Reminder: Free Money Is Not Free

Published March 11, 2013

Consumer Power Report #364

This new report from The Heritage Foundation outlines the incentives for each state to expand or not expand Medicaid. It simply charts the Urban Institute assumptions out over the next decade, illustrating the Medicaid expansion really amounts to an enormous bailout for the state of New York and a raw deal for red states everywhere. Drew Gonshorowski writes:

Proponents predict that by expanding Medicaid states will be able to reduce payments to health care providers, such as hospitals, for uncompensated care. As a matter of fact, nationally, the opposite is true:

– 40 of 50 states are projected to see increases in costs due to the Medicaid expansion.

– The majority of states see costs exceed savings when the federal match rate is lowered after the first three years. From there, state costs continue to climb, dwarfing any projected savings.

– State savings are concentrated in large states. New York is estimated to see $33 billion in savings, while Massachusetts is estimated to save $6 billion over 10 years. Because of the design of their current programs, these states have a unique opportunity to restructure their programs and transfer significant cost to the federal ledger.

Of course, even these savings are highly speculative. They assume that uncompensated care costs actually decrease under a Medicaid expansion. Analysis of other states shows that this is not always the case. In fact, in Maine, uncompensated care continued to grow.

Furthermore, the assumed reductions in state supplemental payments to providers for uncompensated care are conditional on state lawmakers enacting explicit payment cuts. Depending on policies adopted by state lawmakers, those reductions could be higher or lower–or even zero–if a state does not enact payment cuts.

[Estimates for all 50 states are available here. Medicare trustee Charles Blahous is out with his comprehensive report on Medicaid expansion. His conclusions should be another boost to the “be Arkansas” strategy.

When combined with the interactions of various ACA provisions, the Supreme Court’s decision created a strong disincentive for states to expand Medicaid coverage to childless adults with incomes above 100 percent of the FPL. By declining to cover this population under Medicaid, states can minimize their budgetary exposure while at the same time providing these individuals access to potentially more generous health insurance coverage through the ACA’s health exchanges. Subsidies for participation in these exchanges are only available to individuals with incomes between 100 and 400 percent of the FPL who are not eligible for Medicaid.

Under the ACA, states that choose to cover these individuals under Medicaid will have to pay 10 percent of the associated costs by 2020. If instead these individuals remain uninsured by Medicaid and receive their health insurance through exchanges, the full cost of their subsidy support will be provided by the federal government. It is likely individuals in the exchanges would receive better quality health insurance coverage than they would through Medicaid. For individuals in this income range, CBO estimates the annual value of the federal subsidy per exchange participant at about $9,000 by 2022, whereas the total value of Medicaid coverage would be well less than $7,000.

Expanding Medicaid is permanent and costly for states. Using the Medicaid expansion instead to push poor people into the federal exchanges will still be costly for federal taxpayers but will also allow for future flexibility outside the waiver process. The left may have won the coverage argument, but it doesn’t have the cost argument on its side, for states or for individuals.

— Benjamin Domenech


  • CBO Expects Exchanges to Shrink After 2018
  • Connecticut Pushes Forward with New Exchange
  • States Balk at $15 Billion Obamacare Tax on Insurers
  • Who’s In Charge of Implementing Obamacare?
  • Majority of Doctors Oppose Full Access to Your Own Records
  • Yes, Obamacare Is Going to Explode the Deficit


Here’s an interesting assumption:

After 2018, the future of ObamaCare’s exchanges will be all downhill. At least that’s how it looks to the Congressional Budget Office. Its projections imply that the number of people getting subsidized coverage will ramp up from the 2014 start to peak at 22.3 million in 2018, but then fall by 1.8 million over the next five years.

The ObamaCare exchange exodus would result from subsidies covering a smaller share of premiums over time, leading more people to go without insurance and, in many cases, pay a tax penalty.

Considering that enrollment in Medicare and Medicaid remains on an upward path as those programs approach their 50th birthdays, this ever-shrinking future for ObamaCare may seem surprising – even to the law’s crafters – and perhaps unlikely.

CBO director Doug Elmendorf warned in 2011 that ObamaCare’s gradual shift of coverage costs to enrollees “may be difficult to sustain” and threw out the possibility that Congress would “adjust the subsidy schedule.”

At the time, CBO still envisioned that the subsidized exchange pool would continue growing over the next decade, despite slower subsidy growth.

CBO’s new 10-year outlook presents a more troubling picture and provides the clearest warning yet that the 2010 health law is not built to last as structured.

CBO projections now not only imply that the subsidized exchange pool will shrink more precipitously, but the average benefit will be rising 5.7% a year at the end of the 10-year window – faster than seen last August.



Spot the difficulties:

As one of the states furthest along in preparing to enroll patients this fall in the new health insurance marketplace, Connecticut has discovered that being first comes with some challenges.

The staff at Connecticut’s quasi-public exchange, known as Access Health CT, has had to build both an agency and an online health insurance marketplace from the ground up, relying on directives and guidance from the U.S. Department of Health and Human Services that can change or need to be clarified.

“Sometimes it feels like we’re driving a car and then changing the tire at the same time,” said Kevin Counihan, Access Health CT’s CEO, in an interview with The Associated Press.

Late last month, Counihan said he informed HHS that Connecticut’s exchange would have to stop implementing any new federal regulations as of March 1, in order to focus on getting ready for its user testing planned for June 4. He said the exchange will address any new regulations later.

“We have to draw the line in the sand at some point. Not because we’re trying to be contentious or confrontational or difficult,” he said. “We’re going to have a challenging enough time providing the quality of service that our residents deserve in Connecticut with the deadline that we have. If they keep adding new regulations, I’m sorry. We have to suddenly say, ‘enough is enough.'”

Additional changes, Counihan said, could have a cascading effect on the complex online system, which will allow people to determine whether they qualify for a health plan discount, Medicaid or another insurance program. It also allows them to shop for a qualified plan and ultimately enroll in a plan. If Access Health CT can’t begin user testing on time because HHS now wants it to change a particular feature, Counihan said the exchange won’t know where the bugs are in the system that need to be a fixed before enrollment begins.



Participation in the new regime is not free:

A newly unveiled component of President Obama’s healthcare law forcing insurers to pay annual fees is sowing angst in state capitols, where officials view the provision as a $15 billion tax that could disrupt Medicaid programs and other services.

The health insurance providers fee, included in the healthcare reform law over the objections of congressional Republicans, is designed to raise tens of billions of dollars in the coming years.

In Wisconsin alone, the fee would hit the state’s coffers to the tune of $23 million in 2014, and will likely total more than that in subsequent years, said J.P. Wieske, legislative liaison and public information officer for the state’s Commissioner of Insurance.

The blow to Wisconsin’s private insurance market would be far higher – $3 billion over the next 10 years, Wieske said.

The proposed regulation’s details were published this week, and prompted harsh criticism from the health insurance industry, which warns that the fees would ultimately raise the price of healthcare. The Obama administration has countered that the insurer fee is just one of many provisions, which, taken together, would drive costs down.

But in states that participate in Medicaid managed care plans, the fee would be painful. One study commissioned by the Medicaid Health Plans of America found that states would be on the hook for $15 billion over the next ten years.

“That’s dangerous,” said Bruce Greenstein, Louisiana’s health secretary. “I have deep concerns.”

Greenstein said the fee is tantamount to discrimination, since some plans – including those offered by certain nonprofit healthcare providers – are exempt from the fee. Administration officials did not immediately respond to requests for comment on the concern from states.

Nationwide, fees assessed on non-exempt insurers would total $8 billion next year and rise thereafter, eclipsing $14 billion in 2018, according to the Internal Revenue Service, which drafted the proposed rule. The fees would vary in size, depending on a firm’s net premiums, and would come due by Sept. 30 every year.

SOURCE: The Hill


Political operatives:

I wrote more almost three years ago, in the New York Post, that many of the Obama Administration’s economic centrists were leaving the White House. Left behind were some of the most progressive staffers. They would be the ones implementing the law.

That transition now seems to be complete. The few remaining centrists thinkers inside the White House, mostly scattered across the National Economic Council and Treasury, are gone – or largely marginalized when it comes to issues around implementation. The people drafting and reviewing the regulations are mostly centered in the White House and its Domestic Policy Council — and they mostly work for Jeanne Lambrew.

As I wrote three years ago in the New York Post, Obamacare was written to paper over an intellectual divide between White House economists and healthcare policy wonks like Lambrew. Some of the Obama economists wanted genuine competition to take root in the new federally managed insurance “exchanges.” The policy crowd favored a one-sized government plan with tight federal regulation over benefits. The law itself didn’t explicitly side with either school.

Unfortunately, the more moderate White House economists are now gone. The latest blow came when the widely admired and centrist health policy expert Liz Fowler left her position on the National Economic Council for the private sector.

The Obama team’s few remaining economic moderates – the ones who have a lot of experience in healthcare — all seem to be sitting out the details of Obamacare implementation and issuance of the law’s many regulations. Otherwise, they are focused on other matters.

Normally, the Office of Management and Budget and the National Economic Council would be heavily engaged on the issuance of regulations tied to a major law like Obamacare. Not the Obama White House. The economists still play on the fiscal issues related to Medicare and Medicaid. But when it comes to Obamacare implementation, they are not calling the shots. The power is centered on Lambrew.

Yet key decisions are now being made that will profoundly shape the law and its new exchanges (and the contours of our healthcare system). Those who have a stake in the outcome should be mindful of how these decisions are being made.

SOURCE: Forbes



Technology is making transparency easier than ever and with the advent of electronic medical records, you might think doctors and other caregivers would embrace transparency for patients. After all, in the US and most modern countries, you have the right to review your own health records.

Yet a recent survey by Harris Interactive reported first at Computerworld reveals that doctors aren’t big fans of full transparency. A survey of 3,700 doctors in eight countries revealed that only 31 percent believe that patients should have full access to their own medical records via electronic means. That’s less than one in 3. The majority of those surveyed, some 65 percent, supported “limited access,” while the remaining 4 percent believe there should be no access granted to patients. So, despite the fact that we have rights to review and amend our records, doctors don’t want it to be easy for us to do so via electronic means.

I find these numbers incredibly disappointing, although not surprising. While there might be many motivations for wanting to deny patients full access to their medical records, I know firsthand one such motivation: these documents can be terribly inaccurate.

SOURCE: Ars Technica


The Tax Foundation has a comprehensive chart:

These new taxes will hit small businesses hard. Owners of small businesses will face a tax increase on self-employment income and the employer mandate will pose huge challenges to many small businesses. Businesses that work with small profit margins and have workers with relatively low wages may have to close up shop. Businesses that are able to comply will be forced to reduce worker wages and raise prices on customers.

The cost of compliance is another ding on the budgets of small business, large business, medical providers and individuals. The Obamacare Burden Tracker pegs the total cost of compliance at 127.6 million hours. That’s 127.6 million hours of productive work the U.S. economy loses to complexity.

Add the complexity and the cost to small businesses to the investment tax increase in the ACA, and the tax provisions in the law could do some real damage to economy. Following the fiscal cliff tax increases and the additional 3.8 percent investment tax from the ACA, the U.S. now has a combined state and federal capital gains rate of 28 percent, up from 19 percent in 2012. High investment tax rates discourages the free flow of capital and damages long-term economic growth.

The economic effects of the increases in investment taxes from the ACA won’t necessarily be felt immediately, but will harm future development. Less capital will lead to less future productivity, which will lead to lower future wages.

But small businesses and individuals will feel the other effects of the tax increases in the ACA much sooner, as businesses learn to comply with the law and all its provisions over the next couple years.

SOURCE: Tax Foundation


My piece rebutting Jonathan Chait and Aaron Carroll:

Despite what Carroll writes, this isn’t even the worst-case scenario. Just this past week, the Arkansas deal struck by HHS moved millions more dollars out the door for subsidies through the health insurance exchanges. If that deal spreads, as I hope it does, the worst case scenario for budgeting could be astronomically worse from Carroll’s perspective. GAO won’t do estimates any more in dollar terms, but they concluded Obamacare would add 0.7 percent of GDP to the deficit (page 19 of their report). The $6.2 trillion over 75 years Sessions claimed is consistent with GAO’s estimate in terms of a deficit increase. If Arkansas’ deal spreads, I think that’s likely lowballing it.

GAO’s alternate scenario represents what they deem to be more realistic and more likely because they believe it resembles more accurately the behavior of politicians. They weren’t projecting some ridiculous apocalyptic scenario – indeed, it’s consistent with what the Medicare trustees couch it as a more reasonable scenario, where after ten years, the cost controls are phased out gradually, with revenues returning to the same simplifying assumptions they use in all their longterm scenarios. That’s what the CMS actuary and CBO assumes as well, not just GAO. On the spending side, the only thing the GAO assumes is the same thing CBO does in their alternative scenario – that the cap on the subsidies doesn’t apply. Essentially, GAO and CBO are assuming Congress will respond to pressure that kicks in when the caps on premium subsidies through the exchange mean the subsidies cover less and less of rising premium costs. Politically, this seems to be a reasonable conclusion to me.

The key to this argument is a disagreement about revenues. Carroll and Chait are essentially arguing you can take a lot more revenue out of the American economy in the age of Obamacare than you have historically. After year ten, GAO always assumes the same thing: a forty year historical average of revenues. They do this for a reason that has nothing to do with partisanship: over the long term, the tax system has yielded about 19% of GDP (see Hauser’s law). This doesn’t mean there are no fluctuations – revenue is higher when income growth is higher and lower when income growth is lower, as well as higher and lower in the immediate aftermath of a policy change. But things even out over time. (Note: Jon Chait has previously rejected that fact as a “scam.”)

And this brings us back to the central question: why would Obamacare increase the revenue yield over the long run when no other single piece of legislation has accomplished that? Or is it that Chait is assuming the inevitability of a new, more European tax system outside of typical scoring norms? How would the GAO model that, exactly? The problem is that it is Chait and Carroll, not Sessions, who want GAO to ignore historical norms, ignore the conclusions of the actuary and the CBO, and invent an alternate assumption which is closer to what they predict will happen. The burden is on Carroll and Chait to argue for revenues under Obamacare to be more than what they have been for the historical forty year average. All you have to do to make Obamacare not explode the deficit is to completely accept their rejection of historical scoring norms. In that scenario, who’s really twisting things?

SOURCE: Heartland Institute