States That Chose to Implement Obamacare Could Face Upheaval

Published April 30, 2012

Consumer Power Report #324

Today brings the latest report from Politico regarding the concerns of states that chose to implement President Barack Obama’s health care law. The major concern: If the Supreme Court rules against the mandate alone, these states could be caught at a major competitive disadvantage. The expected response? Intense pressure from insurers to pass state-level individual mandates:

A Supreme Court ruling striking down the federal mandate wouldn’t take away states’ power to enact one. The challenge to the health care law contends that Congress overstepped its power under the Constitution’s Commerce Clause. But no one is challenging whether states have the power to put in place a mandate on their own, as Massachusetts did in 2006.

“The obvious fix” is to follow the Bay State’s example, said Alan Weil of the National Academy for State Health Policy.

The pressure from insurers could up-end health politics in states that have been on the fence about moving ahead with health reform, suggested George Mason University’s Len Nichols, who is advising the administration of Virginia Gov. Bob McDonnell. The state has laid the groundwork to set up an exchange even though it has opposed the law in court.

“I think insurers are the lobby to concentrate [state lawmakers’] minds,” Nichols said.

A ruling just against the individual mandate may make it harder for state lawmakers to stay on the sidelines of implementation. HHS would lack the power to fix the imbalance in insurance industry by regulation, and Congress could easily deadlock over reforming or repealing the health reform law.

States that chose to rush ahead with the implementation of the law face significant and negative ramifications should the Supreme Court make such a decision. And a mandate isn’t the only issue – states like Oregon and Vermont, which have based their exchange-plus reforms on the assumption of millions of dollars in federal taxpayer funding that may never materialize, could find themselves facing billion-dollar shortfalls in just a few short years.

For states that chose not to implement, this is just one more reason to hold back – particularly if you agree with the legal scholars who hold that Obama’s law doesn’t authorize tax credits or subsidies in federal exchanges. As our friends at Cato noted earlier:

This is where the glitch comes in: ObamaCare authorizes premium assistance in state-run exchanges (Section 1311) but not federal ones (Section 1321). In other words, states that refuse to create an exchange can block much of ObamaCare’s spending and practically force Congress to reopen the law for revisions.

The Obama administration wants to avoid that legislative debacle, so this summer it proposed an IRS rule to offer premium assistance in all exchanges “whether established under section 1311 or 1321.” On Nov. 17 the IRS will hold a public hearing on that proposal. According to a Treasury Department spokeswoman, the administration is “confident” that offering premium assistance where Congress has not authorized it “is consistent with the intent of the law and our ability to interpret and implement it.”

Such confidence is misplaced. The text of the law is perfectly clear. And without congressional authorization, the IRS lacks the power to dispense tax credits or spend money.

The IRS has since held hearings about the matter, but no resolution has happened yet. And while the administration maintains they can fix this problem via regulation, the Joint Committee on Taxation disagrees. Since the text of the law clearly does not clearly authorize it, the matter would have to be litigated later on should the Supreme Court strike down the individual mandate alone … providing yet another problematic delay for states that rushed ahead instead of waiting for the courts to sort things out. Patience, it turns out, has its rewards.

— Benjamin Domenech



Looks like Badger Care is going to shrink a bit:

Federal officials have signed off on plans by Gov. Scott Walker’s administration to cut costs in state health programs that will lead to an estimated more than 17,000 people leaving or being turned away.

President Barack Obama’s administration announced late Friday it had approved the changes after previously requiring the Walker administration to scale back the cuts, which would have originally affected 64,800 people. The changes will cause some adults to leave the program but will shield children from changes originally proposed by the state.

But other possible federal issues remain for the state. Federal officials, for instance, are also threatening to withhold federal funding for state long-term care programs unless the state shows it is complying with federal rules.

The Joint Finance Committee already approved revised Medicaid cuts last month on a party-line vote, with all Republicans in favor and all Democrats against. There were no immediate figures on how much the final actions will save.

The state is making the cuts to bridge a gap in the Medicaid program, which still faced a projected deficit of about $128 million through June 2013 as of March. The Walker administration is making other ongoing efforts to close that remaining gap through spending cuts.

SOURCE: Journal Sentinel


Without the price controls kicking in, the recession has helped bring down health spending to a flatter plateau:

Much of the slowdown is because of the recession, and thus not unexpected, health experts say. But some of it seems to be attributable to changing behavior by consumers and providers of health care – meaning that the lower rates of growth might persist even as the economy picks up.

Because Medicare and Medicaid are two of the largest contributors to the country’s long-term debts, slower growth in health costs could reduce the pressure for enormous spending cuts or tax increases.

In 2009 and 2010, total nationwide health care spending grew less than 4 percent per year, the slowest annual pace in more than five decades, according to the latest numbers from the Centers for Medicaid and Medicare Services. After years of taking up a growing share of economic activity, health spending held steady in 2010, at 17.9 percent of the gross domestic product.

The growth rate mostly slowed as millions of Americans lost insurance coverage along with their jobs. Worried about job security, others may have feared taking time off work for doctor’s visits or surgical procedures, or skipped nonurgent care when money was tight.

Still, the slowdown was sharper than health economists expected, and a broad, bipartisan range of academics, hospital administrators and policy experts has started to wonder if what had seemed impossible might be happening – if doctors and patients have begun to change their behavior in ways that bend the so-called cost curve.

SOURCE: New York Times


Chris Jacobs on the announcement from the Obama administration that it will stop giving insurance agents funding to sign people up for the high-risk pools.

According to the most recent data released by the Administration, 56,257 individuals with pre-existing conditions are enrolled in the federal high-risk pool program established under Obamacare. Six states have enrollment of fewer than 100 individuals – the District of Columbia’s pool, for instance, has but 44 enrollees. The current enrollment data do not come anywhere close to earlier projections – the Medicare actuary originally projected enrollment at 375,000 individuals in 2010, and [the] Congressional Budget Office estimated up to 700,000 individuals would attempt to enroll in the program by next year.

Two key points follow from the underwhelming enrollment in the pre-existing condition coverage, and the Administration’s claims enrollment is satisfactory:

1. It’s difficult for the Administration to argue that 129 million individuals have pre-existing conditions and “could be denied affordable coverage.” The 56,257 individuals enrolled in the new federal high-risk pool as of February 29 represent only .04% of the total number of Americans the Administration claimed suffer from pre-existing conditions.

2. ObamaCare spends $2.6 trillion in its first decade of full implementation, largely to ensure that those with pre-existing conditions have access to coverage. At this rate and based on these metrics – $2.6 trillion in spending, and 56,257 participants – the federal government will spend $4,621,647.08 per year for every person with pre-existing conditions newly enrolled in coverage. That’s not just enough money to buy each person with pre-existing conditions a platinum-plated insurance policy – that’s enough to buy each one a small hospital.

SOURCE: Senator Jim DeMint


A better number than initially thought, but still a sign of more shortfalls to come under the coming Medicaid expansion:

After weeks of intensive review of the Department of Health and Human Services’ Medicaid payment records, the agency is projecting a budget year 2013 shortfall of $82.5 million, down from the original $89 million.

“It certainly is good news,” said Sen. Richard Rosen, R-Bucksport, co-chairman of the Appropriations Committee. “I know that some on the committee were hoping the numbers would be better, but it is a decrease.”

The Medicaid eligibility computer system was not communicating properly with the bill-paying system for most of this budget year. DHHS identified 24,500 individuals who were ineligible for Medicaid but were listed as eligible in the system.

DHHS found that 7,000 of those individuals used their cards when they no longer were eligible, which precipitated $6.8 million in improper payments of state funds and $3.7 million in improper payments with federal funds.

The shortfall reprojection takes into account the paying of those improper payments and the payback to the federal government.

“It is a number that is based upon the data that we have available today,” said DHHS Commissioner Mary Mayhew. “I am optimistic, given what I have seen over the last several months, about this number. It’s a budget, but we have to be mindful that this is an entitlement program and demand for services change.”

SOURCE: Bangor Daily News


Encouraging news regarding the sets of most frequently prescribed drugs:

In a move that could help the government trim its burgeoning health care costs, the Food and Drug Administration may soon permit Americans to obtain some drugs used to treat conditions such as high blood pressure and diabetes without obtaining a prescription.

The FDA says over-the-counter distribution would let patients get drugs for many common conditions without the time and expense of visiting a doctor, but medical providers call the change medically unsound and note that it also may mean that insurance no longer will pay for the drugs.

“The problem is medicine is just not that simple,” said Dr. Matthew Mintz, an internist at George Washington University Hospital. “You can’t just follow rules and weigh all the pros and cons. It needs to be individualized.”

Under the changes that the agency is considering, patients could diagnose their ailments by answering questions online or at a pharmacy kiosk in order to buy current prescription-only drugs for conditions such as high cholesterol, certain infections, migraine headaches, asthma or allergies.

By removing the prescription requirement from popular drugs, the Obama administration could ease financial pressures on the overburdened Medicare system by paying for fewer doctor visits and possibly opening the door to make seniors pay a larger share of the cost of their medications.

The change could have mixed results for non-Medicare patients. Although they may not have to visit a doctor as often, they could have to dish out more money for medications because most insurance companies don’t cover over-the-counter drugs.

SOURCE: Washington Times


Avik Roy writes in his latest piece from the Manhattan Institute on the need for FDA reform:

Though the United States urgently needs new treatments for common illnesses such as heart disease, stroke, and diabetes, the nation’s system for drug approval discourages innovation and investment, especially for our most pressing public health challenges. In this paper, we find that the main culprit is the high cost of Phase III clinical trials, which are required for FDA approval of most drugs. We examined drug development in four major public health areas and discovered that for any given drug on the market, typically 90 percent or more of that drug’s development costs are incurred in Phase III trials. These costs have skyrocketed in recent years, exacerbating an already serious problem.

The enormous cost and risk of Phase III trials create incentives for researchers and investors to avoid work on medications for the chronic conditions and illnesses that pose the greatest threat to Americans, in terms of health spending and in terms of the number of people affected. This avoidance, in turn, harms overall U.S. health outcomes and drives up the cost of health care.

In this paper, we examined drug development in three such areas: obesity, adult-onset diabetes, and cardiovascular disease. We also examined the less burdensome regulatory situation in drugs for rare diseases, as an opportunity for contrast. We find that the current Phase III trial system forces pharmaceutical and biotechnology companies to take enormous financial risks and burdens them with needless and unpredictable regulatory delays. The current system has, in particular, prevented start-up biotech companies, mostly based in the United States, from challenging the dominance of large, multinational pharmaceutical concerns. It also, perversely, encourages more innovation in drugs for very rare diseases than it does in drugs for common conditions that afflict hundreds of millions of Americans.

As a result of our analysis, we recommend replacing the current “all or nothing” FDA approval system with one that reflects the realities of scientific research and the profiles of chronic long-term conditions. Such a reform would allow drugs that have been found safe and promising (in Phase I and Phase II clinical trials) to win approval for limited marketing to patients. This would give patients early access to innovative new therapies, while the FDA would retain the ability to collect information confirming the drugs’ safety and effectiveness and to revoke a drug’s marketing authorization later, when appropriate.

SOURCE: Manhattan Institute For Policy Research


A Washington, DC event on the dual eligible problem at 9 AM on Tuesday. Panelists include:

Melanie Bella, Centers for Medicare and Medicaid Services

Judith Feder, Georgetown University

Patricia Nemore, Center for Medicare Advocacy

Tim Schwab, SCAN Health Plan

Alan Weil, National Academy for State Health Policy

Joseph Antos will moderate.

SOURCE: American Enterprise Institute