FixHealthCarePolicy

Morning Bell: Dead Legislation Walking

Another day, another stream of health care fantasy from the White House. A quick look at two health care events from yesterday, one in Glenside, Pennsylvania, and the other in Tawas City, Michigan, clearly exposes the yawing gap between the Obama administration’s health care rhetoric and cold hard legislative reality. First in Glenside, President Barack Obama turned up the volume on his already tired “final push” for health care reform. In addition to the usual litany of false claims about the legislation in Congress (in fact, you don’t get to keep your doctor, it isn’t paid for, it doesn’t reduce costs) President Obama also repeated his new line from his doctors-in-lab-coats address last week:

“We have now incorporated almost every single serious idea from across the political spectrum about how to contain the rising cost of health care … Our cost-cutting measures mirror most of the proposals in the current Senate bill…”

But, as we pointed out last week, there is one not-so-minor difference between the Senate bill and the President’s new proposal: the Senate bill actually exists. Now, Democrats may be telling their conservative counterparts that they will have reconciliation legislative text in front of the Budget Committee by tomorrow, but don’t hold your breath. The “fixes” that the White House is promising wavering House Democrats they will make all sound easy at first glance: 1) scaling back the tax on high-end health insurance policies; 2) closing the Medicare D loophole; 3) boosting insurance subsidies; 4) increasing Medicaid payments; and 5) fixing the Cornhusker Kickback. But when you take a second look, you see that all of these “fixes” will cost more money. Just look at the Cornhusker Kickback which the President chose to address, not by taking away Nebraska’s special Medicaid payments, but by extending those extra Medicaid payments to every state! Every single item in the President’s proposal either increases spending or reduces new revenues. And he didn’t put forward any way to pay for them. If passing health reform were as easy as giving away free candy, Obamacare would be law already. Finding a way to pay for all these fixes is going to be just as difficult as every earlier effort to pay for this bill. So don’t expect any solutions anytime soon. (more…)

Tags: Cadillac tax, Cornhusker Kickback, ObamaCare, President's proposal, Rep. Bart Stupak, Senate Health Bill, taxpayer-funded abortions

What the House Would Have to Swallow in the Senate Bill

Amidst all the intense speculation about quickly passing the President’s health care agenda through the Budget Reconciliation process before the Easter Recess, ordinary Americans should remember one thing: the House of Representatives must first pass the 2,700-page, $2.5 trillion, Senate health bill. So, the next big step in the national health care debate is floor action in the House of Representatives, where House Speaker Nancy Pelosi must round up at least 216 votes.

Heritage analysts have conducted some extensive research and analysis of the provisions of the giant Senate bill. If the House passes the Senate bill and it goes to the President’s desk for signature, it then would become the law of the land. For all intents and purposes, the legislative debate would then be over.

Regardless of Administration or Senate leadership promises to “fix” the new law (the Senate bill) through the Budget Reconciliation process, there are no guarantees. Any “fixes”– if they did come about — would have to survive another round of Senate floor action. So it is worth recalling what the Senate bill would mean for Americans were it to become law. (more…)

Tags: Cornhusker Kickback, House Speaker Nancy Pelosi, Individual Mandate, Office of Personnel Management, President's proposal, public option, Senate Health Bill

Morning Bell: “The American Public Is Not Behind This Bill”

After more than a year of $862 billion deficit stimulus bills, national-debt-doubling federal budgets, and government takeovers of the auto industry, it is difficult to remember that President Barack Obama actually ran as a moderate in many ways. On his way to a 53% – 46% win over Sen. John McCain (R-AZ), then-Sen. Obama promised to “cut taxes for 95% of workers and their families,” expand the Army by 65,000 and the Marines by 27,000, and enact “a net spending cut” for the federal government. Obama promised lower taxes, a strong defense and shrinking the size of government. No wonder independents in nine states that went for President George Bush in 2000 and 2004 switched their vote to Obama in 2008 (CO, FL, IN, IA, NV, NM, NC, OH and VA). But now those independents are beginning to reassess. Public Policy Polling (a liberal polling firm) notes that Obama now has a negative approval rating in every state that he flipped from the Bush column to his in 2008.

And now President Obama has lost one of his biggest and earliest supporters on his signature issue: health care. Yesterday, when pressed on CNBC if he would be in favor of scrapping the Senate health care bill, Warren Buffett responded: “I would be.” Specifically, Buffett believes that the Senate bill will not contain health care costs: “We have a health system that, in terms of cost, is really out of control, and if you take this line and you project what has been happening into the future, we will get less and less competitive. So, we need something else. Unfortunately, we came up with a bill that really doesn’t attack the cost situation that much and we have to have a fundamental change.” Buffett is correct on both fronts: 1) the President’s own Centers for Medicare and Medicaid Services (CMS) has reported that the Senate health care bill would raise national health expenditures $234 billion by 2019; and 2) our current system is completely unable to control exploding health care costs. (more…)

Tags: deficit, Medicaid Expansion, national debt, ObamaCare, price controls, public opinion, Senate Health Bill, start over, Warren Buffett

Sen. Baucus Admits No Senator Can Understand Health Bill

Today on the Senate floor, Sen. Max Baucus (D-MT) admitted that no Senator can understand the health care bill or should be expected to. To watch the video, click here.

Tags: health care, Sen. Max Baucus, Senate Health Bill

Bending the Cost Curve in the Wrong Direction

This week the Commonwealth Fund released a report purporting to explain, as the title says, “Why Health Reform Will Bend the Cost Curve.” It is an exercise in pure, unsubstantiated speculation. They resurrect the long-discredited claim that the bill passed by the House and a somewhat similar but different bill currently before the Senate would not only slow the rate of growth in health care spending, but would reduce average family premiums. Ironically, most of the sources of alleged “cost savings” cited in the report are due to factors that will actually increase health care spending and/or health insurance premiums – and which are counted as such by other studies of the effects of proposed reform.

Even more ironically, they attribute the difference between their conclusions and those of other studies that show an increase in costs and premiums (by groups such as the CBO and the CMS Office of the Actuary) as due to the fact that the other studies “rely largely on peer-reviewed studies utilizing carefully controlled comparison groups,” whereas their own study is based on a “less formal, but no less important literature that sees the world very differently.” They also note that front-line physicians see vast amounts of waste due to misaligned incentives in the current system. However, doing a study less “carefully” and looking at “the world very differently” will not change the fact that the current proposals under consideration in Congress would, in the real world, establish a system with even more drastically misaligned incentives, increasing waste and costs for almost all categories of patients and providers.

The report concedes that “Extending health insurance coverage to essentially all Americans would increase medical spending, at least in the short run,” as the previously-uninsured enjoy greater access to health care. However, they assume that this is almost offset by reductions in Medicare and Medicaid benefits. According to the CBO report (Table 3), almost half of the reduction in the number of uninsured is accounted for by an increase in number covered by Medicaid. So in effect, they are saying we can obtain coverage for the uninsured by expanding Medicaid, and then pay for it by cutting Medicaid (and also by cutting Medicare). Somehow, providing health care to some poor people by taking it away from other poor people and the elderly is supposed to save money.

Next is a claim that “insurance exchanges … would group individuals and small firms into larger entities and thus drive down those administrative costs.” This is approximately the opposite of what these exchanges are designed to do, which is to break up groups so not everyone with the same small employer has to be in the same health plan. In other words, it breaks up groups. Also, any savings in administrative costs such as underwriting would be offset by increases in advertising to influence the choice of customers – and by the compliance costs associated with the regulations in the new exchanges. Both the House and Senate bills require insurers to seek regulatory approval individually for both the benefit package and the premium each health plan they offer – in addition to complying with existing state laws.

They also claim that: “In many areas of the country, there is little meaningful insurance competition. … A public option would contribute to this effort.” This claim is implausible on two counts. First, while there is some evidence of higher premiums due to limited competition in the large-employer market, the neither the exchanges nor the public option would be available to large employers. Second, while the exchanges and the public option would be available to individual purchasers, there is no evidence of a lack of competition in the individual market. There are over 1,300 companies, including not-for-profit organizations, currently competing in the individual market; it is hard to imagine one more playing on a level playing field making much difference.

They also claim that “a requirement that plans devote 85 percent of premiums to medical care, and authority for states [and in the House bill, the federal government] to review and reject premium increases. These can be expected to place downward pressure on administrative costs.” This is precisely backwards. Meeting the 85 percent requirement can be accomplished by either decreasing administrative costs or increasing medical costs. With most of their administration managing compliance with federal and state regulations, there will be little ability to reduce administrative costs. On the other hand, a plan that finds itself out of compliance with the 85 percent rule can always increase payments to physicians and hospitals, and increase premiums until the more-or-less fixed administrative costs fall below 15 percent. As a result the 85 percent rule would bend the cost curve upward, not downward.

The remainder of the author’s argument consists of a list of new categories of increased expenditures, together with the claim that all this increased spending will eventually decrease spending. For most of these, the reverse is true. For example:

– “Pay-for-performance incentives for Medicare providers,” despite their name, are really extra payments for providing (and documenting the provision of) specific lists of “recommended” interventions.

– “Higher reimbursements for preventive care services” and “increased emphasis on prevention and wellness” may benefit patients and physicians, but the overwhelming evidence is that it only rarely saves money and usually increases spending.

– “Increased funding for comparative effectiveness research” will cost money in the short run, with benefits in the long run that are purely speculative at best. Furthermore, as the recent controversy over the recommended mammogram schedule shows, government-run programs such as Medicare, Medicaid, and the proposed “public option” are subject to political pressure, making them less able to derive cost-saving benefits of such research.

– “An excise tax on high-cost insurance plans (in the Senate bill).” The Senate bill would impose a 40 percent excise tax on health premiums in excess of specified thresholds health plans would be forced to pass these taxes on to those paying the premiums, making high premiums even higher.. Cutting benefits to lower premiums could be difficult given a government-mandated benefit package.

Tags: Commonwealth Fund, excise tax, insurance premiums, Senate Health Bill

Obamacare in the Senate: Medicare Advantage, Medicare Cuts, Home Health Care and Entitlements

Debate continues on the Senate floor on the Patient Protection and Affordable Care Act of 2009 (H.R.3590), and the focus continues to be on Medicare and Medicare Advantage. While proposing spending cuts in one program to create another, the Senate leadership is claiming that all of these Medicare cuts are possible without cutting benefits or services in current Medicare programs, such as Medicare Advantage and Home Health Care.

Stabenow’s Medicare Advantage Amendment. Senator Debbie Stabenow (D-MI) proposed an amendment which would ensure that spending reductions to the Medicare Advantage program would not result in a reduction or elimination in benefits that enrollees would receive. Sen. Stabenow’s amendment passed 97-1.

This amendment is a curious, as well as popular. Its popularity may reflect the substance of the legislation. The reason: Senate Majority Leader Harry Reid’s (D-NV) bill includes $118.1 billion in cuts to the Medicare Advantage program. It’s hard to imagine how cuts of this magnitude would not affect benefits for enrollees of the program — now more than one in five seniors. Examining similar provisions in the giant House-passed bill, the Chief Actuary of the Centers for Medicare and Medicaid Services said comparable spending cuts to Medicare Advantage would “reduce MA rebates to plans and thereby result in less generous benefit packages.”

The Hatch Amendment on Medicare Advantage Cuts. Senator Orrin Hatch (R-UT) made a motion to commit the bill to the Senate Finance Committee to remove Medicare spending cuts, which would have guaranteed Sen. Stabenow’s promise to protect the Medicare Advantage program. Sen. Hatch’s amendment failed with a vote of 41-57.

The Kerry Amendment on Home Health. Senator John Kerry (D-MA) offered an amendment that the Senate bill would guarantee home health benefits that Medicare enrollees receive under title XVIII of the Social Security Act. The Kerry Amendment to guarantee these benefits was very popular. It passed 96-0.

The Johanns Amendment on Home Health. Senator Mike Johanns (R-NE) then offered a motion to commit the bill to the Senate Finance Committee to remove spending cuts to the same home health benefits that Sen. Kerry’s amendment seeks to preserve. The health care bill currently contains $42.1 billion in cuts to home health benefits over ten years. Sen. Johann’s amendment was defeated by a vote of 41-53.

Whitehouse Amendment to Preserve Social Security. Senator Sheldon Whitehouse (D-RI) offered an amendment to ensure that surpluses created by the health care bill in the Social Security trust fund and savings generated by the CLASS Act would be reserved for Social Security and the CLASS program, respectively. The Senate voted to preserve savings from these programs 98-0.

It is worth noting that the Senate bill delays spending until after revenue collection begins. In examining the CLASS Act provisions, the Congressional Budget Office says, “…the program’s cash flows would show net receipts for a number of years, followed by net outlays in subsequent decades.”

Thune Amendment on Entitlement Spending. Senator John Thune (R-SD) proposed an amendment which would remove the CLASS act altogether in order to eliminate new entitlement spending and limit government control over health care. Thune warned that Congress should not be creating more problems like those inherent in Medicare, which, like the CLASS Act, was also intended to be fiscally self-reliant on premiums and revenues collected by users of the program. Sen. Thune’s amendment was defeated by a vote of 51-47.

Kathryn Nix currently is a member of the Young Leaders Program at the Heritage Foundation. For more information on interning at Heritage, please visit: http://www.heritage.org/about/departments/ylp.cfm.

Tags: Amendments, entitlement spending, Home Health Care, Medicare Advantage, Senate Health Bill

How the Senate Health Bill Creates Inequities Among American Workers

The closer you look at the 2,074 page Senate health bill (H.R. 3590), the more and more complicated it becomes. Forget that level playing field.

As the Congress tries to figure out how to extend health insurance coverage to all Americans (They won’t, of course), Senate Democrats have proposed a federally designed health insurance exchange to operate in the several states through which individuals and small employers can purchase bureaucrat-approved health insurance.

Embodied in this scheme is the inclusion of generous taxpayer subsidies for Americans whose income falls below 400 percent of the Federal Poverty Level ( Today that would be $88,000 annually for a family of four). These subsidies include a cap on the maximum percentage of a family’s income which can be spent on coverage.

But there is a catch: the Senate bill also incorporates restrictions on accessing the exchange. It makes legal distinctions among Americans who can and cannot join. The distinctions are also unfair: Two families with the same income could receive financial help from the government that differs by thousands of dollars. This inequity is entirely based on the structure of the employer mandate, which, though it punishes employers for not offering insurance, makes it vastly more beneficial for employees to join the exchange than to receive employer-sponsored insurance. Follow this closely.

Treating People Differently. Consider, for instance, two families of four both receiving an annual income of 200 percent of the federal poverty line in 2016 ($48,000 for a family of four) Calculations by health care economist James Capretta clarifies the differences in official treatment. Family A receives health insurance through the new exchange, and family B receives health insurance through their employer. Both families purchase a health plan with a yearly premium of $14,100. In the exchange, family A is eligible for a subsidy for all costs above 6.5 percent of the family income. This means that family A only pays $3,120 for their health care, and the government picks up the rest of the tab — $10,980.

Family B, however, is not so lucky. True, they still get their health insurance through their employer. They are eligible for $3,350 in tax deductions that are part of current law, but they and( technically) their employer are responsible for the rest. ( Of course, as economists know, employer provided health insurance is offset by a decrease in wages and other compensation). The cap on what family B can pay out-of-pocket still applies, and the rest is “paid for” by the employer. But of course, as noted, the portion the employer pays comes from the total expenditure on that employee ( i.e., his or her income). So really, family B sees $7,630 less in help from the government to purchase health care, even though both families receive the exact same income.

Erecting a Firewall. Since family A clearly gets a better deal under the Senate bill, it goes without saying that all workers making under 400 percent of the federal poverty level – and eligible for federal subsidies – would be chomping at the bit to join the federally designed health insurance exchange in their state and get the fat new federal subsidy, courtesy of the taxpayers. But if they all did that, their migration out of employer coverage would blow another big hole in whatever imaginary, “deficit-neutral” health care budget the Senate leadership is contemplating. So, to prevent having to subsidize care for all 127 million of these people, the Senate bill stipulates special conditions for employees making under 400 percent of the federal poverty level. If these employees wish to drop their employer’s coverage, the portion that they pay must be above 9.8 percent of their income. Yes, 9.8 percent, to be precise. This is serious central planning here. Of course, for low-income workers, the likelihood of fulfilling this requirement is high; so expect them to try and drop out of employer-based coverage.

But then it gets even more complicated. Remember that the Senate bill includes an employer mandate to offer an acceptable level of health insurance or pay a tax penalty. Employers who offer the acceptable level of health insurance to their employees that opt out and join the exchange would face a $3,000 penalty per employee, capped at specified amount based on the total number of employees. According to Heritage Foundation health care economist Robert Book, this is a powerful incentive not to hire poor people in the first place. Moreover, according to Book,

“…If more than a quarter of the employees qualify for subsidies, the company would be paying the same tax penalty as if it had not offered a health plan in the first place. Faced with paying a hefty tax penalty whether they offer health insurance or not, many companies would drop their health plan.”

So, in effect, the incentives in the Senate bill are hardwired to encourage employers to drop insurance coverage. So much for the President’s promise of being able to keep the health insurance that you have and that you like.

For employers, it’s a no brainer. Not offering health insurance at all would result in employers paying a tax penalty of just $750 per employee. While this might be great for those under 400 percent of the federal poverty level, who would then be eligible receive the hefty taxpayer subsidies in the federally designed health insurance exchange available in their state, those above that income level would then have to purchase health insurance completely on their own. This means, of course, they would be paying thousands of dollars more than they would pay if their employer would have continued to provide the coverage. On top of this, they would pay with after-tax dollars. One of the great ironies of this entire House and Senate health care mess: the Congress preserves the gross inequities of the current federal tax treatment of health insurance – roundly condemned by virtually all health care economists – and simply adds more.

Unintended Consequence? It is hard to tell whether or not this set of incentives in the Senate bill is an unintended consequence or another deliberate effort to destroy existing private health insurance coverage. In either case, however, it will impact the final costs of the Senate bill. The Congressional Budget Office estimates costs based on only 18 million Americans receiving subsidies.

But, if the bill creates powerful incentives for employers to drop the coverage, the federal spending on taxpayer subsidies for health insurance will skyrocket, adding heavily to the cost of health care reform. So much for bending that health care cost curve downward.

Tags: bending cost curve, Exchange, Senate Health Bill, taxpayer subsidies