Consumer Power Report #308: Who Pays for Medicaid Expansion?

Published February 7, 2012

Welcome to the Consumer Power Report.

Actuarial firm Milliman, Inc. is out with a major new study, which you can see here, conducted for the Medicaid Health Plans of America (MHPA), which examines the costs shifted to states as a result of Obama’s health care law over the next few years – particularly focused on the health insurer fee, a tax intended primarily to take from health insurers to fund expansions in coverage.

The news, as you might expect, isn’t good: Milliman finds the costs borne by Medicaid (and thus the taxpayers) is greater than the administration claimed, with one-sixth of the total fee being paid by Medicaid managed care plans. This amounts to a more-than-$13 billion load on the states. From the release:

According to the report, that fee, along with additional taxes paid due to the non-deductibility of the fee, will be entirely passed along to state Medicaid programs, costing $38.4 billion over the 10 year period 2014-2023 according to conservative moderate growth scenarios.

This will cost the states themselves about $13.6 billion and the federal government about $24.8 billion due to the state-federal Medicaid matching formula.

“As we suspected all along, this report shows that applying the health insurer fee to Medicaid health plans will raise the cost platform in state Medicaid programs significantly,” said [Thomas L. Johnson, president and CEO of MHPA]. “This will further exacerbate the fiscal problems in the states with Medicaid funding, forcing states to make further cuts to providers like mental health professionals and physicians, and jeopardizing services for poor children, pregnant women, the elderly and disabled by cutting eligibility and benefits.”

The report is already raising concern among state Medicaid personnel.

Tennessee Medicaid Director Darin Gordon said he’s raised the issue with the federal Centers for Medicare and Medicaid Services and is hopeful the administration can exclude Medicaid managed-care plans from the tax. It is unclear if the administration can exempt the plans or whether that would need congressional action.

“This is absolutely a big deal for states – particularly those with substantial (Medicaid) managed-care plans,” he said.

CMS officials did not return calls for comment.

Just another example of an average budget-busting mistake found within this mess of a health care law. Aren’t we ever going to find a major example of a policy contained within this law that has no incredible adverse consequences?

One more note: I am in Oklahoma City this week giving presentations regarding health insurance exchange implementation. If you’d like to attend, they will be held at the following times and locations:

Tuesday, February 7 @ approximately 9:30am (following session), House Chamber

Wednesday, February 8 @ 9:00am in the State Capitol, Room 512A

Wednesday, February 8 @ noon @ OCPA @ Italiano’s, 4801 North Lincoln Boulevard

— Benjamin Domenech


  • Coburn and Boustany Demand Answers on HHS Audit
  • How Medicare Rigs Competitive Bidding
  • Maine’s Medicaid Challenge
  • Malaria Deaths Dramatically Underestimated
  • Mandating Contraception, Violating Conscience
  • Hospitals Mine Patient Records on Paying


Two physicians – Senator Tom Coburn (R-OK) and Rep. Charles Boustany, Jr. (R-LA) – on Monday sent a letter to Department of Health and Human Services (HHS) Secretary Kathleen Sebelius regarding an independent audit conducted by Ernst & Young:

They write: “It is unacceptable that HHS fails to maintain accurate financial records and fails to adhere to federal law designed to protect taxpayer dollars from mismanagement and waste.”

Boustany and Coburn highlight several points of concern, including:

  • HHS and Treasury Accounts Differ by $500 Million – An Increase of $100 Million since September 2010
  • $886 Million in Mystery Money – An Increase of More than $250 Million since 2010
  • $2 Billion in Taxpayer Dollars in Limbo Disappears in the 2011 Financial Audit
  • $2.6 Billion Owed to Employer-based Retiree Prescription Drug Plans – An Increase of $700 Million since FY 2010
  • $3.8 Billion Owed to CMS – An Increase of $2.2 Billion since FY 2010

SOURCE: Coburn


The Wall Street Journal editorializes on Medicare’s competitive bidding problems:

Last week a Medicare competitive-bidding program went live in 91 metro regions – nearly all the U.S. population – for what’s known as durable medical equipment. That bureaucratic jargon covers advanced devices like wound therapy, respiratory assist equipment for people who can’t breathe, and feeding tube systems for people who can’t eat. It also lumps in things like walkers, scooters and “support surfaces.” Those would be beds.

The good intentions of this saga date to 2003, when Congress in a fit of sanity ended Medicare’s price controls in favor of auctions. Both political parties soon rebelled when oxygen tank suppliers, scooter stores and such in their home districts started whining about being asked to compete on market prices, rather than plod along with the guaranteed revenue of the fee schedule. But the much deeper problem is that Medicare cooked up an auction process that defies all economic sense.

Normally when the government wants to buy something, it asks companies how much they can provide and to name their price. Winners are selected from the lowest bid up until the government has what it needs at the lowest possible cost, and thereby finds competitive equilibrium prices.

Under Medicare’s highly unusual version of competitive bidding, it will pay the winners the median price of all the winning bids, rather than using the clearing price. Bids are also for some reason nonbinding.

This matters because it creates incentives for unscrupulous third-party companies to make low-ball “suicide bids.” If the median price shakes out high enough, they automatically win the contract, buy the medical products from manufacturers and turn a profit. If it isn’t, they can dump the contract since bidding involves no commitment.

Medicare will then offer the contract at the median price to the honest companies that have made bids aligned with their true costs, and they can take it or leave it. Medicare benefits because the median prices will be biased below the clearing price – in other words, the “auction” is merely another way of generating arbitrary below-cost price controls.

SOURCE: Wall Street Journal


Gov. LePage works to close a $220 million hole in Maine’s budget.

“If we are to bring our welfare system to a manageable level that Maine can afford,” LePage insists, “we must make the necessary structural changes. … The state can no longer use gimmicks to fill the hole.”

The size of Maine’s Medicaid shortfall is substantial, but it pales in comparison to gaps in many other states. In fact, health experts in Maine say the program has survived far bigger shortfalls in recent years without cutting the rolls. Still, LePage argues that the program can no longer provide a “free lunch” to poor 19- and 20-year olds, or to healthy adults responsible for the care of others.

Some of LePage’s proposed Medicaid cuts, such as eliminating dental care, physical therapy and chiropractic services, are not too different from ones that governors in both parties are recommending in states across the country. Neither are his proposed reductions in payments to hospitals and doctors or limits on prescription drug coverage.

But LePage also wants to get at enrollment, and this is what makes him, at the moment, the most draconian of the governors when it comes to health policy. In his January 24 state of the state speech, LePage argued that “we have encouraged people to rely on the taxpayers, rather than rely on themselves.” The cuts to enrollment, he argues, are necessary to shore up the state’s safety net so it can continue to care for its most vulnerable residents – children, elders and the disabled.

But for many of Maine’s citizens, the enrollment cuts would be life-changing.

SOURCE: Stateline


The Lancet publishes research indicating 1.24 million people died of malaria in 2010, compared to a more modest World Health Organisation (WHO) estimate of 655,000 deaths.

The research was funded by the Bill and Melinda Gates Foundation. It used new data and new computer modelling to build a historical database for malaria between 1980 and 2010.

The conclusion was that worldwide deaths had risen from 995,000 in 1980 to a peak of 1.82 million in 2004, before falling to 1.24 million in 2010.

The rise in malaria deaths up to 2004 is attributed to a growth in populations at risk of malaria, while the decline since 2004 is attributed to “a rapid scaling up of malaria control in Africa,” supported by international donors.

While most deaths were among young children and in Africa, the researchers noted a higher proportion of deaths among older children and adults than previously estimated. In total, 433,000 more deaths occurred among children over five and adults in 2010 than in the WHO estimate.



FreedomWorks’ Daniel Anderson makes the libertarian argument against the overrun of religious free exercise by the administration.

Let’s examine the contraception controversy a little more carefully. It began soon after the January 20th decision from Health and Human Services that only churches and other houses of worship would be exempted from the new ObamaCare requirement that employee health care plans include contraceptives. The Secretary of HHS, Kathleen Sebelius, has defended the mandate by arguing that because Catholic hospitals and universities usually aren’t primarily staffed by Catholics, that they ought to be treated like any other employer. Frankly, this argument completely misses the point.

At its heart, this is a debate over principles and the First Amendment to the Constitution. The relevant portion of the amendment is, “Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof.” In other words, people have the right to follow their conscience when it comes to religious matters. For the Catholic Church, contraceptives and other forms of birth control such as sterilization are very much so a moral matter and Catholic doctrine opposes their use. The “free exercise” of religion is not limited to worshipping in a church. Following a doctrine or set of beliefs is integral to every faith and clearly falls under the “free exercise” of religion.

Forcing Catholic employers to offer contraceptives as part of their employee health care plans fundamentally violates their First Amendment right to follow their conscience with regard to contraception. The popular liberal refrain to this argument is that many American Catholic women have used or at least condone the use of contraceptives, but is that really the point? First, the issue at hand is a mandate on employers to provide contraceptives, not a mandate on women to use them. Second, regardless of disagreements within the Church over contraception, Church doctrine still prohibits its use. Those who stray from doctrine on this issue can just go out and purchase contraceptives without a government mandate forcing their employers to violate their beliefs on the matter. This mandate is just another case of our intrusive federal government completely disregarding Constitutional restrictions on its power.

SOURCE: Freedom Works


A thread to monitor as hospitals find new ways to market services – what privacy issues are raised by these practices?

At a time when government and private insurers are tightening reimbursements, more hospitals are turning to the same approach to drive admissions. An estimated 20 percent of them, including large academic medical centers and large chains, such as Nashville-based HCA and Novi, Mich.-based Trinity Health, now use the strategy. And the trend is expected to accelerate as more hospitals adopt electronic health records, says Guy Miller, a Chicago health care consultant.

Tess Niehaus, vice president of marketing at St. Anthony’s Medical Center in St. Louis, says the approach has been quite successful and makes no apologies for going after the most lucrative business.

“We are here to serve everybody but we market for good paying patients because it preserves our ability to serve everyone,” she says.

St. Anthony’s marketers use patient data to personalize mailings with an individual’s name and a picture of someone of similar age or gender. It is more expensive, but the strategy results in better response rates, she says. From October 2010 through July 2011, St. Anthony’s spent $25,000 on a targeted mailing to 40,000 women for mammogram screenings. The letters led 1,000 women to get the test, which generated $530,000 in revenue from screenings, biopsies and other related services, she says.

To help devise the campaigns, hospitals like St. Anthony’s share patient data with marketing staff and outside consultants. Anyone with access to patient records is required by federal law to sign nondisclosure agreements.

SOURCE: Kaiser Health News