Medicare Funding Shenanigans

Published April 23, 2012

Consumer Power Report #323

Today will bring the latest report from the Medicare trustees on the program’s solvency, or lack thereof. Expect a slight improvement to appear thanks to the 2 percent cut to providers mandated under the sequestration agreement – but that’s fool’s gold, and everyone knows it.

An interesting side note to the trustees’ report is this story regarding a GAO report on a specific aspect of Medicare’s funding failures – namely, that the Obama administration is taking many steps to hide the costs of its Medicare cuts until after Election Day, diverting $8.4 billion as a stopgap measure. Phil Klein has more:

Though the GAO did not specifically say that election year politics were behind the decision, the report released today makes it difficult to reach another conclusion. Had Obamacare gone into effect as written, millions of enrollees would have seen their benefits cut in 2012. But as a result of this project, 71 percent of scheduled payment cuts will be offset, according to the GAO.

The Obama administration has justified the project as an experiment to see how certain bonus payments work. But the GAO concluded that, “(t)he design of the demonstration precludes a credible evaluation of its effectiveness in achieving CMS’s stated research goal.” Also, the GAO found that the size of the project “dwarfs all other Medicare demonstrations – both mandatory and discretionary – conducted since 1995 in its estimated budgetary impact and is larger in size and scope than many of them.” The report added “that the estimated budgetary impact of the demonstration, adjusted for inflation, is at least seven times larger than that of any other Medicare demonstration conducted since 1995 and is greater than the combined budgetary impact of all of those demonstrations.”

The GAO report is here. Sen. Jim DeMint’s office comments:

GAO found that this massive demonstration project “is at least seven times larger than that of any other Medicare demonstration conducted since 1995 and is greater than the combined budgetary impact of all of those demonstrations.” According to GAO, the demonstration “precludes a credible evaluation of its effectiveness,” and is instead focused on shelling out money to temporarily undo much of ObamaCare’s cuts – a whopping 71% of ObamaCare’s Medicare Advantage cuts will be undone in 2012, compared to just 32% in 2013 and 16% in 2014. (Can anyone think of a reason why the Obama Administration might want to undo the Medicare Advantage cuts this year? …) For all these reasons, as a New York Post op-ed this morning noted, the demonstration program looks suspiciously like a political attempt by the President to avoid angering seniors by cutting Medicare Advantage while running for re-election.

The GAO report proves how the Administration’s study is fundamentally flawed. The Administration report assumes all the Medicare spending reductions will go into effect, but the GAO report illustrates how the Obama White House has already reversed one of the major spending reductions – the Medicare Advantage cuts – in order to fend off political dissent during the President’s re-election campaign.

Notably, the cuts involved here were an aspect of the law that then CMS head Don Berwick was warned about repeatedly at the time, since just about anyone with a rational bit of brain matter could tell you that a program designed to give bonus payments to nearly everyone and diminish cost-sharing would have a negative fiscal impact. But this is just one more example of the kind of basic economic lessons the White House ignored in their rush to pass this mess of a law.

— Benjamin Domenech



Our latest R&C updates you on some of the recent research into competitive bidding’s impact.

The policy centerpiece of House Budget Chairman Paul Ryan’s (R-WI) budget proposal this year is his Medicare reform. While Ryan’s approach builds on prior efforts, it differs in important ways from his prior legislative solutions, including last year’s Path to Prosperity. Ryan’s modified approach is essentially the same as one he proposed with Sen. Ron Wyden (D-OR) earlier this year. The key to Ryan’s plan is the pairing of a premium support model with a competitive bidding system for determining Medicare payment rates.

This policy shift has raised a number of questions from legislators: What is competitive bidding? Does it offer a solution for rising Medicare costs? And is it workable as policy and politics?

Competitive bidding essentially describes a system where government-approved private insurers bid, along with traditional Medicare, on the standard rates they plan to charge the government within a county. Under Ryan’s approach, the winning bid would be the second-lowest and would determine the premium level assigned. Medicare’s traditional fee-for-service model would remain available. Seniors who chose a less-expensive plan would keep the difference, while those who chose a more-expensive one would have to pay for it themselves. This has been an element of bipartisan Medicare plans stretching back to the Breaux-Thomas commission under President Clinton.

The problem with this policy approach is that it is largely untested on the scale of Medicare – while proponents point to the bidding system on Part D’s prescription drug benefit for comparison, the more limited project of competitive bidding on durable medical equipment has been heavily criticized for its inherently flawed auction system that fails to meet the needs of patients and disguises the higher hospitalization costs it creates. Also, the savings achieved through competitive bidding are relatively modest – on the order of 5 to 8 percent of Medicare’s costs.

The question is not whether competitive bidding will save money but instead how much it will save and whether it will unnecessarily raise costs in various states and regions.

SOURCE: Heartland Institute


Another legal fallback should the Supreme Court case contain a surprise:

Missouri House members renewed objections to the federal health care overhaul, approving legislation Thursday designed to block its implementation.

The measure approved by the state House declares that the federal health care law is void and has no force because Congress exceeded its constitutional power in passing the legislation. Federal officials could be charged with a misdemeanor if they take steps in Missouri to enforce the law, and state workers would not have authority to implement any provision in the health care overhaul.

The House health measure was approved 108-44, and it now moves to the state Senate.

In August 2010, Missouri became the first state to use a referendum to challenge the federal law’s requirement that most people eventually get health insurance. The measure, approved with 71 percent of the vote, bars governments from requiring people to have health insurance and from penalizing them for paying their own medical bills.

SOURCE: Missourian


The Arizona House isn’t going to take the contraception mandate from HHS lying down:

The Arizona House has given its final OK to a measure to allow certain businesses to opt out of providing contraceptive coverage as part of their health-care benefits.

Supporters of House Bill 2625 say it has been revised to apply to a limited number of “religiously affiliated” businesses. Opponents say the definition of such businesses has been written so broadly that it would let any employer opt out.

The bill still needs a final vote in the Senate and then the approval of Gov. Jan Brewer before it becomes law. The Senate may vote on it next week.

The latest version of HB 2625 defines “religiously affiliated” employers as a non-profit group that primarily employs and serves individuals of the same religion or entities whose articles of incorporation clearly state they are religiously motivated organizations whose religious beliefs are central to their operating principles.

The original version, which failed to get enough support in the Senate, would have allowed any business or insurance company to opt out of contraceptive coverage for religious reasons. The conservative Center for Arizona Policy and the Arizona Catholic Conference are pushing the bill. The House passed the amended version of the bill 36-21.

SOURCE: Arizona Republic


Refusing to implement Obamacare’s exchanges could have a side benefit:

Graham and Cannon oppose setting up exchanges for a number of reasons. Their principal argument is one of political economy: setting up exchanges helps give a certain legitimacy and permanency to Obamacare, and creates powerful interest groups (especially insurers) that would strive to block their repeal. “Our approach has to be absolute non-collaboration, civil disobedience – well, not civil disobedience but resistance … by whatever means,” John Graham tells Politico.

But there’s another argument: while the ACA strictly regulates the kinds of insurance plans that are eligible for the exchanges, narrowing consumer choice and plan-design innovation, the law exerts somewhat less control over plans issued outside the exchanges. If you have a consumer-driven plan, for example, with a health-savings account and high-deductible insurance, the exchanges won’t be as friendly to your setup.

In addition, as Politico notes, Cannon argues that “if states don’t act, employers will be better positioned to legally challenge penalties they would have to pay if their employees end up getting subsidized coverage in the exchanges.” That’s because the employer mandate is included in Obamacare so as to prevent companies from dumping all their workers onto the exchanges. Cannon credits Vanderbilt law professor Jim Blumstein with the insight.

The law specifies that the penalties against employers are only triggered when their workers receive “premium assistance” under the exchanges. Section 4980H of the Affordable Care Act reads, in part: “if (1) any applicable large employer fails to offer its fulltime employees [eligible insurance coverage], and (2) at least one full-time employee of the applicable large employer has been certified … as having enrolled [in an exchange-subsidized insurance plan], then there is hereby imposed on the employer an assessable payment.”

Hence, those state politicians that aren’t as zealously opposed to Obamacare as Graham and Cannon have another reason to oppose the state exchanges. By doing so, they thwart Obamacare’s employer mandate, thereby lowering the costs of doing business in their states. That, in turn, gives them a competitive economic advantage over states that do set up Obamacare-approved exchanges.

SOURCE: Forbes


The Heritage Foundation’s Kate Nix reports on CER and rationing concerns:

Proponents of the PPACA dismiss concerns that a U.K.-style system will arise under the health law, but the evolution of PCORI implies that the idea may not be so farfetched. Senators Max Baucus (D–MT) and Kent Conrad (D–ND) first introduced the Comparative Effectiveness Research Act in 2008 in order to create a new entity called the Health Care Comparative Effectiveness Research Institute, with the goal of advancing CER. The proposal included almost no limitation on the use of CER within Medicare, and the Secretary of Health and Human Services, or the Secretary’s designee, was included on the institute’s board of governors, allowing the Department of Health and Human Services (HHS) ample opportunity to influence the direction of research.

In June 2009, Senators Baucus and Conrad offered a revised version of their earlier bill, changing the institute’s name to today’s Patient-Centered Outcomes Research Institute. By the time the PPACA was signed into law, the original entity had been revised to include additional restrictions to make PCORI politically viable.

This idea of a CER board or institute was not unique. Before taking office, President Barack Obama chose former Democratic Senate Majority Leader Tom Daschle to serve as Secretary of HHS and director of the new White House Office of Health Reform and Jeanne Lambrew to serve as deputy director of the White House Office of Health Reform. In 2008, Daschle and Lambrew co-authored a proposal to overhaul the health care system, which included the creation of a Federal Health Board to use CER to make coverage decisions. The board would “define evidence-based health benefits and lower overall spending by determining which medicines, treatments, and procedures are most effective – and identifying those that do not justify their high price tags.”

Under their proposal, all federal health programs would have been required to adhere to the recommendations made by Daschle and Lambrew’s Federal Health Board. Daschle and Lambrew even suggested linking the board’s recommendations to the existing tax exclusion for health insurance, applying decisions to private coverage as well.

SOURCE: Heritage Foundation


Linda Gorman on Medicaid’s skewed funding mechanism:

Medicaid’s structure encourages exuberant spending in virtually every segment of the program. Its problems start with individuals, who pay almost nothing for their health care and have little incentive either to economize on their use of it or to seek less costly ways to receive it.

At least some Medicaid adults use the emergency room because it is convenient and costs no more than a regular physician visit. Though total annual U.S. emergency department visits doubled between 1997 and 2007, visit rates for adults with private insurance, those covered by Medicare, and those without health insurance remained constant. Visit rates for uninsured and privately insured children fell while visit rates for Medicaid children remained constant and visit rates for adults with Medicaid coverage increased from 693.9 to 947.2 visits per 1000 enrollees, accounting for most of the increase.

When Oregon implemented $50 co-pays on emergency department visits under a Medicaid waiver in 2003, utilization rates fell 18 percent and visits leading to hospitalization fell 24 percent. Because they spend other people’s money, individual Medicaid recipients have relatively little incentive to detect and deter fraud. Common problems include charging for medical, transportation, and home health care services that were never delivered, charging for a more expensive service or good than was delivered, using ambulance transportation when it is unnecessary, and charging twice for the same treatment. Experts estimate that abuse accounts for 10% of Medicaid spending.

Medicaid’s spending problems are exacerbated by its matching fund finance. States benefit from federal Medicaid money only if they spend it, reducing their incentive to spend wisely. Matching funds make state fraud control relatively more expensive. If a state anti-fraud program spends one dollar to reduce fraudulent Medicaid spending by two dollars, the net gain to the state from reducing fraud is one dollar. With a 50 percent match rate, the two dollar reduction in Medicaid spending means the state loses a dollar of the matching federal funding and its net gain is zero. The same is true of the federal government. Its successful anti-fraud Medicaid expenditures lose state matching funds for favored federal Medicaid initiatives.

SOURCE: Independence Institute