Why Obamacare Supporters Should Favor the Trump Administration's Medicaid Block Grant Proposal

Readers of this blog know that no one has been more critical of Obamacare's flaws––particularly over the impact the program has had on middle class consumers in the individual health insurance market.

And, readers already know that no one has been more supportive of the Medicaid expansion from the very beginning.

Now, the Trump administration wants to give states the option to abolish the open-ended federal funding of Medicaid via fixed block grants for only a small portion of those eligible, or potentially eligible.

Critics argue that by fixing these funds, particularly at a growth rate lower than paid in the past, will result in less money and if there is less money there will be fewer benefits and fewer people covered given the flexibility states would have to redefine the program.

That is a logical conclusion.

But it's a lot more complicated than that.

Republican Health Care Reform: The Congressional Republicans' Irrational Opposition to Medicaid

Congressional Republicans have consistently, if not unanimously, opposed Obamacare's expansion of Medicaid.

Their opposition is irrational.

It is also unpopular with voters. In dark red states like Nebraska, Idaho and Utah voters recently went over the heads of their Republican legislators and governors by approving referendums to expand the program. And, Kansas is about to become the 37th state to expand Medicaid under Obamacare after a bipartisan agreement between the Democratic governor and Republican leaders in the legislature.

While Obamacare's individual health insurance reforms and subsidies have been a disaster for the middle class (See: Obamacare is "Stable" at an Incredibly Unstable Place), the Medicaid expansion in the states that have approved it has covered millions of people that would never have been covered otherwise––at a cost that could never have been less.

Republican opposition has centered around a number of arguments. Let's take a look at each of them.

Why Are Centene and Molina the Exception To Most Big Health Plan Losses On the Obamacare Exchanges?

This paragraph in a recent AP story caught my eye:

Two companies that report exchange success so far, Molina Healthcare Inc. and Centene Corp., say they have focused on covering low-income customers in markets where they already have an established presence in Medicaid, the state-federal program that covers the poor. Molina sells coverage in nine states and is thinking about adding two for next year.

Why are these traditionally Medicaid carriers doing so well when most of the health plan market is losing their shirts in the Obamacare exchanges?

See my post at Forbes. 

By Refusing to Implement the Medicaid Expansion Republican Governors May Be Making the Republican Block Grant Proposals Impractical

Paul Ryan's Medicaid block grant proposals have always made sense to me. Give the states their Medicaid allotment and real flexibility over how they spend what will inevitably be less federal money.

But as I have thought about the impact of implementing the Medicaid expansion under the Affordable Care Act ("Obamacare"), Medicaid block granting is looking more and more problematic.

Conservative States: Do a Partnership Exchange? Expand Medicaid?

Should states build their own health insurance exchanges under the Affordable Care Act (ACA) ("Obamacare")?

Should states expand their Medicaid programs under the ACA?

These are the tough questions many, particularly conservative, states are now wrestling with. While it is too late for a state to now decide to build an exchange before the fast approaching launch date, it is still possible to build an exchange in partnership with the feds.

The 2012 Elections and 2013––We Face a Daunting To-Do List

The Affordable Care Act ("Obamacare") is now settled law.
It will be implemented. It will also have to be changed but not until after it is implemented and the required changes become obvious and unavoidable. We can all debate what those things will be (cost containment is on top of my list) but it doesn't matter what we think will happen––time will tell. 

There are and will be more lawsuits.
I wouldn't waste a lot of time worrying about those. Anyone in the market will do better spending their time getting ready for all of the change coming.

But, when will the Affordable Care Act (ACA) be implemented?
So far, only about 15 states say they want to implement health insurance exchanges. Some of those may not make the October 1, 2013 kick-off date.

Maybe now that it is clear the law will go forward, some of the conservative states who have said they would not build one will get into high gear rather than have the Obama administration do it for them. But they may not have enough time to be ready in less than eleven months.

The Medicaid Controversy––The Republican Governors Should Put Up or Shut Up

Indiana, New Mexico, and Wisconsin are asking the federal government to exempt people making between 100% and 133% of the poverty level from the upcoming Medicaid expansion.

These Republican governors need to put up or shut up.

Ever since the passage of the Affordable Care Act (ACA), Republican governors have been clamoring for block granting Medicaid.

The Supreme Court ruled that a state doesn't have to accept the new Medicaid expansion money under the ACA.

Many Republican governors––all of them actually––were saying before the Court ruling that the Medicaid expansion was yet another unfunded federal mandate they could not afford. Now the Court has told them they don't have to do it.

Be careful what you wish for.

The Supreme Court Ruling on Health Care, Its Impact on Medicaid, and 29 Republican Governors--Be Careful You Might Get What You Wish For

Conservatives wanted the Supreme Court to do the work of killing the Affordable Care Act (ACA) for them. They didn’t get their wish but the Court may have put conservatives into a political corner they will find very uncomfortable.

Under the new health law, the Medicaid program will be substantially expanded. Those making up to 133% of the federal poverty level (about $30,000 in annual income for a family of four) will be eligible for Medicaid benefits. Many conservative governors—there are 29 Republican governors—were angry that the federal government would force even more Medicaid spending on them at a time their current Medicaid programs have become a major burden on their state budgets. Originally, under the ACA, if the state didn’t agree to expand their Medicaid program, they would lose all Medicaid funding.

The Supreme Court has now said that if a state doesn’t want to expand their Medicaid programs they don’t have to and they will not lose their current Medicaid funding from the federal government.

Now, conservative governors who said they wanted no part of a Medicaid expansion shoved down their throats from Washington have the ability to opt out of it without a penalty. That puts those conservative governors and their legislatures on one big hot seat. Whether or not their state gets a Medicaid expansion is now entirely up to them. It’s put up or shut up time for conservative governors and state legislators who said the ACA was an onerous expansion of federal powers over their states.

If some states do reject the Medicaid expansion, consumers between 100% of poverty and 133% of poverty would become eligible for the private federally subsidized insurance in the exchanges since the subsidies start at 100% of poverty. That would mean more business for those offering private insurance in the exchanges.

It also means that the federal government’s cost of covering these people would increase—covering them under Medicaid would be cheaper than under the private plans in the exchanges.

For those between 100% of poverty and 133% of poverty, it would be a mixed bag. Instead of a Medicaid plan, they would get a mainstream private insurance plan from the exchange that could gain them access to the health care system beyond only the providers who accept Medicaid patients. But they would have to pay 2% of their income in premiums—$600 a year if they make $30,000 a year. And, unlike Medicaid, they would be subject to standard deductibles and copays—perhaps an upfront $1,000 deductible per person. The cheapest plan, the bronze plan, is intended to only cover about 60% of health care costs.

Governors even end up having an incentive to dump Medicaid people onto the exchange—the state has to pay 10% of any Medicaid extension starting in 2017 but none of the cost of subsidies in the private exchanges.

And, some states don't now provide Medicaid coverage for some poor people making less than 100% of the poverty level--leaving them caught in a gap before federal coverage starts at 100%.

So, it’s not an open and shut case for the states on what they should do.

And, can you even imagine the pressure these governors and legislators are going to come under from providers? Hospitals, for example, will suffer cuts under the new health care law--cuts they agreed to in order to increase the number of people coming to them with Medicaid cards in hand. If the states don't take the Medicaid money, the hospitals will be left with the cuts but not get the benefit of more patients gaining coverage.

Many of these conservative governors and state legislators will have lots of options--options they will have to vet openly in front of all of their voters. And no one is shoving anything down their throats--it's all up to them.

2012: A Year of Huge Uncertainty in Health Care Policy

2013 may be the most significant year in health care policy ever.

But we have to get through 2012 first.

Once the 2012 election results are in there will be the very real opportunity to address a long list of health care issues.

If Republicans win, the top of the list will include “repealing and replacing” the Affordable Care Act. If Obama is reelected, but Republicans capture both houses of Congress, we can still expect a serious effort to change the law. Then there is the granddaddy of all problems, the federal debt. The 2012 elections could well prepare the way for entitlement reform—particularly for Medicare and Medicaid. Even if Obama is reelected, the 2013 agenda will include a serious debate about Republican ideas to change Medicare into a premium support system and block grant Medicaid to the states.

If the election is a draw with neither side able to unilaterally move their agenda—likely in the form of Obama still in the White House but facing a Republican Congress, the pressure to deal with the growing costs of Medicare and Medicaid as well as nagging concerns about the implementation of the Affordable Care Act will create an imperative for action in 2013.

That first year after a presidential election is the time when things can get done. After a long and drawn out campaign, that is the year that everyone expects action. With 2014 being another election-year and 2015 and 2016 years in the run-up to another four-year presidential election cycle, passing big legislation only becomes more difficult as time goes on.

What does this mean for 2012? Look for most health care action to be out on the campaign trail as both sides try to achieve a mandate to act in 2013.

That doesn’t mean 2012 won’t be short on drama.

The big show will be up at the Supreme Court starting in late March. Will the Supremes uphold the whole Affordable Care Act, tell everyone to come back in 2014 when someone is actually harmed by the individual mandate (citing the Anti-Injunction Act), throw the individual mandate out and send the law back to lower courts for a many months process deciding what else has to go, toss the Medicaid expansion, or some combination of all of the above?

About the only certain judicial path over whether and how the Affordable Care Act would be implemented is for the Court to uphold the whole thing. The alternatives could be any number of combinations that would present the market with a nothing short of an implementation nightmare.

Can you even imagine the run-up to full implementation on January 1, 2014 if President Obama were to be reelected, the Republicans were to capture both houses of Congress, and the Court overturned the individual mandate and any number of related items? The law would have to be fixed. A Republican Congress would want to “fix” it one way and Obama would be determined not to see the Affordable Care Act gutted, with neither side able to unilaterally advance a solution.

Or, we could have a majority of Republicans in the Congress, and a Republican President in the White House, that would certainly kill at least the budget related parts of the bill before Valentine’s Day 2013 no matter what the Court said—it would take 60 votes in the Senate to get rid of all of the law. That would leave a market that had already implemented the first elements of the law and was almost ready to implement the rest of a long list of huge new changes that would have just evaporated but still leaving some of the law's items dangling if the two sides couldn't find a way to work together.

Or, the Court could throw out the individual mandate and the related insurance elements of the new law with a Republican Congress and President eager to throw out the rest of it, needing only 51 Senate votes to get virtually all that was left.

Will the Supreme Court throw a wrench into the Affordable Care Act? I have no idea and I don’t see any evidence anyone else does either. The chances they could throw out the mandate and other key parts of the law look to be about as good as their upholding the whole thing or citing the Anti-Injunction Act in telling everyone to come back in 2014. Don’t underestimate the Court’s interest in not fiddling with the Anti-Injunction Act any more or less than any other part of the law they are going to review.

The first half of 2012 will be the quiet before the potential storm as we await the Supreme Court’s decisions.

If they uphold the law we will need to await the election. With Republicans poised to hold the House and capture the Senate, the real question looks to be whether President Obama will be reelected and therefore able to defend the Affordable Care Act with his veto pen.

If the Court throws out key moving parts in the law, the only way to avoid real market problems will be for the 2013 Congress and President to work together.

If this spring the Court cites the Anti-Injunction Act and tells both sides to come back in 2014, we will just have more uncertainty with nothing decided and the same Constitutional issues still festering.

And, then there are the still growing federal debt and the Medicare and Medicaid entitlement issues to be decided. The 2012 elections are setting up to be a referendum over Republican proposals to limit federal entitlement liabilities by implementing a Medicare premium support system as well as shifting responsibility for Medicaid to the states via block grants versus Democrats who will defend the traditional structure of these entitlements.

What will 2012 give us in 2013?

The Debt Super Committee—Will We Get a Deal?

It’s back to work in Washington, DC and all the attention is now on the Super Committee and their goal of cutting spending by at least $1.2 trillion over ten years.

If the committee fails to come up with a plan that passes the Congress, there would be $1.2 trillion in automatic cuts. The health care special interests have reason to hope they will fail—the fallback cuts would only impact Medicare providers in a small way—2% in provider cuts—and not directly impact beneficiaries or Medicaid generally. Any Super Committee deal would likely be more far reaching if for no other reason than to protect the defense budget from the huge cuts the fallback would require.

But the fallback would not solve any of the systemic problems the health care entitlements face and only prolong the inevitable day of fiscal reckoning.

Even a $1.2 trillion reduction—$2.1 trillion with the additional $915 billion reduction in discretionary spending that was part of the deal—is only a down payment on solving America’s fiscal woes—we face a $10 trillion budget shortfall over the next ten years.

Will the Super Committee succeed? That’s the big question in Washington.

Many believe it cannot succeed because all of the fundamental policy differences between conservatives and liberals remain while many in both parties think failure and taking the issues to the next election makes political sense.

Others worry that the fallback cuts to defense are so great that outcome has to be avoided and the committee just has to be serious about finding a solution. Add to that the political consequences of failure with voters, who watched the debt ceiling talks and are more disgusted than ever before. The latest polls say the voters are now looking to “throw the bums out” no matter which party they’re in if they don’t grow up and start solving problems.

With federal health care costs being the biggest deficit driver the Super Committee has another impossible challenge. No one wants to cut the Medicare benefits of current retirees or those who will retire in the near-term. But the Super Committee has only a ten-year budget window that it has to work within. How do you reduce Medicare spending between now and 2021 but not hurt a current retiree or someone whose plans for retirement assume Medicare benefits won't change?

My sense is that if we see another messy political stalemate in the Super Committee the next election will be about throwing the incumbents out—Democrat and Republican. I am hopeful both sides understand they need a deal, or the 2012 political consequences will be dire for anyone now holding a federal office.

But, as I said during last summer’s debt ceiling debate, just exactly how both sides, which have been so intransigent, can find a way to compromise isn’t clear to me.

One scenario for what could will happen suggests that the Super Committee will not be able to come to an agreement, the $1.2 trillion fallback trigger's automatic cuts would take effect, and the impact of that trigger, primarily on defense, would be so bad that the Congress would be forced to revisit the entire deal in 2013––after the election. Think of the annual Medicare physician Sustainable Growth Rate fiasco but every year for the whole budget until a consensus in the country can develop about how to permanently fix this.

But more failure at reaching a deal will only make the voters more mad then they already are--if that is possible.

Some have suggested the real solution is to "go big"--agree to a real longer-term solution that begins the process of entitlement reform that is inevitable. While "going big" is arguably the right thing to do it would also mean a "great compromise." Something both the far left and the far right would find anathema in this hyper-charged 2012 election environment. A grand compromise would likely mean more taxes and deep entitlement cuts--something that members of Congress aren't likely to do for fear of retribution from their respective base with the primary season just months away. Can you imagine what the Tea Party would do during primary season to any Republican who voted for a tax increase? Or, what the left would do to a liberal that "sold out" the entitlements?

Another scenario, suggested by a report last May from the Committee for a Responsible Government, details almost $1 trillion in a wide variety of smaller scale common ground budget cuts already proposed by both Republicans and Democrats. This list illustrates that there might be a means to eek out $1.2 trillion in savings and avoid having to deal with the most controversial ideas--tax increases and at least far reaching entitlement reform.

The Super Committee has an almost impossible job in front of them. Any "go big" and systemic solutions I can think of would appear to be politically impossible. Maybe they can kick the can down the road one more time. Maybe not.

What a mess.

The Debt Deal: There Will Be Blood on the Floor on November 23rd

The debt deal is finally done. But it really isn’t an agreement on what cuts will be made, just the process that will be used to make them.

The real work is left to the Congressional appropriators for the first $917 billion and for a super-committee of Congress for the second $1.2 trillion to $1.5 trillion in ten-year cuts.

That second tranche is where health care will make its contribution. The super-committee has to make its decisions by November 23rd and, as a practical matter, the Congress can only accept what the super-committee decides or face the consequences of the automatic $1.2 trillion fallback cuts.

When it comes to health care and the super-committee, all federal health care spending is on the table—–Medicare, Medicaid, the new law, benefits, and provider payments.

Since the budget window for the deal is ten years, it is not likely that any changes will be made to entitlement eligibility—such as delaying the Medicare eligibility age from 65 to 67. It just wouldn’t be fair to tell a 60-year-old their Medicare eligibility age is being raised. But we could see more means testing of Medicare premiums.

It is possible that the super-committee could deal with real systemic health care reform—–particularly in the way we pay providers. But I doubt it. The committee isn’t going to have a lot of time to take up so complex a matter as systemic health care payment reform given that they will have to deal with hundreds of billions more in cuts from lots of federal programs. I don’t see the committee as having the expertise, will, or the time to tackle real health care reform.

The real potential for cuts will be to provider reimbursement.

So, all of those provider organizations that thought they scored big by limiting their contribution during the health care reform debate are likely be on the defensive in ways they could not have imagined 18 months ago.

Physicians, facing a 29.5% Medicare Sustainable Growth Rate (SGR) fee schedule cut on January 1, 2012, need to be really worried. That 29.5% cut is part of the existing budget baseline from which the super-committee needs to cut hundreds of billions more—much less find tens of billions of dollars to put these doc cuts off again. Hospitals who got off with a $150 billion contribution to the Affordable Care Act have to be in the bull’s eye this time. Drug companies are a particularly juicy target for liberals who don’t like them and conservatives who wish the Part D program had never been passed. Medicare Advantage insurers have recently been reporting record profits—not something you want to be doing when the Congress is looking for lots of cash.

While there is a 2% cap on any cuts that could occur to Medicare in the $1.2 trillion default trigger, there are no limits to what the super-committee can cut. As an order of magnitude, it looks to me like the cuts Medicare will have to eventually sustain from the super-committee will have to approach to the cuts the program saw under the new health care law--largely because of the impact the SGR formula has on the baseline the committee will have to use.

Medigap insurers could also be at risk. A proposal to reduce first dollar Medigap coverage continues to hang-on and would likely at least be on the super-committee’s table. Its $50 billion value is just too big to ignore. But that is offset by how unpopular such direct cuts to millions of Medigap policyholders would be.

I would not be surprised to see the super-committee take a hard look at reducing Medicaid spending by giving the states more flexibility and less money.

The debt ceiling formula the Congress and the President just agreed to is a particular problem for the physicians. They are the ones who agreed to support the new health care law (the AMA anyway) without getting a fix to the Sustainable Growth Rate dilemma. Now, the debt deal seals the physician fee baseline at a level that presumes the 29.5% fee cuts are in effect. It is from this point that the super-committee has to start its work.

Given how reluctant Congress has been to cut the docs in past years, just how the heck are they going to accomplish net Medicare cuts and take care of the docs this time?

And just think of the impact big provider cuts could end up having on health care cost trends as providers attempt to shift the impact of these cuts to the entire health care system--just as health care cost trend has finally been slowing down.

If you thought we had a tense few weeks over the debt ceiling, you had better clear your calendar for the weeks leading up to the November 23rd super-committee deadline. The debt deal was only about process, this next big fight is going to be about real and significant cuts and there will be be some significant blood on the floor when it is over!

The Budget Fight: It Will Be A Long Hot Summer, and Fall, and Winter…

The good news is that Democrats and Republicans are finally seriously engaged over the country’s fiscal crisis.

And, each side is presenting a starkly different course for the voters to choose from.

When it comes to the health care entitlements, Republicans want to cut the health care entitlement benefits and therefore ease the pressure on federal spending.

Obama wants to largely leave the programs in place and raise taxes--about $1 in tax increases for $2 every dollars in cuts.

Neither touches Social Security. Obama wants to make cuts to the Pentagon's budget—the Republicans don't.

The solution Republican House Budget Chair Paul Ryan (R-WI) has presented for controlling Medicare and Medicaid costs is almost entirely a cost shift strategy. While I would agree that means testing and defined contribution approaches to making health care consumers more cost conscious should be part of the solution, this is about all Ryan is proposing.

I worry that Ryan and the Republicans are just sticking future seniors with the problem—uncontrolled health care costs—without doing anywhere near enough to create a more cost effective health insurance and delivery system for them to have a chance of finding affordable health care.

I worry less about the Republican proposal to block grant Medicaid payments to the states. While this is just another cost shift strategy that limits federal spending at the expense of the states, at least the states have the ability (and then the incentive) to implement Medicaid cost containment policies--state by state--that give them the chance of actually reducing costs and delivering affordable care. States also have to balance their budgets every year--a real incentive the feds don't have!

The President said all of the right things about health care in his budget and debt speech yesterday. But this President has been saying the right things, while telling us we can’t kick the entitlement can down the road any longer, since he took office. And, then he just kicks the entitlement can down the road.

The only promising health care proposal I heard from the President yesterday was his proposal to strengthen the Medicare Cost Board (the IPAB), which the Affordability Act created last year. But even that was far more tepid a proposal than it needs to be. He would only sharpen the trigger—invoking the Board if spending began to exceed GDP growth by one-half a percent rather than the current one percent. What he really needed to do was expand the breadth of its powers, to include things like the benefit structure, and to get it working sooner—it now can’t impact health care spending before 2015—2020 for hospitals.

Neither the Republicans nor the President have done anything near enough in their proposals to counter the chronic unsustainable rise in health care spending that is just going to continue without systemic change to the way providers and insurers are paid.

Republicans pretty much just shift costs to seniors and the states. Obama pretty much just shifts the costs of these unaffordable programs to the “rich” through bigger taxes.

I doubt Ryan's Medicare cost shift strategy has much of a chance politically. The President will have all he can do to keep both Democrats and Republicans, under pressure from the provider special interests, from repealing the Medicare cost board as it now exists.

Whatever the political outlook for either side, we are about to see another budget and deficit showdown/crisis around Memorial Day—this one over raising the debt ceiling.

The two sides couldn’t have more different approaches to the problem—but neither really have solutions.

When the two sides get past what will quickly become the debt ceiling crisis—likely no more smoothly than they did the recent government shut-down crisis over the 2011 budget, then it will be on to the 2012 budget fight and the same stark differences and lack of real health care solutions.

This summer's debt limit, and the fall's 2012 budget confrontations, will be herculean fights.

Too bad these fights won’t be over how to solve the problem.


More on the Republican Health Care Proposal: The “Path to Prosperity”—Where’s the Health Care Cost Containment?

On controlling costs: What It Will Take to Bring America’s Health Care Costs Under Control––We Have to Change the Game

Shame on AARP For Their Response to the Deficit Commission Co-Chairs' Report

The Co-Chairs of the President’s Deficit Reduction Commission are out with their preliminary recommendations.

They’ve done a great job—they’ve offended about everyone!

But we have a nearly impossible but unsustainable challenge in front of us if we are ever going to crawl out of this deep hole.

It is not so much what is on their list as what this list tells us about just how fundamental the changes are going to have to be for anyone who depends in any way on the federal government—which would be everyone in this country born or going to be born for decades to come.

In fact, the preliminary report calls for the Congress to revisit the Public Option if health care costs don’t meet a set of initial five-year targets. Nothing has been left off the table whether it is an unfettered discussion of how bad things are or the wide range of controversial options that now must be considered.

So how does AARP respond to the truth about the problem and an honest attempt to deal with it?

Some separate quotes from their press release yesterday in response to the report:

“With the release of the Co-Chairs’ proposal from the President’s Fiscal Commission today, AARP has responded with concern about how these recommendations would hurt the health and financial security of middle class Americans in particular, and believes that the proposal is contrary to the best interests of American families.”

“During these tough economic times, the last thing we should be considering is targeting the guaranteed, inflation-protected Social Security benefits that millions of Americans count on every day,’ said Nancy LeaMond, AARP Executive Vice President.”

“We're also deeply concerned that the Co-Chairs' Proposals would aim to reduce the deficit by shifting health care costs onto seniors in Medicare. Raising costs on the sick and the most economically vulnerable is both wrong and counter-productive policy. Instead, we should be focused on efforts to lower costs throughout the health care system.”

I liked Senate Budget Chair Kent Conrad’s response a whole lot more, "People can say we want to keep what is. What is is not affordable.”

Of course any report like this is going to be "dead on arrival" on Capitol Hill. But it's real value is that it can be the beginning of an honest discussion on what we will have to do.

AARP has lots of people at its Washington headquarters that understand these problems better than most and very much care about maintaining the integrity of our entitlement programs.

I expected a lot more from them.

AARP should be doing its part getting our people ready for change not pretending that it can somehow be painlessly avoided.

AARP should be taking the lead in explaining to seniors, and those on their way to becoming seniors, just what the problems are and just how fundamental the change is going to have to be if we are in fact going to hand our children and grandchildren a sustainable American Dream.

Shame on AARP! If anyone could be providing critically important leadership here it is them.

Download the Co-Chair's Report

CBO to Health Care Reformers: Naive Policy Makers Need Not Apply

The Congressional Budget Office (CBO) has released two comprehensive papers detailing the policy and financial options for health care reform: Key Issues in Analyzing Major Health Insurance Proposals and Budget Options, Volume I: Health Care.

I can't overestimate the importance of these documents to health care reform.

I recently did a post as sort of an open letter to the CBO: To the Congressional Budget Office: Please Keep Playing it Straight!

After reading these two reports, totaling more than 400 pages of some of the most valuable health policy analysis I have ever seen, I now know that I had no reason to worry that the CBO would just tell the politicians what they wanted to hear.

Any Congressional health care reform proposal will need to be “scored” by the CBO and, by preempting the coming proposals with this report, the career CBO health care experts have now made it very clear they will not be an easy touch. Reformers are going to have to play the game on the up and up—show real savings or find the money elsewhere. CBO Director and incoming Obama Budget Director, Peter Orszag, also deserves a lot of credit for supporting his staff and issuing this report.

It is also clear that, whoever the Congressional Democratic leadership appoints to succeed Orszag, a marker is down. The CBO is on the record about what the likely reform options will cost before anyone had a chance to bring political pressure to bear. And, that just might have been intentional.

The work contains an inventory of about all of the health care reform options being discussed complete with a thorough cost/benefit analysis detailing their impact on federal spending. There would certainly be impact on private spending from many of these options but this at least gives us a relative cost index to compare the many health care reform ideas. This is also a financial report and did not attempt to measure quality improvements.

Taken together these two documents make a number of critical points:

1. There are no one, two, or even ten silver bullets. There are literally dozens of steps that will likely have to be taken in order to achieve the savings necessary to make our system more cost and quality effective.
2. The politically easy stuff won't get it done. Democrats and Republicans have said that things like prevention, wellness, and wider use of health information technology can free-up the savings we need to make our system affordable even while we dramatically expand the number of citizens covered. But the CBO confirms that these less politically problematic “cost containment lite” proposals won’t be enough: “…approaches—such as the wider adoption of health information technology or greater use of preventive medical care—could improve people’s health but would probably generate either modest reductions in the overall costs of health care or increases in such spending within a 10-year budgetary window.”
3. Really controlling costs will be very hard and will require some courageous and politically problematic actions: “Those problems cannot be solved without making major changes in the financing or provision of health insurance and health care. In considering such changes, policymakers face difficult trade-offs between the objectives of expanding insurance coverage and controlling both federal spending and total costs for health care.”
4. Changing what we pay will have far more potential to change the system's costs than changing how we pay.
   

The CBO’s work provides a detailed shopping list of policy options complete with assumptions and an analysis of what the various steps could cost or save the federal budget.

When you read through the reports it becomes clear that there are things we can do that will help but really be a drop in the huge health care bucket. There are other things that we can do that would have a really dramatic impact on federal health care spending—and they tend to be the most politically problematic.

For example, The Baucus Health Plan makes a big deal about saving money from “waste, fraud, and abuse.” But such efforts are estimated by the CBO to save a relatively inconsequential $500 million over ten years. Using pay-for-performance systems, the health care fix de jour, yields only single digit gains while reducing Medicare physician payments in line with productivity gains would save a whopping $201 billion over ten years.

Rebasing the Medicare physician payments using the Medicare Economic Index (MEI) would cost a budget busting $556 billion over the next ten years and "equalizing" the private Medicare Advantage payments—the favored method to pay for a fix—would only save $157 billion over the same period.

Many of these proposals save a great deal of federal spending because they shift costs to the private sector—for example a “pay or play” large employer mandate would save the government $48 billion but would certainly cost the private employer community a great deal more.

Here is a partial list to give you a sense for the trade-offs. Note in particular the items, or categories, that make a big or small difference compared to others. The estimates apply to federal spending and the cumulative impact the particular proposal would have on the deficit over ten years--between 2010 and 2019.

The reports also detail the many advantages and disadvantages to do these things not directly reflected by the budget estimates.

I offer this partial list from the 115 options presented as a quick opportunity to compare many of the most mentioned policy options and other options the CBO has found will have the biggest impact. You really need to read the document and the assumptions that go with these estimates to fully appreciate the analysis.

Change the Health Insurance System

• Foster the Formation of Association Health Plans – Adds $220 million to the deficit by 2019.
• Allow Individuals to Purchase Non-Group Health Insurance Coverage in Any State - Reduces the deficit by $7.4 billion by 2019.
• Impose a “Pay-or-Play” Requirement on Only Large Employers – Reduces the deficit by $48 billion by 2019.
• Establish a National High-Risk-Pool Program – Fully subsidizing all state’s to enable them to cap high risk pool premiums at 150% of the market would add $16 billion to the deficit by 2019.
• Establish a National Reinsurance Program to Provide Subsidies to Insurers and Firms for Privately Insured Individuals – Enacting a program to absorb 75% of the cost of high cost claims would add $752 billion to the deficit by 2019.
• Create a Voucher Program to Expand Health Insurance Coverage – Providing vouchers for the uninsured with incomes below 250% of poverty with a cap of $1,500 for individuals and $3,000 for families would add $65 billion to the deficit by 2019.
• Require States to Use Community Rating for Small-Group Health Insurance Premiums – Reduces the deficit by $5 billion by 2019.

Medical Malpractice Reform

• Limit Awards from Medical Malpractice Torts – Reduces the deficit by $5.6 billion by 2019.

Change the Tax System

• Reduce the Tax Exclusion for Employment-Based Health Insurance and the Health Insurance Deduction for Self-Employed Individuals – Capping family health insurance deductions at $1,442 per month adds $452 billion in new revenues by 2019.
• Replace the Income Tax Exclusion for Employment-Based Health Insurance with a Phased-Out Deduction – Beginning to phase-out the exclusion for employer health insurance at $160,000 in family income adds $552 billion in new revenues by 2019.
• Disallow New Contributions to Health Savings Accounts – Adds $10.5 billion in new revenue by 2019.
• Replace the Existing Income and Payroll Tax Exclusion on Employer Provided Health Insurance with a Refundable Credit – A more limited credit equal to 25% of health insurance premiums that would be phased out for high earners would increase federal revenues by a whopping $606 billion by 2019.

Expand Access to Public Programs

• Raise the Age of Eligibility for Medicare to 67 – Reduces Medicare spending by $85.6 billion by 2019.
• Create a Medicare Buy-In Program for Individuals Ages 62 to 64 – Adds $1.2 billion to the deficit by 2019. CBO estimates the average single premium would be $7,600 a year in 2011.
  
• Expand Medicaid Eligibility to Include Young Adults with Income Below the Federal Poverty Level – Adds $22 billion to mandatory spending by 2019.
• Create a Medicaid Buy-In Program – Allowing the uninsured below 300% of poverty to buy-in to Medicaid would add $7.8 billion to the deficit by 2019.
• Expand Medicaid Eligibility to Include Parents with Income Below the Federal Poverty Level – Adds $37 billion to the deficit by 2019.

Quality Initiatives and Pay-for-Performance

• Reduce Medicare Payments to Hospitals with High Readmission Rates Above the 50th Percentile – Saves $9.7 billion by 2019.
• Expand the Hospital Quality Incentive Demonstration to All Hospitals – Saves $2.9 billion by 2019.
• Deny Payment Under Medicaid for Certain Hospital-Acquired Conditions – Reduces mandatory spending by $45 million by 2019.
• Allow Physicians to Form Bonus-Eligible Organizations and Receive Performance-Based Payments – Reduces spending by $5.3 billion by 2019.
• Pay Primary Care Physicians in Medicare Using a Partial-Capitation System, with Bonuses and Penalties – A net reduction of $5.2 billion in spending by 2019.
• Pay for a Medical “Home” for Chronically Ill Beneficiaries in Fee-for-Service Medicare – An increase in mandatory spending of $5.6 billion by 2019.
• Fund Research Comparing the Effectiveness of Treatment Options – The net effect on the deficit between 2010 and 2019 would be an increase of $860 million and “reduce total spending on health care in the United States by an estimated $8 billion over the 2010–2019 period (or by less than one-tenth of 1 percent).” CBO seems to be saying that more such information will be of small value unless underlying incentives that promote inefficient practice patterns are not changed.

Health Information Technology

• Create Incentives in Medicare for the Adoption of Health Information Technology Including Bonuses and Penalties for all Physicians – A reduction in the deficit of $4.4 billion by 2019.
• Require the Use of Health Information Technology as a Condition of Participation in Medicare – A savings of $11 billion on physician payments and a savings of $23 billion for hospitals by 2019.

Change Provider Payments

• Reduce Medicare’s Fees for Physicians in Areas with Unusually High Spending – A reduction of $5.3 billion in federal spending by 2019.
• Reduce Medicare’s Payment Rates Across the Board in High-Spending Areas – A savings of $51 billion by 2019.
• Reduce Annual Updates in Medicare Fee-for-Service Payments to Reflect Expected Productivity Gains - $201 billion in savings by 2019.
• Reduce the Update Factor for Hospitals’ Inpatient Operating Payments Under Medicare by 1 Percentage Point – A savings of $93 billion by 2019.
• Reduce the Update Factor for Payments to Providers of Post-Acute Care Under Medicare by 1 Percentage Point – A savings of $54 billion by 2019.
• Eliminate Inflation-Related Updates to Medicare’s Payment Rates for Home Health Care for Five Years – A savings of $50 billion by 2019.
• Modify the Sustainable Growth Rate Formula for Updating Medicare’s Physician Payment Rates With Annual Updates Based Upon the Medicare Economic Index (MEI) and Include a Part D Hold-Harmless– Eliminating the Sustainable Growth rate Formula and rebasing on the MEI would increase spending by $556 billion over ten years. Freezing payments at 2009 levels would cost $318 billion over ten years.
  
• Set the Benchmark for Private Plans in Medicare Equal to Local Per Capita Fee-for-Service Spending – Reduces spending by $157 billion by 2019.
• Require Manufacturers to Pay a Minimum Rebate on Drugs Covered Under Medicare Part D – Using the Medicaid rebate policy as a model saves $110 billion by 2019.

SCHIP

• Eliminate Allotment Caps for the State Children’s Health Insurance Program and Permit States to Expand Coverage up to 400 Percent of the Federal Poverty Level – Adds $80 billion to the deficit by 2019.

Premium and Cost Sharing in Federal Programs

• Require a Copayment for Home Health Episodes Covered by Medicare – A 10% Copay saves $47 billion by 2019.
• Impose Cost Sharing for the First 20 Days of a Stay in a Skilled Nursing Facility Under Medicare – Saves $27 billion by 2019.
• Impose a Deductible and Coinsurance for Clinical Laboratory Services Covered by Medicare – Saves $24 billion by 2019.
• Institute a Premium for Higher-Income Enrollees Under Medicare’s Drug Benefit Similar to That Used in Part B – Saves $10 billion by 2019 without adjusting for inflation.
• Increase Funding for the Health Care Fraud and Abuse Control Program in Medicare and Medicaid by $1 billion – Savings of $1.5 billion by 2019 for a net savings of $500 million.
• Increase the Payroll Tax Rate for Medicare Hospital Insurance by One Percentage Point – Increasing the Medicare tax by one percentage point on all earnings would increase federal revenue by $592 billion by 2019—doing it only on earnings above $150,000 would increase federal revenues by $77 billion by 2019.

The inescapable conclusion is that what we pay has the potential to matter more than more than how we pay for it.

You can download the CBO reports here.

If Grady Fails--The Crisis At Atlanta's Grady Health System Is A Symptom Of Bigger Problems In The U.S. Health Care System

Brian Klepper joins us again today this time with a post on Atlanta's Grady Health System. Grady is an inner city safety-net hospital now going to extraordinary lengths to remain open.

Brian makes the point that the Grady situation is by no means unique but instead represents a national issue as safety net hospitals struggle to maintain health care for the uninsured while being underpaid by their largest payers--Medicare and Medicaid. Here in the Washington area, in just the last couple of years we have seen the closure of a key inner city hospital and Prince George's Medical Center is currently struggling to remain open.

If Grady Fails
by Brian Klepper

In an extraordinary move last week, the politically appointed Fulton-DeKalb Hospital Authority, the governing body over Atlanta's Grady Health System, unanimously and voluntary stepped aside, to be replaced by a new non-profit corporation. Projecting a $55 million deficit this year, the hospital had just three weeks of cash on hand. It needs $300 million immediately for sorely needed renovations, and must deal with $63 million in accumulated debt to its biggest creditors, Emory University Medical School and Morehouse School of Medicine. New oversight was the predicate for a hoped-for financial bailout from business, philanthropies and financial institutions.

Other Atlanta hospitals are undoubtedly concerned that Grady will fail, and will probably do everything possible to support a bailout. The last thing they want is for Grady's patients to come to their facilities. Now would be a good time to rally business leaders and legislators, who nearly always go to fancier hospitals, which of course has been a big part of the problem.

Grady’s turmoil should be recognized as the first small shock of much larger seismic event, long in the making, a concrete sign of America's relentlessly intensifying health care crisis. The wrath falls on our most vulnerable - those with health problems or with few financial resources - as well as on the institutions and professionals that care for them.

Nearly every large and mid-sized city has a Grady that struggles with similar issues. In addition to being the health care resource to the poor, they are often academic centers - clinicians-in-training need SOMEBODY to learn on. They can be home to a region's highest expertise, particularly related to crisis care. Many house their community’s neonatal intensive care unit and burn unit, as well as the level 1 trauma center, which brings with it disaster preparedness responsibilities. These are precious services that we somehow EXPECT will be there when we need them. So if a safety net hospital closes, the loss to the community and the replacement resources required are immense.

Grady, like other safety nets around the country, isn't failing due to mismanagement, although some of that almost certainly plays a role. Instead, it is the slowly-boiled frog, its financial base eroded over decades as it increasingly became the hospital of the inner city, the center for care for Atlanta's low-income and uninsured residents. As governmental support steadily dwindled, demand for its services rose. Fully 75 percent of Grady's patients are on Medicaid, which pays less than the cost of care. Only 7 percent have commercial insurance.

Strained to the breaking point like other safety nets, Grady provides far greater levels of uncompensated and ambulatory care while generating far lower margins than non-safety net acute care hospitals. A study released earlier this year by the National Association of Public Hospital and Health Systems found that, between 1998-2004 and compared to non-safety net acute care hospitals, the average safety net provided three times the level of uncompensated care as a percentage of total expenses (20% vs. 5%), more than three times the volume of ambulatory care services (meaning emergency and outpatient visits), and saw their margins plummet so low (in 2004, 0.5 percent vs. 5.2 percent for non-safety nets) that investments to maintain infrastructure become difficult to impossible.

Safety net hospitals are famous for struggling through, but presumably there's a calculus here. As small businesses are increasingly priced out of the coverage market, and as state government, facing budget crisis, cut back on publicly funded coverage, the burden on the safety nets will continue to rise and the resources will continue to decline. At some point the demand-resource mismatch will give way, and some will topple. Their patients will seek care at other hospitals, which will simply transfer the burden elsewhere.

We can keep the safety nets afloat. The most logical solution would establish universal coverage for "basic" care services - we have to define what "basic" means - which would associate dollars with each presenting patient. We could also update the EMTALA laws that govern how emergency patients are seen, so those seeking minor care can be managed in less expensive settings.

But these answers don't seem likely at the moment. Despite current rhetoric, universal coverage legislation is doubtful unless we can find ways to significantly drive down cost. Legislation that drives out unnecessary health care spending would reduce health industry revenues, though, an unlikely prospect so long as lobbyists drive Congressional policy.

Still, we should think deeply about what Grady's troubles really mean, and consider this case not in isolation, but as possibly representative of systemic forces. Without significant system change, we could see more safety nets falter in the next few years. Each community where a failure occurs will gradually appreciate the importance of its loss. As the poor turn to the remaining hospitals for care, the cascading impacts on the larger system could severely test America's commitment to care that is independent of an ability to pay.

And that would challenge our core values as a nation.

President Bush is Not Backing Down on His SCHIP Veto Threat

The President is sticking to his guns over his threatened veto of the Senate Finance Committee bipartisan deal to reauthorize and expand the State Children's Health Insurance Plan (SCHIP) at a cost of $35 billion. The deal would expand S-CHIP and pay for it with a big 61 cent cigarette tax--taking the federal per pack tax to $1.

A White House spokesman said on Saturday that his advisers "will certainly recommend a veto of this proposal. And there is no question that the president would veto it."

The White House seemed to also be offering a way out: "Congress needs to deliver a bill the president can sign or they need to send him an extension so that people don't worry about losing their current coverage."

That last comment about an extension looks like the President is willing to extend the existing plan. There was no mention of where the money to pay for it should come from.

The President is holding firm on limiting S-CHIP because he believes the program has already gone well beyond its original intent of covering only poor children (under 200% of poverty in this case) and the new Senate Finance deal would take it even further.

The President sees the existing S-CHIP program, and the new and larger version pending in Senate Finance, as encroaching on the private health insurance market.

The President is worried that this is an expansion of government-provided health insurance to the detriment of his proposed private market policies.

However, Republican Senators like Grassley and Hatch don't agree with him. Grassley said in response to the President's veto threat, the Senate Finance deal "refocuses S-CHIP on low-income children cost effectively, using appropriate targeting policies." He went on, the plan "straightens out the mess created by all the waivers that have spent program resources on adults and higher-income kids."

A show-down between the Congress--including prominent Republicans--and the President over S-CHIP is upon us.

Unless a deal is struck, the Congress may have no alternative but to pass a continuing S-CHIP resolution and bury the final outcome in the year-end budget process that will include dozens of things not the least of which is a solution to the upcoming Medicare physician fee cuts and likely cuts in Medicare Advantage payments to HMOs.

Bush looks to me like he is in the mood to veto lots of spending bills and that could really give us a year-end donnybrook!

Earlier post:
Key Republican Senators Call on President Bush Not to Veto S-CHIP Reauthorization--A President Acting Like He Has Nothing to Lose

Key Republican Senators Call on President Bush Not to Veto S-CHIP Reauthorization--A President Acting Like He Has Nothing to Lose

On Thursday I commented on the Senate Finance deal to reauthorize the State Children's Health Insurance Plan (S-CHIP). The bipartisan deal calls for a $35 billion expansion of the program, reversing state efforts to use it to cover adults, and pays for it with a whopping new 61 cent per pack tobacco tax.

Yesterday, two very important Republican members--Grassley and Hatch--of the Senate Finance Committee called on the White House to stop their S-CHIP reauthorization veto threats--the President wants an increase in S-CHIP spending of $5 billion.

The S-CHIP reauthorization process is quickly becoming not a Republican versus Democrat battle but a Congress versus the President fight.

To be sure, there are lots of conservative Republicans that side with the President in their concern that S-CHIP has expanded too quickly and beyond its original scope. But it is clear that about all Democrats and lots of important Republicans are going to go along with this deal.

In fact, the House wants more. House Democratic leaders want to spend $50 billion and they not only want a tobacco tax but they want to cut the private Medicare Advantage program to come up with more money.

My sense continues to be that:

• The Congress will reauthorize S-CHIP along the lines of the Senate Finance deal.
• Medicare Advantage payments to health plans will be cut at year-end as part of the final budget reconciliation process to pay for Medicare provider payments--particularly the coming 10% physician fee cuts.
• Medicare private Fee For Service will take the biggest of the cuts--perhaps seeing those payments frozen.

However, where I have begun to wonder is over George Bush and how he is going to respond to this S-CHIP spending specifically and the upcoming Democratic spending bills in general.

This President has never vetoed a spending bill--even when the Republican Congress spent like a "bunch of drunken sailors." (He did veto an Iraq spending bill over a troop pull-out amendment.)

No modern president has every been weaker politically. Now, his Iraq problems look to be snowballing on Capitol Hill creating even more political problems for him.

Two very loyal and important Republican Senators have now told him "hands off" on S-CHIP. When you think about it, that's pretty incredible in its own right and says a lot about his political weakness.

While I sense that both the House and Senate can easily pass the Senate Finance compromise on S-CHIP, I also don't see the two-thirds margin necessary to over-ride a Bush veto.

I have to tell you that I just get the sense we could be in for a major showdown between the President and the Congress--including key Republicans. It looks to me like Bush is now acting like he has nothing to lose in staying his course on all of his issues--including health care.

Passage of the Senate Finance compromise on S-CHIP and a veto by Bush would just push the whole thing into the year-end reconciliation. Load that up with lots of things Bush won't accept and he just might elevate this to the kind of government shutdown battle we saw in 1995/1996 between Gingrich and Clinton.

The prospect from anything like that and the resulting fallout in an election-year has to have plenty of Republicans really worried about a President with nothing to lose.

Thursday's Post:

Senate Finance Committee Reaches Bipartisan Agreement to Fund S-CHIP Expansion With a Tobacco Tax--No Cuts to Medicare Advantage

Senate Finance Committee Reaches Bipartisan Agreement to Fund S-CHIP Expansion With a Tobacco Tax--No Cuts to Medicare Advantage

The Senate Finance Committee has reached a tentative agreement to expand the State Children’s Health Insurance Program (S-CHIP) by increasing the tobacco tax by another 61 cents—for a total per pack federal tax of $1. With state taxes, the average per pack tax would rise to about $1.68.

Under the agreement, the Senate would not go forward with any Medicare Advantage cuts to fund S-CHIP.

While 2 million kids would be added to the 6 million already covered, the program would be tightened up in other places. The tentative deal reportedly includes excluding all adults except pregnant women and moving any adults currently covered to Medicaid.

Democrats have called for an increase to S-CHIP spending of as much as $50 billion over five years. This compromise would increase the program’s spending by about $35 billion over five years.

It appears the House is still interested in putting Medicare Advantage cuts on the table as part of their parallel legislation that would increase S-CHIP spending by $50 billion. However, without Senate support it will be very hard for the House to get more than the Senate compromise. It is particularly important that there are plenty of Senate Republicans onside with the Senate Finance compromise.

President Bush has called for an increase in S-CHIP spending of only $5 billion over five years arguing that the program has been too often expanded in the states beyond its original low-income objectives. The President would like to limit eligibility to children in households below 200% of the poverty level and provide access assistance to private plans for the uninsured above the 200% level.

The President has relatively few allies in this opinion.

When a final House/Senate bill is worked out later this summer—most likely looking like this Senate compromise, it will set up a major showdown with the President who could well veto it. Just what action the President will take will have a lot to do with exactly how many Senate Republicans come onside. The final compromise could easily get 60-votes in the Senate but it would take two-thirds in both houses to override a Bush veto.

So steep a tobacco tax is not a slam-dunk.

Would this tentative deal mean the threat to Medicare Advantage cuts is past?

Not at all.

The Congress still needs plenty of money to offset pending physician and hospital Medicare cuts. It makes more sense for Democrats to deal with potential Medicare Advantage cuts in the final omnibus budget work at year-end where a simple Senate majority is necessary and a Bush veto of a comprehensive budget bill it a lot harder.

There is also a sense of inevitability here in Washington that private Medicare Advantage plans are going to sustain cuts--particularly the Private Fee For Service product.

What this agreement would do is make it virtually impossible for the Congress to impact 2008 Medicare Advantage funding—the earliest a year-end agreement would impact private Medicare Advantage payments would be January 1, 2009.

But, none of this is final and it will be important to follow the Senate’s final negotiations and the reconciliation that will have to occur with the House during the summer.

This compromise could also set up a remarkable show-down between the Congress, which looks like it will come to a bipartisan agreement, and a "lame-duck" President opposed to it on ideological grounds who has been severely weakened politically.

If the President is able to block the deal, then everything shunts forward to the year-end budget negotiations and Medicare Advantage cuts as a means to fund S-CHIP come back on the table.

This will be a fascinating process to watch!

Can the Democrats Take the Health Care Agenda Back? S-CHIP is the First Test and the Test is On

The debate over how the State Children's Health Insurance Plan (S-CHIP) will be reauthorized is really about whether the Democrats can finally take the health care agenda back from the Republicans.

If the Congress cuts private Medicare plan payments to pay for a bigger S-CHIP, it will be a double whammy--a bigger government health plan and potentially a smaller private Medicare program.

Congress is returning today for a critical few weeks before the August recess and we expect to see action in both the Senate and the House on S-CHIP.

The Democrats will attempt to reauthorize and expand the State Children's Health Insurance Plan (S-CHIP), which is scheduled to expire on September 30th if it is not reauthorized.

S-CHIP was a 1996 effort to build on Medicaid, state by state, for children. Because of that bipartisan legislation, 7.5 million children are covered.

Many, on both sides of the aisle, laud the program as having made a very positive step at a time the uninsured were otherwise growing. However, many conservatives believe too many of the states have taken the program further than the Congress originally intended by covering children above 200% of the poverty level, and even some adults, and want to rein it back in to its original scope.

The latter group includes President Bush who sees S-CHIP's current level as having gone further then it should have and Democratic efforts to expand it as a back door attempt at a government-run health care system.

At the heart of this is an ideological question: Should we expand the private market's involvement in health care or government's?

Conservatives like President Bush want to develop a primarily private health insurance program based on individual choice and responsibility. This would include vouchers for people to buy private plans including health savings accounts.

Many Democrats want to see the expansion of existing public and private health plans that emphasize large pools of people like employer plans, traditional Medicare, Medicaid, and S-CHIP.

Democrats want to add an extra $50 billion to the S-CHIP program over the next five years--something President Bush has labeled a "massive expansion" in government-run health care. The President would increase spending by $5 billion--a level that would likely force states back to eligibility levels closer to 200% of poverty.

So, the battle lines are set.

S-CHIP is really about whether Democrats will be able to begin to move their vision of health care reform forward or whether conservatives still have enough clout--including the Bush veto--to hold them off.

The S-CHIP battle will also impact a number of other big 2007 health care issues including Medicare provider payments--most notably the pending 10% physician fee cut--and payments to private Medicare plans.

To come up with the money to reauthorize S-CHIP at any level, Democrats will need money. Paying for S-CHIP, offsetting some or all of the coming doctor cuts, and maintaining payment levels for other Medicare providers are all going to cost a bundle--perhaps as much as $100 billion.

It is possible that the Congress will stalemate over S-CHIP reauthorization before the program's funding expires on September 30th. Democrats will need 60 votes in the Senate and that could be a real problem if they want to spend $50 billion. A stalemate would likely lead to an agreement to continue the program temporarily until the Congress can work out the issue--likely as part of the year-end budget process.

If S-CHIP gets lumped into the final omnibus budget bill that will be a big help to Democrats who would then be less susceptible to a Bush veto or the Senate 60-vote rule if an S-CHIP deal is just one cog in a final comprehensive budget bill.

So just how S-CHIP will be reauthorized is the first test for the new Democratic majority and their ability to move a Democratic health care agenda.

That makes the next few weeks an especially critical period for American health care reform.

The Reauthorization of the State Children's Health Insurance Program (S-CHIP)--A Surprising Contrary View

Bill Boyles, the publisher of Health Market Survey, fills the role of guest commentator again today reporting on a very different view on the issue of the reauthorization of the State Children's Health Insurance Program (S-CHIP).

His report just goes to show that nothing in health care policy is simple:

House Black Caucus Not Buying S-CHIP Expansion

It seems like every interest group in the country is backing a huge expansion of the Medicaid child health program as a “first step” in covering the uninsured. From hospitals to heart surgeons to health plans everybody is finally nodding in agreement – the way to cover the uninsured is by “covering children first” to the tune of at least $50 billion over 10 years. It’s easy and it’s cheap. And most important it let’s politicians help children and appear to help families.

But wait. I found out this morning that there is a huge political force against expanding SCHIP, and it’s not Bush or the right wing – it’s many members of the Black Caucus in the House, the very people with large Medicaid populations in their own District. That’s right, many of the very members of Congress who have the most Medicaid members are fuming over the idea of pumping $50 billion into expanding the Medicaid children’s health program at a time when the chronically-ill uninsured are ignored and should get the money first.

The way it was described privately at a meeting led by a senior staff member for House Ways & Means Committee Chairman Rangel Tuesday, all of that money going to cover healthy children should be used for the people who really need it – the “55-year-old like me” who has diabetes or heart failure of mental illness. Medicaid funds are being used to send hundreds of thousands of healthy children of the chronically ill, near-poor diabetics to a doctor -- while the actual sick person in the family sits on park bench and can’t afford to go anywhere except the ER or a public hospital, if they can afford the copay.

Independent policy experts and a few economists who study Medicaid were not surprised. For years they have been criticizing S-CHIP as a give-away to the “primary care lobby” such as pediatricians who stand to gain big time. Two weeks ago the American Academy of Pediatrics even came out of the closet and began criticizing high-deductible health plans as bad for children. No coincidence that the source of funding for the big boost in S-CHIPs is the same insurers offering high-deductible plans alongside Medicare Advantage plans. Pediatrician lobbyists know that cutting Medicare private plans is the only way to fund the huge expansion in SCHIP that will increase their incomes.

The latest issue of the prestigious journal Health Affairs plays along with the sudden power of the primary care specialist lobby, with an entire issue devoted to how to cover children -- and not a word about what to do about their parents.

What would the Black Caucus members and Rangel and the policy analysts do instead? No mystery about that – give the money to the people who really need help, the low-income chronically-ill who don’t quality for Medicaid. But that involves the much less-attractive and tough-nut options such as expanding Medicaid to cover this desperate population, or encouraging states to use existing S-CHIP money for parents, or giving public hospitals and clinics – or health plans – money to find the chronically-ill poor and get them in the system.

Unfortunately, a poor older diabetic just can’t match a poster child.