if we don’t have a sufficiently robust outreach and educational campaign and one that is specifically targeted to employers. This employer notification mandate makes me think of Part D, whereby … insurers are required to notify their Medicare eligibles whether their prescription drug coverage is creditable. (See Exhibit T.)

In numerous other emails, HHS staff argued that employers should bear the responsibility to enroll employees. (See Exhibit R.) HHS envisioned this requirement increasing participation in the program, but the documents do not discuss the unfunded mandate that would be imposed on employers. The final version of the CLASS Act is silent on employer requirements, but it is entirely within the HHS Secretary’s discretion to impose the obligations on employers when she issues regulations for the program this fall.

Even if the Secretary does not require employer participation in the regulations to be released this fall, the email communications discussing mandatory employer participation and employer fiduciary responsibility foreshadow ways HHS could later modify the CLASS Act in a desperate attempt to make the program solvent.

CLASS Saddles States With Yet Another Mandate

In addition to the burdens placed on employers, the emails indicate that HHS believed many costs of implementation will be shouldered by the states.

HHS Knew CLASS Imposed Heavy Administrative Burdens and Unrealistic Deadlines

States will have a significant administrative role in the implementation of the CLASS program, including responsibility for establishing and helping to administer eligibility determination centers. For example, the CLASS Act requires the Secretary of HHS to establish an Eligibility Assessment System similar to the Social Security Disability Insurance (SSDI) program, to be administered by the states. That system is to be completed by January 1, 2012. The CLASS Act also requires the HHS Secretary to enter into agreements with each state’s Protection and Advocacy System, which advocate for people with disabilities, and with other groups and state agencies to provide additional counseling services.

According to several internal emails, HHS and CMS staff noted the unreasonable burdens the legislation would impose on states by requiring implementation of the Act within two years. On April 19, 2010, one email said that requiring states within two years of enactment to “designate or create entities to serve as fiscal agents for CLASS beneficiaries” would “create significant new burdens on the states.” (See Exhibit U.)

Another email from even earlier, December 18, 2009, also warned of this problem, stating that a two year deadline for states “to build the direct care workforce capacity for CLASS enrollees” is “flawed (and perhaps fatally so).” (See Exhibit V.)

HHS Underestimated Administrative Costs, Leaving States to Bear Costs of Eligibility Determinations

Even if the deadlines can be met, HHS has not released any specific estimates of how much these implementation efforts will cost or how much money the federal government will be able to offer states to help pay for the services versus how much states will have to pay on their own.

It is clear from internal HHS emails that the Department always planned to impose a number of significant administrative burdens on states. The administrative costs are expected to be significant, and HHS officials pointed out several times that cost estimates of the CLASS Act did not allocate enough money to administer the program. CLASS Act estimates only allocated three percent of premiums to run the program, while the American Academy of Actuaries recommended three percent of premiums plus five percent of benefits. (See Exhibit P and Exhibit W.)

Rather than address inadequate funding for administrative expenses, the CLASS Act imposes many administrative expenses on already-struggling states. On March 3, 2010,
when asked whether CMS analyzed implementation costs for CLASS, one CMS employee responded:

“Hate to tell you but I am almost certain that we did not do this. I really thin[k] most of the administrative costs would be in doing eligibility determinations and payments split with nursing homes and waivers, however, I think little of it is really ours versus the states.” (See Exhibit X.)

CMS Knew States Would Be Saddled With Costs But Congress Did Not Make Changes during Reconciliation

In the last few weeks before final passage of PPACA, CMS’ Office of Legislative Affairs asked staff for edits to the Senate bill that CMS deemed absolutely necessary in order to implement the Act. In a March 4, 2010, exchange, CMS specifically asked for “Not ‘nice to have’ but ‘otherwise it won’t work’” fixes. One edit provided by staff read, “require the Secretary to assume responsibility for building workforce infrastructure; otherwise, this will impose costs and burdens on states and potentially put CLASS at risk.”

CMS proposed changing the implementation date to January 2015, as “states are not uniformly equipped to perform activities related to designating existing or new entities to ensure the service infrastructure is adequate to meet the needs of beneficiaries, which will likely pose significant and potentially costly administrative challenges, particularly in light of the implementation deadline.” (See Exhibit Y.) None of these edits were included in the final version of PPACA.

Administrative Burden Likely to Get Worse Over Time

The SSDI program, on which the CLASS Act administrative structure is modeled, is experiencing significant problems in both fiscal and administrative areas. The aging of the baby boom generation has caused SSDI administrative costs to nearly double since 2000. According to a CBO report, the SSDI program will become insolvent in 2017.10 In addition, the Social Security Administration anticipates nearly 3.2 million new applicants11 for disability benefits in FY 2012. Even without those new applicants, SSDI has a huge backlog of appeals cases in which benefits have been denied. In 2007, some appeal cases had been lingering as long as 1,400 days.12

Conditions are so unstable that the Government Accountability Office (GAO) has placed federal disability programs on a High-Risk Watch List since 2003. According to GAO, “the largest disability programs – managed by the Social Security Administration, Department of Veterans Affairs, and Department of Defense – are experiencing growing workloads, creating challenges to making timely and accurate decisions.”13

As baby boomers start claiming CLASS Act benefits, program administrators can expect to see some of the problems of scale already being experienced by other federal disability programs, including rising administrative costs. However, the statute caps the program’s administrative expenses at three percent of premiums, leaving no wiggle room for states to accommodate the increased burden from an aging population. Without sufficient capital and stability from the start, it is likely the CLASS program will eventually join the other programs on GAO’s High-Risk Watch List.

The cost of administering the SSDI program state centers in 2011 was $3 billion, a cost borne exclusively by the states.14
The burdens of CLASS implementation on the states are likely to exceed that amount, because the number of CLASS beneficiaries will be significantly larger than the number of SSDI beneficiaries due to more relaxed eligibility requirements under CLASS. While HHS has not shared estimates on the costs to states to administer the CLASS Act, we feel that $3 billion per year is a conservative estimate, one that excludes additional expected start-up costs. Over the next ten years, states will be forced to bear at least $30 billion dollars for implementation of CLASS. When added on top of the mandates from the Medicaid requirements in PPACA of at least $118 billion, it is clear that states are being forced to pay the bills that Washington refuses to pay.

State Officials and Legislators Have Grave Concerns with the Solvency and Sustainability of the CLASS Act

On August 4, 2011, leaders of a key National Conference of Insurance Legislators (NCOIL) Committee expressed “grave concerns” with the CLASS Act in a letter to the HHS Secretary. The NCOIL letter asserts that the CLASS Act program “fails to apply the principles of risk management that are essential to any financially sound insurance program”. The letter went on to state, “The CLASS program risks being undercapitalized on the front end, paying more in benefits than it collects in premiums. This will drive rates up and cause adverse selection, as young and healthy consumers will not participate in the market. Also, the plan as currently configured offers little incentive for agents, brokers, and human resources professionals to encourage the enrollment needed to create a broad and stable risk pool.”15

The concerns of state legislators should be strongly heeded by HHS. Not only do states recognize that they will be on the hook for administering of the CLASS program, legislators whose policy expertise is in insurance markets recognize it is destined for failure at the expense of states, businesses, and taxpayers.

 

NOTES

1 P.L. 111-148; P.L. 111-152

2 Foster, Richard. “Estimated Financial Effects of the ‘Patient Protection and Affordable Care Act’ As Amended.” Office of the Actuary, Centers for Medicare and Medicaid Services, April 22, 2010. https://www.cms.gov/ActuarialStudies/Downloads/PPACA_2010-04-22.pdf

3 Montgomery, Lori “Proposed Long-Term Insurance Program Raises Questions.” Washington Post, October 27, 2009. http://www.washingtonpost.com/wp-dyn/content/article/2009/10/27/AR2009102701417.html

4 Roy, Avik. “Sebelius: CLASS Act is ‘Totally Unsustainable,’ Mandate Possible,” Forbes, February, 23, 2011. http://www.forbes.com/sites/aroy/2011/02/23/sebelius-class-act-is-totally-unsustainable-mandate-possible/

5 Bold/italic emphasis throughout this report not necessarily in the original.

6 The documents provided did not include the study completed by the Moran group despite it being referenced by the chief actuary and a senior democrat staff member for the Senate Health, Education, Labor, and Pensions Committee. The senior democrat staff member referenced the Moran report on October 20, 2009 at the Kaiser Family Foundation event “The Sleeper Issue: Long-term Care and the CLASS Act,” page 78. http://www.kff.org/healthreform/upload/102009_KFF_CLASS_Act_Transcript_Final.pdf

7 Foster, Richard. “Estimated Financial Effects of the ‘America’s Affordable Health Choices Act of 2009’ (H.R. 3962), as passed by the House on November 7, 2009, November 13, 2009. http://www.cms.gov/ActuarialStudies/downloads/HR3962_2009-11-13.pdf Foster, Richard. “Estimated Financial Effects of the ‘Patient Protection and Affordable Care Act’ As Amended.” Office of the Actuary, Centers for Medicare and Medicaid Services, April 22, 2010. https://www.cms.gov/ActuarialStudies/Downloads/PPACA_2010-04-22.pdf

8 Comments made on October 20, 2009 at Kaiser Family Foundation Event. “The Sleeper Issue: Long-term Care and the CLASS Act.” Page 49-50. http://www.kff.org/healthreform/upload/102009_KFF_CLASS_Act_Transcript_Final.pdf

9 Roy, Avik. “Sebelius: CLASS Act is ‘Totally Unsustainable,’ Mandate Possible,” Forbes, February, 23, 2011 http://www.forbes.com/sites/aroy/2011/02/23/sebelius-class-act-is-totally-unsustainable-mandate-possible/  House Energy & Commerce Committee. Hearing entitled, “The Implementation and Sustainability of the New, Government-Administered Community Living Assistance Services and Supports (CLASS) Program,” March 17, 2011. http://republicans.energycommerce.house.gov/hearings/hearingdetail.aspx?NewsID=8332

10 Congressional Budget Office, “CBO’s 2011 Long-Term Projections for Social Security: Additional Information,” August 2011. http://www.cbo.gov/doc.cfm?index=12375  

11 Social Security Administration. “Annual Performance Play for Fiscal Year 2012,” page 21. http://www.socialsecurity.gov/performance/2012/APP%202012%20508%20PDF.pdf

12 Astrue, Michael, Commissioner of the Social Security Administration. Statement before the House Committee on Ways and Means, Subcommittee on Social Security and the House Committee on the Judiciary, Subcommittee on the Courts, Commercial and Administrative Law. July 11, 2011. http://www.ssa.gov/legislation/testimony_071111.html

13 Government Accountability Office. Report to Congressional Committees. “High-Risk Series: An Update.” February 2011, page 147. http://www.gao.gov/new.items/d11278.pdf

14 The 2011 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds. Table VI.C5. http://www.ssa.gov/oact/tr/2011/tr2011.pdf

15 National Conference of Insurance Legislators. Letter to the Honorable Kathleen Sebelius. August 4, 2011. http://www.ncoil.org/Docs/2007430d.pdf

Weekly Newsletter: October 20, 2008

Hawaii Program “Crowded Out” by Rising Costs

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

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

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

Read the Associated Press story here.

Medicaid Fraud Will Not Be Addressed by Bailout

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

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

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

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

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

Medicare Forces People to Accept Costly Benefits

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

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

Health Care for Undocumented Immigrants

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Legislative Bulletin: H.R. 5613, Protecting the Medicaid Safety Net Act

Order of Business:  The bill is scheduled to be considered on Tuesday, April 22nd, under a motion to suspend the rules and pass the bill.

Summary:  H.R. 5613 would extend certain existing moratoria on the Centers for Medicare and Medicaid Services (CMS), prohibiting the agency from promulgating rules related to the integrity of the Medicaid program until April 1, 2009.  In particular, the bill would extend moratoria on proposed regulations placing restrictions on intergovernmental transfers and restricting payments for graduate medical education; the prohibitions were first enacted as part of last year’s supplemental wartime appropriation (P.L. 110-28) and are scheduled to expire on May 25, 2008.  The bill would also extend prohibitions on CMS regulations relating to rehabilitation services, as well as school-based administrative and transportation services; these prohibitions were first enacted in Medicare physician payment legislation (P.L. 110-173) last December, and are scheduled to expire on June 30, 2008.

In addition, H.R. 5613 would impose additional new moratoria on CMS relating to other proposed Medicaid regulations, also until April 2009.  Specifically, the bill would prohibit the Secretary of Health and Human Services from imposing additional restrictions with respect to targeted case management payments, the definition of outpatient hospital services, and Medicaid provider taxes (with certain exceptions).

The bill also appropriates an additional $25 million per year to CMS for the purposes of anti-fraud enforcement activity within the Medicaid program.

H.R. 5613 includes two reports to Congress on the proposed regulations.  By July 1, 2008, the Department of Health and Human Services (HHS) will report on its justification and authority for proposing the regulations.  The bill also includes $5 million in appropriations for HHS to hire an independent contractor to produce a report by March 1, 2009, on the proposed regulations and their impact on states.

H.R. 5613 also extends a web-based asset verification system to all 50 states, effective by the end of fiscal year 2013.  This provision would expand the Social Security Administration’s Supplemental Security Income (SSI) pilot program, giving states a new tool for verifying the assets of Medicaid recipients.  Currently, such a system only exists as a demonstration project in three states: California, New Jersey, and New York.

Additional Background on Changes Made in Committee:  During consideration in the Energy and Commerce Committee, Chairman Dingell and Ranking Member Joe Barton (R-TX) reached agreement on several modifications to the legislation.  The revised language incorporated at Subcommittee narrowed the scope of the proposed moratoria to permit CMS to engage in outreach activities with states.  Over the past several years, CMS has used various state-level audits to reach agreements with state Medicaid agencies to curtail abusive and/or questionable financing tactics.  The revised language in H.R. 5613 would permit CMS to continue these individual consent agreements with states, while maintaining the moratoria on CMS’ ability to enact regulations prohibiting these activities permanently.

In addition, the substitute language adopted in Committee included the additional $25 million per year in anti-fraud enforcement, as well as an independent study assessing the need for the regulations and their potential impact on states.  The Committee substitute also incorporated the web-based asset verification system to pay for the moratorium; the Administration had previously suggested that this program be extended as a savings mechanism to finance portions of the farm bill.

Additional Background on Proposed Regulations:  During the past year, the Centers for Medicare and Medicaid Services (CMS) has attempted to move forward on several proposed regulations addressing specific issues and service areas within the Medicaid program.  Many of these regulations respond to Government Accountability Office (GAO) studies and reports by the HHS Inspector General highlighting areas where the fiscal integrity of the Medicaid program needed improvement.  A brief summary of each rule that would be halted by H.R. 5613 follows:

Intergovernmental Transfers:  This rule would limit reimbursement for publicly-owned health providers to costs incurred, narrow the definition of unit of government, and require providers to retain all Medicaid payments, in order to restrain intergovernmental transfers designed primarily to maximize states’ federal Medicaid payments.  A final rule was issued on May 29, 2007; the moratorium currently in place expires on May 25, 2008.  The Congressional Budget Office (CBO) scores this regulation as saving $9.0 billion in federal outlays over five years, and $22.0 billion over a decade.

Graduate Medical Education:  This rule would eliminate Medicaid reimbursement for graduate medical education, on the grounds that reimbursements for medical training are outside the statutory scope of the Medicaid program.  A Notice of Proposed Rulemaking (NPRM) was issued on May 23, 2007; the current moratorium expires May 25, 2008.  Five year estimated savings are $0.8 billion, and ten year estimated savings are $1.9 billion.

School-Based Administrative and Transportation Services:  This rule would prohibit federal Medicaid payments for administrative activities performed by schools and transportation of children to and from school.  In some instances, school districts bill Medicaid for transporting students to and from school, even though this is an educational expense, not a reimbursable medical expense.  In addition, HHS audits found that schools were claiming capital and debt service as “administrative services” subject to Medicaid reimbursement.  The proposed rule would not alter the current policy of reimbursing schools for bona fide medical expenses incurred on school property, such as speech therapy.  A final rule was issued December 28, 2007; the current moratorium expires June 30, 2008.  Five year estimated savings are $4.2 billion, and ten year savings are estimated at $10.2 billion.

Rehabilitation Services:  This rule would restrict the scope of rehabilitation services subject to the federal Medicaid match and eliminate coverage of day habilitation services for individuals with developmental disabilities.  In many instances, CMS has found that states have billed therapeutic foster care as a “bundled” payment, resulting in federal payments for activities related to foster care as opposed to direct medical expenses.  In other cases, state plans for reimbursable expenses include recreational or social activities not directly related to rehabilitative goals.  An NPRM was issued on August 13, 2007; the current moratorium expires on June 30, 2008.  CBO scores this change as saving $1.4 billion over five years, and $3.5 billion over a decade.

Outpatient Hospital Services:  This rule would restrict the scope of Medicaid outpatient hospital services and clarify the upper payment classification for outpatient services to align more closely with the Medicare definition of outpatient services.  An NPRM was issued on September 28, 2007; no moratorium is currently in place.  Five year savings are estimated at $0.3 billion, and ten year savings are estimated at $0.7 billion.

Targeted Case Management:  This rule would restrict the scope of targeted case management services, and specify that Medicaid will not reimburse states for services where another third party is liable for payment.  In many cases, HHS audits have found a lack of documentation related to targeted case management claims, or state plans for reimbursement that fall outside the scope of the Medicaid program’s focus on medical services.  A final rule was issued December 4, 2007, subject to an implementation date of March 3, 2008.  The change would save an estimated $1.5 billion over five years, and $3.3 billion over ten.

Provider Taxes:  This rule would reduce the permissible level of Medicaid provider taxes, as included in the Tax Relief and Health Care Act of 2006 (P.L. 109-432), and would also clarify the hold harmless provision for provider taxes with respect to the positive correlation between the level of provider taxes imposed by states and direct or indirect Medicaid payments from states back to providers.  A final rule was issued February 22, 2008, subject to a compliance date of October 1, 2008.  Five and ten year savings are estimated at $0.6 billion.

In total, the proposed regulations are collectively projected to result in approximately $16-18 billion in savings to the federal government over the next five fiscal years, and more than $42 billion over a decade.[1]  By point of comparison, these savings would constitute just over 1% of total federal spending on Medicaid, which over the next five years is estimated to total more than $1.2 trillion.[2]

Additional Background on GAO Reports of Medicaid Abuses:  Since 1994, the Government Accountability Office (GAO) has compiled more than a dozen reports highlighting problems with Medicaid financing, and specifically the ways in which state governments attempt to “game” Medicaid reimbursement policies in order to maximize the amount of federal revenue funding state health care programs.  The persistent shortcomings in federal oversight of these state funding schemes prompted GAO to add the Medicaid program to its list of federal entities at high risk of mismanagement, waste, and abuse in 2003.

Several of the GAO reports discuss state reimbursement efforts for several of the services CMS proposes to change in its new regulations.  For instance, testimony in June 2005 analyzed the ways in which 34 states—up from 10 in 2002—employed contingency-fee consultants to maximize federal Medicaid payments.  The report found that from 2000-2004, Georgia obtained $1.5 billion in additional reimbursements, and Massachusetts $570 million.[3]  The report concluded that the states’ claims for targeted case management “appear to be inconsistent with current CMS policy” and claims for rehabilitation services “were inconsistent with federal law.”[4]

In other areas, GAO found potentially inappropriate behavior—higher reimbursements for school-based health and administrative services that were not fully passed on to the relevant school districts, and questionable administrative costs, such as a 100% claim on a Massachusetts state official’s salary as a Medicaid administrative cost, even though the official worked on unrelated projects for other states designed to increase their own Medicaid reimbursements.[5]

The GAO reports also demonstrate states’ use of intergovernmental transfers to maximize federal Medicaid reimbursements.  In these schemes, local-government health facilities transfer funds to the state Medicaid agency.  The Medicaid agency in turn transfers funds back to the local-government facility—but not before filing a claim with CMS to obtain federal reimbursement.  Although permissible under current law in many cases, GAO found that these schemes “are inconsistent with Medicaid’s federal-state partnership and fiscal integrity.”[6]

Many of the GAO reports over the past decade—whose titles are listed at the bottom of this bulletin—have included calls for additional federal oversight around various state Medicaid reimbursement initiatives, particularly the need for clear and consistently applied guidance from CMS about the permissiveness of various financing arrangements.[7]  Several of CMS’ proposed regulations attempt to remedy this problem, and restore clarity and fiscal integrity to the Medicaid program.

Additional Background on Medicaid Waste and Fraud: Although much of the debate surrounding the proposed CMS regulations has centered on the proper scope and limits of covered services within the Medicaid program, it is also worth noting the considerable amount of waste and criminal fraud present within some state Medicaid programs.  An extensive investigation published by The New York Times in July 2005 revealed several examples of highly questionable activity within the New York Medicaid program:

  • A Brooklyn dentist who billed Medicaid for performing 991 procedures in a single day;
  • One physician who wrote 12% of all the prescriptions purchased by New York Medicaid for an AIDS-related drug to treat wasting syndrome—allegedly so the steroid could be re-sold on the black market to bodybuilders;
  • Over $300 million—far more than any other state Medicaid program—in spending on transportation services, some of which involved rides for seniors mobile enough to rely on public transportation and other services which investigators believe may not have been performed at all; and
  • A school administrator in Buffalo who in a single day recommended that 4,434 students receive speech therapy funded by Medicaid—part of $1.2 billion in improper spending by the state on speech services, according to a federal audit.

A former state investigator of Medicaid abuse estimated that fraudulent claims totaled approximately 40% of all Medicaid spending in New York—nearly $18 billion per year, which may help explain why New York’s Medicaid expenditures greatly exceed California’s, despite a smaller overall population and fewer Medicaid beneficiaries.[8]

However, other audits emphasize that in some cases, providers can be victims of state efforts to reclaim additional federal Medicaid dollars.  A 2004 report from the Department of Health and Human Services’ Inspector General found that New York state required a nursing home to return more than half of its Medicaid revenues to the state, resulting in net revenues to the nursing home that were $20 million less than its operating costs.  The report noted:

The state’s upper-payment-limit funding approach benefited the state and the county more than the nursing home.  The state received $20 million more than it expended for the nursing home’s Medicaid residents without effectively contributing any money, and the county was reimbursed 100 percent for its upper-payment-limit contribution.  We are concerned that the federal government in effect provided almost all of the nursing home’s Medicaid funding, contrary to the principle that Medicaid is a shared responsibility of the federal and state governments.

The audit went on to note that the high level of Medicaid payments the nursing home was required to return to the state—and the operating losses the nursing home incurred on its Medicaid patients as a result—led to significant levels of understaffing that may have affected the quality of care provided to patients.[9]

Other HHS audits reflect Medicaid reimbursement submissions by states that either lack appropriate documentation for the claims or represent inappropriate use of Medicaid resources.  For example, one May 2003 claim for Medicaid targeted case management reimbursement included the following notation from the case manager explaining her contact with the beneficiary:

Phone call with mother.  Discussed the outstanding warrant for [name redacted].  She does not know where he is.  She will call police when he shows up.

While it may represent good public policy for this type of contact—which attempted to locate a juvenile for whom an outstanding arrest warrant existed—some conservatives would argue that such actions lie outside the scope of the Medicaid program’s intent and represent a far-from-ideal expenditure of federal matching dollars.

Committee Action:  On March 13, 2008, the bill was introduced and referred to the Energy and Commerce Committee.  On April 16, 2008, the full Energy and Commerce Committee reported the bill to the full House by a vote of 46-0.

Possible Conservative Concerns:  Numerous aspects of this legislation may raise concerns for conservatives, including, but not necessarily limited to, the following:

  • Process.  H.R. 5613 is being brought to the House floor under suspension of the rules, a procedure generally reserved for minor authorizations and smaller pieces of legislation, such as the naming of post offices.  Some conservatives may be concerned that a bill costing over a billion dollars is being rushed through House floor consideration under expedited procedures.
  • Budgetary Gimmick.  In order to comply with PAYGO rules, H.R. 5613 would impose a moratorium on CMS action until April 2009—and the legislation contains provisions offsetting the cost to the federal government for all savings not realized through that date.  However, staff for Energy and Commerce Committee Chairman Dingell have publicly stated that H.R. 5613 is intended to delay the implementation of the Medicaid rules just long enough so that a future Administration can withdraw them.  Because withdrawing the regulations would result in approximately $16-18 billion in lost savings to the federal government over five years, and because action taken by a future Administration would not be subject to PAYGO, some conservatives may believe that H.R. 5613’s sponsors intend to violate the spirit, if not the letter, of the PAYGO requirement under House rules.
  • Undermine Previous Republican Efforts to Reform Medicaid.  In December 2005, 212 Members of Congress—all Republicans—voted for legislation (P.L. 109-171) that generated less than $4.8 billion in savings from the Medicaid program as a first attempt to restore its fiscal integrity.  However, if the moratoria remain intact, those modest reductions in Medicaid’s growth rate would be more than exceeded by the $16-18 billion in foregone savings associated with the regulations’ repeal.
  • Encourage State Efforts to “Game” the Medicaid Program.  As highlighted above, nearly three dozen states have in recent years hired contingency fee consultants designed to maximize the portion of Medicaid costs paid for by the federal government.  Blocking regulations designed to respond to funding mechanisms which states and their consultants have established—and more than a dozen GAO reports over nearly 15 years have criticized—may only further encourage states to take steps that increase federal costs and  undermine Medicaid’s fiscal integrity.
  • Harm Hospitals and Other Providers.  As explained above, HHS Inspector General reports have revealed that various funding mechanisms designed to increase federal Medicaid revenues for states have often had the ancillary effect of reducing net payments to providers.  H.R. 5613, by blocking regulations designed to ensure that payments to Medicaid providers do not become ensnared in various schemes by states to increase federal Medicaid spending, may prevent some providers from seeing their net Medicaid payments rise when the proposed regulations take effect.

Administration Position:  Although the Statement of Administration Policy (SAP) was not available at press time, Health and Human Services Secretary Leavitt has previously written to Energy and Commerce Chairman Dingell and Ranking Member Barton indicating that the Administration strongly opposes H.R. 5613 and would recommend a Presidential veto.

Cost to Taxpayers:  A final score of the bill was not available at press time.  However, a preliminary CBO estimate indicated that H.R. 5613’s moratorium through April 2009 on the issuance of seven proposed regulations would cost taxpayers $1.65 billion over five and ten years.  However, as noted above, this score presumes the full implementation of the regulations in April 2009 under a new Administration.  Outright repeal of the regulations would cost $16.5 billion over five years—ten times the cost of H.R. 5613.

Additional mandatory spending—both $25 million annually for CMS anti-fraud enforcement activity with respect to Medicaid, and $5 million for an independent study on the proposed regulations—would cost $129 million over five years, and $254 million over ten.

H.R. 5613 would pay for this spending by extending an asset verification pilot program currently operating in three states to all 50 states, saving $1.0 billion over five years and $4.5 billion over ten.  The bill would also make adjustments to the Physician Assistance and Quality Improvement (PAQI) fund to comply with five-year PAYGO scoring rules, and deposit the additional savings over and above the ten-year cost of the moratoria.  Reports indicate that the $2.6 billion in additional ten-year savings will be withdrawn from the PAQI fund later this year to help finance Medicare physician reimbursement legislation.

Does the Bill Expand the Size and Scope of the Federal Government?:  Yes, the bill would prohibit CMS from taking administrative actions (which are already built into CBO’s budgetary baseline) to prevent states from expanding the scope of the Medicaid program.

Does the Bill Contain Any New State-Government, Local-Government, or Private-Sector Mandates?:  No.

Does the Bill Comply with House Rules Regarding Earmarks/Limited Tax Benefits/Limited Tariff Benefits?:  A Committee report citing compliance with House earmark disclosure rules was unavailable at press time.

Constitutional Authority:  A Committee report citing constitutional authority was unavailable at press time.

 

[1] Because CMS proposals with respect to rehabilitation services (estimated savings of $1.4 billion over five years), graduate medical education ($0.8 billion estimated savings), and the definition of outpatient hospital services ($0.3 billion estimated savings) are at the proposed rulemaking stage, CBO assigns a baseline weighting factor of 50% to the proposed regulations, reflecting the uncertainties of the rulemaking process.  Thus, while CBO estimates a total of $17.8 billion in savings over five years if all rules were implemented as currently issued, a permanent prohibition on these seven rules would require $16.5 billion in savings under House PAYGO rules.

[2] Office of Management and Budget, Analytical Perspectives: Budget of the United States Government, Fiscal Year 2009, available online at http://www.whitehouse.gov/omb/budget/fy2009/pdf/spec.pdf (accessed April 1, 2008), p. 383.

[3] Government Accountability Office, “Medicaid Financing: States’ Use of Contingency Fee Consultants to Maximize Federal Reimbursements Highlights Need for Increased Federal Oversight,” (Washington, Report GAO-05-748, June 2005) available online at http://www.gao.gov/new.items/d05748.pdf (accessed March 31, 2008), p. 4.

[4] Ibid., p. 19.

[5] Ibid., pp. 27-29.

[6] Ibid., p. 24.

[7] See ibid., p. 30.

[8] Clifford Levy and Michael Luo, “Medicaid Fraud May Reach into Billions,” The New York Times 18 July 2005, available online at http://www.nytimes.com/2005/07/18/nyregion/18medicaid.html?_r=1&pagewanted=print&oref=slogin (accessed March 29, 2008).

[9] “Adequacy of Medicaid Payments to Albany County Nursing Home,” (Washington, DC, Department of Health and Human Services Office of the Inspector General Report #A-02-02-01020), available online at http://oig.hhs.gov/oas/reports/region2/20201020.pdf (accessed April 20, 2008), pp. 6-7.

Question and Answer: SCHIP Legislation

The House will soon be faced with a vote to override the President’s veto on H.R. 3963, the Children’s Health Insurance Program Reauthorization Act of 2007, legislation which would reauthorize and expand the State Children’s Health Insurance Program (SCHIP), with several tax increases designed to partially offset the bill’s costs.

Does H.R. 3963 increase the scope of the SCHIP program?

Yes.  Under current law, states can cover families earning up to 200% of the Federal Poverty Level (FPL) or $41,300 for a family of four in 2007 or those at 50% above Medicaid eligibility.  As of 2010, H.R. 3963 increases the eligibility limit to 300% of FPL or $61,950 for a family of four while continuing the current authority for states to define and disregard (i.e. ignore) income.  As a result, H.R. 3963 places no practical limit on SCHIP eligibility since states can always manipulate the definition of income to expand coverage.  In addition, Section 116(g) of the bill overturns CMS’s current policy of requiring states to ensure that 95% of the eligible children in their state below 250% of FPL are enrolled before expanding coverage to higher incomes.

Does H.R. 3963’s increased spending violate the spirit of PAYGO?

Yes.  H.R. 3963 provides $35.4 billion over five years and $71.5 billion over ten years in new mandatory spending.  This new spending is only partially offset by tax increases on cigarettes of 61 cents to $1 per pack, and a cigar tax up to $3 per cigar, supposedly (see below) generating $35.5 billion over five years and $71.7 billion over ten years.  However, this CBO score overlooks a major gimmick which the bill employs to lower its costs.  The bill dramatically lowers the SCHIP funding in the fifth year by 80%, from $13.75 billion in the first six months to $1.75 billion.  In all likelihood, such a reduction will never take effect, which would make this an effort to generate unrealistic savings in order to artificially comply with PAYGO rules.

Does H.R. 3963 raise taxes?

Yes.  H.R. 3963 increases the cigarette tax by 61 cents to $1 per pack, and the cigar tax up to $3 per cigar.  Some conservatives may be concerned that the bill increases taxes on low-income individuals in order to pay for the expansion of SCHIP, which is designed to assist low-income families.  In addition, this revenue source is constantly declining as fewer and fewer individuals begin to smoke, since placing a tax on cigarettes will likely deter sales, leading some to question the efficacy of the offset.  According a study by the Heritage Foundation, “To produce the revenues that Congress needs to fund SCHIP expansion through such a tax would require 22.4 million new smokers by 2017.”

Will H.R. 3963 decrease private insurance participation in the market?

Yes.  Expanding SCHIP will generate a substantial shift away from the private health insurance market, by encouraging more and more children to obtain health care coverage from the federal government.  According to CBO, under H.R. 3963, two million children will shift from receiving private health insurance to government health insurance.  This means that they may get worse health care service and become increasingly dependent on the federal government.  In addition, as H.R. 3963 begins to reduce SCHIP funding in 2012, some note that states may shift these children who would be newly eligible for a government program into Medicaid.

Would H.R. 3963 bar illegal immigrants from receiving benefits?

No.  While H.R. 3963 states that “nothing in this Act allows Federal payment for individuals who are not legal residents,” the bill actually weakens existing law by removing the documentation requests under the Deficit Reduction Act (DRA), specifically the burden that citizens and nationals provide documentation proving their citizenship in order to be covered under Medicaid and SCHIP.  Instead, the bill would require that a name and Social Security number be provided as documentation of legal status to acquire coverage and that those names and Social Security numbers be submitted to the Secretary to be checked for validity.    It is unclear what substantive changes were made to the original bill the President vetoed (HR 976) beyond the cosmetic with regard to citizenship certification.  Some conservatives may remain concerned that a Social Security number and name are not sufficient for proof of citizenship.  For instance, according to a recent letter from Social Security Administration Commissioner Michael Astrue, a Social Security number would not keep someone from fraudulently receiving coverage under Medicaid or SCHIP (if they claimed they were someone they were not).

Does H.R. 3963 contain earmarks?

Yes.  H.R. 3963 contains at least three authorizing earmarks.  First, the bill disregards “extraordinary employer pensions” as income.  According to CMS, only one state would fall into this category—Michigan, due to the presence of many auto manufacturers.  In addition, the bill sets the disproportionate share hospital (DSH) allotments for Tennessee at $30 million a year beginning in FY 2008, and sets the DSH allotment increases for Hawaii beginning in FY 2009 and thereafter as the allotments for low DSH states.

Would H.R. 3963 encourage additional SCHIP spending?

Yes.  H.R. 3963 shortens from three to two years the amount of time a state has to spend its annual SCHIP allotment.  Under current law, states are given three years to spend each year’s original allotment, and at the end of the three-year period, any unused funds are redistributed to states that have exhausted their allotment or created a “shortfall,” i.e. commitments beyond the funding available.  In addition, the bill establishes a process through which any unspent funds would be redistributed to any states with a shortfall.  Some conservatives may be concerned that this process provides incentives both for states to spend their allotment quickly and to extend their programs beyond their regular allotments into shortfall, so as to be relieved by the unspent funds of other states.

Do conservatives support the SCHIP program?

Most conservatives support enrollment and funding of the SCHIP program for the populations for whom the SCHIP program was created.  That is why in December the House passed, by a 411—3 vote, legislation reauthorizing and extending the SCHIP program through March 2009.  That legislation included an additional $800 million in funding for states to ensure that all currently eligible children will continue to have access to state-based SCHIP coverage.

Legislative Bulletin: H.R. 3963, Children’s Health Insurnace Program Reauthorization Act

Order of Business:  Today the House will consider the President’s second veto of SCHIP legislation, H.R. 3963.  This bill passed the House by a vote of 265-142 on October 25, 2007, and was vetoed by President Bush on December 12, 2007.  On December 12, 2007, the House by a 211-180 vote postponed consideration of the President’s veto until today.

An earlier version of SCHIP legislation, H.R. 976, was vetoed by President Bush on October 3, 2007.  This bill was originally passed in the House by a vote of 265-159 on September 25, 2007.  On October 18, 2007, the House sustained the President’s veto of H.R. 976 by a vote of 273–156 (needing 2/3 to override a veto).

On December 19, 2007, the House passed by a 411—3 margin S. 2499, which was signed into law by President Bush on December 29, 2007.  This legislation reauthorized the SCHIP program through March 2009, and included $800 million in additional funding to ensure that all states would have sufficient funds to cover existing populations through the 18 months of the authorization.

Summary:  H.R. 3963 reauthorizes and significantly expands the State Children’s Health Insurance Program (SCHIP), while increasing cigarette taxes to supposedly offset the bill’s costs.  The legislation follows closely the recently-vetoed version of SCHIP reauthorization.  Highlights of the revised legislation are as follows:

Cost:  H.R. 3963 provides $35.4 billion over five years and $71.5 billion over ten years in new mandatory spending—this spending is on top of the $25 billion over five years that would result from a straight extension of the program.

The new spending is partially offset by increasing taxes on tobacco products (see below).  However, this CBO score overlooks a major gimmick which the bill employs to lower its costs.  The bill dramatically lowers the SCHIP funding in the fifth year by 84%, from $13.75 billion in the first six months to $1.15 billion.  In all likelihood, such a reduction would not actually take effect, which would make this a gimmick to generate unrealistic savings in order to comply with PAYGO rules.  To that end, H.R. 976 is technically compliant with PAYGO.

Block Grant:  Under current law, a federal block grant is awarded to states, and from the total annual appropriation, every state is allotted a portion for the year according to a statutory formula.  The bill extends the SCHIP block grants from FY 2008-12.  In addition, the bill also creates a new Child Enrollment Contingency Fund capped at 20% of the total annual appropriation, for states that exhaust their allotment by expanding coverage, and Performance Bonus Payments comprised of a $3 million lump sum in FY 2008 plus unspent SCHIP funds in future years.

Expansion to Higher Incomes:  Under current law, states can cover families earning up to 200% of the Federal Poverty Level (FPL) or $41,300 for a family of four in 2007 or those at 50% above Medicaid eligibility.  However, states have been able to “disregard” income with regard to eligibility for the program, meaning they can purposefully ignore various types of income in an effort to expand eligibility.  For instance, New Jersey covers up to 350% of FPL by disregarding any income from 200-350%, allowing them to cover beyond 200% with the enhanced federal matching funds that SCHIP provides.

H.R. 3963 increases the eligibility limit to 300% of FPL or $61,950 for a family of four but also continues the current authority for states to define and disregard income.  States which extend coverage beyond 300% of FPL would receive the lower Medicaid match rate.  The bill limits states from expanding their programs above 300% of FPL through an income disregard whereby they block “income that is not determined by type or expense or type of income.”  However, a state could get around this restriction in a host of ways by disregarding specific types of income, such as income paid for rent or transportation or food.  Practically speaking, H.R. 3963 still places no limit on SCHIP eligibility since states can still manipulate the definition of income to expand coverage, and CMS is limited in its ability to reject such determinations. [New Jersey would be grandfathered from this limitation until 2010, but they would then have to ensure that they are in the top ten of states with the highest coverage rate for low-income children.]

Furthermore, Section 116 overturns CMS’ current policy of requiring states to ensure that 95% of the eligible children in their state below 250% of FPL are enrolled before expanding coverage to higher incomes.  As a result, some conservatives may be concerned that this does not adequately ensure that SCHIP funding targets truly low-income children.

Unlike past legislation, the bill would not grandfather New York’s proposed plan (seeking to cover 400% of FPL or $82,600 for a family of four).  However, New York could merely use specific income disregards to effectively cover up to 400% of FPL.  Some conservatives may be concerned that a family with an income of $82,600 will still potentially be eligible for SCHIP funding after this bill is enacted.

Childless Adults:  The earlier bill phased adults off of the program within two years.  H.R. 3963 would remove childless adults from the program (all would be off by 2009), while allowing parents of eligible SCHIP kids to continue receiving healthcare under SCHIP.  According to CBO estimates, there will still be approximately 700,000 (roughly 10% of total SCHIP enrollees) adults (parents of eligible kids and pregnant women) enrolled in SCHIP by 2012.

H.R. 3963 states that no new waivers for non-pregnant childless adults will be granted to states, and any currently existing waivers will be extended through FY 2008 (terminating such waivers at the end of FY 2008).  H.R. 3963 states that any current state waiver for non-pregnant childless adults which expires before January 1, 2009 may be extended until December 31, 2008 to retain all currently covered non-pregnant childless adults on the program until the end of FY 2008.  The bill extends enhanced FMAP to apply to such waivers through December 31, 2008.

H.R. 3963 grants states the opportunity to apply for a Medicaid waiver for non-pregnant childless adults by September 30, 2008, for those whose SCHIP coverage will end December 31, 2008, and requires that the Secretary approve such waivers within 90 days or the application is automatically deemed approved.

Parents:  The bill provides a two year transition period and automatic extension at the state’s discretion through FY 2009 for the currently covered parents of SCHIP eligible/covered kids, and states that no new waivers be granted or renewed to states to cover the parents of SCHIP kids if such waivers do not currently exist.  Similar to what would be done with non-pregnant childless adults, H.R. 3963 states that any current state waiver for parents of SCHIP kids which expires before October 1, 2009 may be extended until September 30, 2009 to retain all currently covered parents on the program until the end of FY 2009.  The bill states that the enhanced FMAP shall apply to these expenditures under an existing waiver for parents of eligible SCHIP kids during FY 2008 and 2009.

H.R. 3963 requires that any state which provides coverage under a currently existing waiver for a parent of an SCHIP child may continue to provide such coverage through FY 2010, 2011, or 2012, but such coverage must be paid for by a block grant funded from the state allotment.  If the state makes the decision to continue the coverage of parents through 2012, the Secretary may set aside for the state for each fiscal year an amount equivalent to the federal share of 110% of the state’s projected expenditures under currently existing waivers.  The Secretary will then pay out such funds quarterly to the state.  States that enhanced FMAP only applies in fiscal year 2010 for states with “significant child outreach or that achieve child coverage benchmarks.”

In addition, H.R. 3963 retains the statement from H.R. 976 that states there shall be no increase in income eligibility level for covered parents (i.e. no expenditures for providing child health assistance or health benefits coverage to a parent of a “targeted low-income child” whose family income exceeds the income eligibility level applied under the applicable existing waiver).

Private Insurance Crowd-Out:  According to CBO, under H.R. 3963, 2 million children will still shift from receiving private health insurance to government health insurance.  This means that they may get worse health care service and become increasingly dependent on the federal government.  In addition, as H.R. 3963 begins to reduce SCHIP funding in 2012 (if such a reduction is actually intended, see above), some have noted that states may shift these children made newly eligible for a government program into Medicaid.  This phenomenon takes place despite a provision in H.R. 3963 to offer a premium assistance subsidy under SCHIP for employer-sponsored coverage.  A qualifying employer-sponsored plan would have to contribute at least 40 percent of the cost of any premium toward coverage.  The bill includes new language requiring the Secretary, in consultation with the states, to measure crowd-out and to develop best practices designed to limit it.  States would then be required to limit SCHIP crowd-out and incorporate those best practices.  However, many conservatives are likely to be concerned that this language is not enough of protection when CBO maintains that two million will lose their health insurance under this bill.

Legal Immigrants and Citizenship Certification:  H.R. 3963 states that “nothing in this Act allows Federal payment for individuals who are not legal residents.”  However, the bill weakens existing law by removing the documentation requests under the Deficit Reduction Act (DRA), specifically the burden that citizens and nationals provide documentation proving their citizenship in order to be covered under Medicaid and SCHIP.  Instead, the bill would require that a name and Social Security number be provided as documentation of legal status to acquire coverage and that those names and Social Security numbers be submitted to the Secretary to be checked for validity.  If a state is notified that a name and Social Security number do not match, the state must contact the individual and request that within 90 days the individual present satisfactory documentation to prove legal status.  During this time, coverage for the individual continues.  If the individual does not provide documentation within 90 days, he is “disenrolled” from the program but maintains coverage for another 30 days (after the 90 days given to come up with proper documentation), giving the individual up to four months of coverage on a false identity.

It is unclear what substantive changes were made to the vetoed bill beyond the cosmetic, with regard to citizenship certification.  Some conservatives may be concerned that a Social Security number and name are not enough for a proof of citizenship and that more documents should be required to determine eligibility.  For instance, according to a recent letter from Social Security Administration Commissioner Michael Astrue, a Social Security number would not keep someone from fraudulently receiving coverage under Medicaid or SCHIP (if they claimed they were someone they were not).  Thus, this bill may allow illegal aliens the opportunity to enroll falsely in Medicaid or SCHIP and retain coverage for an undetermined amount of time before they are disenrolled for lack of proper identification.

Tax Increase:  H.R. 3963 increases the cigarette tax by 61 cents to $1 per pack, and the cigar tax up to $3 per cigar, supposedly generating $35.5 billion over five years and $71.1 billion over ten years.  It is important to note that this is a substantial tax increase on low-income individuals in order to pay for an expansion of SCHIP to higher income levels, which it was not initially designed for.  In addition, this revenue source is constantly declining as fewer and fewer individuals smoke, and since placing a tax on cigarettes will likely deter sales, some have questioned the efficacy of the offset.  According to a study by the Heritage Foundation, “To produce the revenues that Congress needs to fund SCHIP expansion through such a tax would require 22.4 million new smokers by 2017.”  The bill also changes the timing for some corporate estimate tax payments.

Encourages Spending:  H.R. 3963 shortens from three to two years the amount of time a state has to spend its annual SCHIP allotment.  Under current law, states are given three years to spend each year’s original allotment, and at the end of the three-year period, any unused funds are redistributed to states that have exhausted their allotment or created a “shortfall,” i.e. making commitments beyond the funding it has available.  In addition, the bill establishes a process through which any unspent funds would be redistributed to any states with a shortfall.  Some conservatives may be concerned that this process provides incentives both for states to spend their allotment quickly and to extend their programs beyond their regular allotments into shortfall, so as to be relieved by the unspent funds of other states or the new Contingency Fund.

Other Provisions:

  • Disregarding of Pension Contributions as Income.  The bill disregards “extraordinary employer pensions” as income.  According to CMS, only one state would fall into this category—Michigan, due to the auto manufacturers.  Some conservatives may view this as an authorizing earmark.
  •  Name Change.  H.R. 3963 renames the program the “Children’s Health Insurance Program.”
     
  • Medicaid Disproportionate Share Hospital (DSH) Allotment for TN and HI.  The bill sets the DSH allotments for Tennessee at $30 million a year beginning in FY 2008, and sets the DSH allotment increases for Hawaii, beginning in FY 2009 and thereafter, as the allotments for low DSH states.  Some conservatives may view these provisions as authorizing earmarks.
  • Premium Assistance and Health Savings Accounts.  The bill streamlines procedures for states to provide premium assistance subsidies for children eligible to enroll in employer-sponsored coverage, rather than placing such children in a state-sponsored SCHIP program.  However, all high-deductible health insurance plans and Health Savings Accounts (HSAs) would be ineligible for premium assistance, even if employers and/or states chose to make cash contributions to the HSA up to the full amount of the plan’s high deductible.  Some conservatives may be concerned that these restrictions would undermine the recent growth of HSAs and consumer-driven health care plans.

Does the Bill Expand the Size and Scope of the Federal Government?:  Yes, the bill would expand the SCHIP program by $35 billion over five years and loosen the program’s eligibility requirements.

Does the Bill Contain Any New State-Government, Local-Government, or Private-Sector Mandates?:  A detailed CBO cost estimate with such information is not available.