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CMS Releases Annual Report on Health Spending

Earlier today, CMS released its annual report on national health spending for the year 2008.  In summary, health spending grew at a rate of 4.4% (over 2007), equating to a per capita cost of $7,681 and a total cost of $2.3 trillion.  This rate of growth, per CMS, is the slowest increase since 1960 although still more than 1.5 times the rate of GDP growth for the year.  As a percentage of total GDP, health care increased to 16.9% in 2008.

Like most industries, health care spending slowed due to the flagging economy.  The general spending for all services across the health industry slowed with the greatest spending reduction occurring in hospital care.  Inside the data, the percentage of spending for health care attributable to or paid for by private funds increased only 2.8%; a definite reflection of the slowing economy coupled with increasing job losses.  Private health insurance spending increased by only 3.9%; another indicator of a slowing economy, job losses, and reduced insurance coverage across the workforce. 

Other information of note contained in the report is as follows.

  • Hospital spending in 2008 grew 4.5 percent to $718.4 billion, compared to 5.9 percent in 2007, the slowest rate of increase since 1998. 
  • Physician and clinical services’ spending increased 5.0 percent in 2008, a deceleration from 5.8 percent in 2007. 
  • Retail prescription drug spending growth also decelerated to 3.2 percent in 2008 as per capita use of prescription medications declined slightly, mainly due to impacts of the recession, a low number of new product introductions, and safety and efficacy concerns.
  • Spending growth for both nursing home and home health services decelerated in 2008.   For nursing homes, spending grew 4.6 percent in 2008 compared to 5.8 percent in 2007.  For home health, spending grew 9% in 2008 compared to 11.8% in 2007.
  • Total health care spending by public programs, such as Medicare and Medicaid, grew 6.5 percent in 2008, the same rate as in 2007. 
  • Health care spending by private sources of funds grew only 2.6 percent in 2008 compared to 5.6 percent in 2007. 
  • Private health insurance premiums grew 3.1 percent in 2008, a deceleration from 4.4 percent in 2007.  

Viewed in light of the present health reform discussions in Washington and the upcoming reconciliation activities between the House reform bill and the Senate reform bill, today’s information illuminates some rather disconcerting facts; facts that will undoubtedly be altered by the outcome of the final reform legislative process.

  • Of all health expenditures in 2008, 52.7% were privately funded and 47.3% were funded by government (35% by the Federal government).  Without question, these percentages will become inverted by the passage of reform legislation as government will become the predominant payer for health care in the U.S. over time.  Also of interest is the relatively flat share of health expenditures funded by the states. The Federal government has been gradually increasing its funding, principally by expanding its share of funding for Medicaid, alleviating the states of an increasing benefit burden.   With health reform foretelling a dramatic increase in Medicaid eligibility and enrollment, it will be interesting to see if more of the Medicaid burden is shifted back to the states.
    • In 1960, 75.5% of all health expenditures were paid for privately.  With the passage of Title 18 and Title 19 in the early 60’s, by 1967 the shift toward government payment had begun with private funds supporting 62.5% of health spending and government (and taxpayers) picking up the balance – 37.5%.  Health care spending in 1960 represented 5.2% of GDP and total spending on health care was $27.5 billion.
    • By 1970, total health spending had grown to $74.9 billion, a 172% increase since 1960 and up to 7.2% of GDP.  Government was now paying for more than 1/3 of all health expenditures (37.5%) or an increase in total outlays (dollars) since 1960 of 268%.
    • By 1980,  total health spending eclipsed the trillion dollar level – $1.099 trillion, a 208% increase since 1970.  Government’s share of this pie was now 42% and in real dollar outlays, government spending had increased since 1970 by 245% (a bit slower than the jump between 1960 and 1970 as both Medicare and Medicaid were now fully implemented).  In 1982, health spending equated to 10% of GDP.
    • By 1990, total health spending approached the three trillion level – $2.814 trillion, a 155% increase over 1980.  Government’s percentage remained essentially flat at 40% but in terms of real dollar outlays, spending increased from 1980 by over 250%.
    • By 2000, total health spending reached $4.788 trillion and accounted for 13.6% of GDP.  Government’s percentage of this spending had crept up to 44% and real dollar outlays had increased 168% since 1990.
    • In 2008, total health spending reached $7.681 trillion and accounted for 16.2% of GDP and 47 cents out of every dollar spent is by the government.  Since 2000, total spending on health care has increased over 60% and in real dollar outlays, government spending has increased by 72%. 

Perhaps of greatest concern to me as I reviewed the CMS release and the numbers today is how much health spending has exploded, particularly governmental health spending since 1970. I’m further concerned by the continued escalation of spending between 2000 and 2008, especially when viewed in comparison to the GDP growth for the same period – 18.5% GDP growth and 72% growth in real dollar government spending on health care.  Frankly, I don’t see anything in the reform bills (House or Senate) and the likely compromise, final bill that will change this paradigm except perhaps, to a worse state.

January 5, 2010 Posted by | Policy and Politics - Federal | , , , , , , , , , | 1 Comment

Health Care Reform: The Senate, the President and the Truth

In an effort to salvage some hope for the flagging Senate health reform bill and to provide sustenance for the neutered Harry Reid, President Obama convened all Democratic senators at the White House earlier this week for a strategy session.  Per Mr. Obama, this activity was not a roll call to establish a majority but moreover, a time to convene his party and to find “common ground” on the issues that have stalled the passage of the bill.  In all likelihood, the session was more about damage control for Senate democrats and the President as well as a time to eulogize the now deceased public option/Medicare expansion.

 After the conclusion of the meeting, Mr. Obama gave a quick press conference, saying little more than he was, “ pleased with the progress, issues remain that will be worked out, passage is certain and in the end, the bill meets the broad outline that he provided in his speech to the Joint Session of Congress”. Mr. Obama also took the opportunity to reinforce the White House party-line regarding the Bill’s success in reducing waste and efficiency, covering 30 million people presently uninsured, reducing the deficit (the largest single piece of deficit reducing legislation according to Mr. Obama) and reforming health insurance practices (eliminating pre-existing conditions, life-time maximums, and prohibiting insurers from dropping coverage due to claim experience).  Mr. Obama effectively chastised any of the Bill’s critics stating that (summarized), ‘contentions that the Bill doesn’t reduce the deficit or that it raises taxes and is hurtful to small business’ were fabrications, designed to undermine the good of health care reform’.  At one point, Mr. Obama even stated that “not one single health care economist” disagreed that the Bill would be good for the U.S. health economy and the economy in general.  He further claimed that the CBO, being the non-partisan expert that it is, supported the Bill’s positive impact on the deficit and that it does in fact, “slow the trajectory of health care spending in the U.S.”.

 In so much as I dislike disagreeing with the claims of the President (it seems somewhat unpatriotic to basically call the President a liar), I feel in this case, it is imperative to re-direct the President’s statements with the facts. 

  • Fact: The CBO scoring of the Bill only projects a ten year period.  In the Bill, the revenue from all taxes begins immediately as do the Medicare cuts while the actual spending or expenditure side is phased-in gradually beginning in year 3.  When fully phased-in, according to the CMS Office of the Actuary, the Bill actually produces a greater deficit than the present system.  If Mr. Obama is referring to the “revised” Bill (whatever that may be) sans the public option, the CBO has yet to score the final version as no such Bill has been produced.  One final point here: The Congressional Budget Office is far from truly non-partisan and historically, inaccurate in its projections – historically low.  I doubt that in this one instance, the CBO has become conservative and is factoring its projections on the “high side”.  I think former British Prime Minister Benjamin Disraeli said it best: “There are three types of lies – lies, damn lies, and statistics”.
  • Fact: The Bill raises taxes substantially including on small businesses, particularly any small business that has revenues above $500,000 and is organized as an LLC, a Subchapter S, a partnership, service corporation or sole proprietorship.  Each of these designations requires the owner to essentially pay income taxes on the net revenue of the business at the owner’s personal tax rate.  Small businesses that presently don’t offer health insurance to their employees will face a penalty or begin to provide a health plan for their employees.  Apparently, Mr. Obama thinks that the taxes within the Bill will only affect wealthy individuals, forgetting that small business owners may in fact, fall into this classification.
  • Fact: No health care economists, not one, are in disagreement that the Senate bill is good for the U.S. health care economy and the economy in general?  He must mean just the one’s he’s talked to.  Being a health care policy and economics guy myself, I can safely state that the Bill is far from good for the health care economy and far from good for the U.S. economy.  There is nothing in the Bill that reduces the cost of health care, save Medicare cuts which are frankly, one time and I’d be surprised if they are not eventually, sooner rather than later, reduced or eliminated by Congress.  Congress has a history of not being able to maintain spending reductions in entitlement programs too far back and too deep in number to list.  The Bill dramatically expands Medicaid yet provides no reforms to Medicaid or for that matter, sufficient funding resources to the states to cover the expansion.  Medicaid, as I have written before, is a ridiculously structured program, rife with benefit and service gaps and inefficiencies on a state by state basis.  This provision alone is justification of my argument that the Bill is far from beneficial for the U.S. health care system.  The Bill also raises, yes raises, the cost of health insurance for most individuals not income qualified to receive a subsidy.  How can higher cost health insurance be good for the health care economy let alone the U.S. economy?  I seem to think that an individual, paying more his/her health insurance as a percentage of their income, has fewer dollars to invest or spend, hurting not helping the overall economy.  Finally (though not totally as I could go on for pages), the Bill contains 2,000 pages with hundreds devoted to new regulations and new charges given to the Secretary of Health and Human Services to write new regulations; all focused on health care.  Mind you, all of these new regulations are on-top of, existing regulations as the Bill plainly states repeatedly, that the regulatory process is in addition to, the requirements already in-place.  Again, perhaps I am a bit callous and cynical but I hardly think that the addition of hundreds upon hundreds of new regulatory provisions creates any value for a system already enmeshed in regulation and bureaucratic inefficiencies.  Medicare and Medicaid are already laden to the point of bursting with regulation and bureaucracy and the Senate bill adds more.  Good for the health care system and health care economy?
  • Fact: The Bill does nothing to “bend the cost curve” , again unless one  believes that Congress has the will-power collectively to stick to Medicare spending reductions and is willing, as will certainly be required, to periodically adjust downward, Medicare and Medicaid spending as required.  In reality, this is such an illogical conclusion and preposterous claim on the part of Mr. Obama that it seems hardly worth the effort on my part to point out the obvious flaws.  For example, unless Mr. Obama or any politician or group of politicians can alter the demographic shift occurring in the U.S., Medicare can’t possibly keep from growing arithmetically.  The reality is that the Senate bill changes nothing fundamentally about Medicare, its funding or its benefit and reimbursement structures save the one time spending reductions which, again I doubt seriously that Congress will maintain over time.  The core set of issues with Medicare are simple. First, it is and will remain a system that reimburses more for more complex care and increased utilization, particularly at the institutional level. Nothing within the Senate bill changes this reimbursement system paradigm. Second, there are more people achieving the benefit age due to the aging demographic than there are non-beneficiaries paying into the system.  Nothing within the Senate bill changes this fact or alters the age to attain the benefit.  Third, the combination of an aging demographic and a populous that is living longer, often with disability or chronic conditions that pre-ordain additional use of the presently configured health system under the present benefit structure, will with certainty, lead to additional utilization.  Again, nothing in the Senate bill changes this fact or frankly, even shifts resources toward better reimbursement for primary care, additional funding of any magnitude for chronic disease management or for any innovations or care models that have proven to reduce unnecessary and expensive utilization.  In short, the Bill does nothing to fundamentally change how healthcare is paid for or delivered and without such changes, “bending the cost curve” is frankly, a preposterous and unsupported claim.

 The cold reality is that the Senate bill is nothing more than the House bill politically contrived to survive passage in the Senate where hopefully for Mr. Obama and his party’s sake, the conference process can craft a final bill that can be passed and serve as a political victory for Democrats and the President.  Factually, the Senate bill, like the House bill, does nothing to reform health care or the health system, to reduce the level or trajectory of federal health care spending, or to improve the quality and reduce the costs of health care in the U.S.  One thing that is factually correct is that in any shape or form remotely similar to what is presently presented in the House or Senate, the final legislation will lead to more dollars spent for healthcare in the U.S. from all sources and no improvement whatsoever in quality or access as a result; in the end, a rather dismal tradeoff for such an expensive proposition.

December 17, 2009 Posted by | Policy and Politics - Federal | , , , , , | Leave a comment

Health Care Reform: Back to the Senate and All that Jazz

Watching this reform process, at least for me, is now like watching a Ping Pong match or a Nascar race (sorry Nascar fans); back and forth and round and round.  Even for someone who watches and interprets health policy for a living, this stuff is getting boring, monotonous and frankly, now somewhat nauseating, content wise.  Maybe the intent is to literally “mind numb” all the people like me who analyze, consult and write about health policy with the goal of shutting us up or in my case, the goal of disconnecting my brain from my fingers so that I can no longer write about the insanity that is “health care reform” in Washington.

Getting to the meat: The Senate, namely Harry Reid, is working feverishly to buy votes, cajole fellow Democrats and to obfuscate the details in his (the Senate’s) 2,000 plus page, Nancy Pelosi light, reform bill.  I say “Nancy Pelosi light” because the Senate remains, even though Democratically controlled, moderate enough not to blindly drink the policy Kool-Aid produced in the House.  This past Saturday, via a host of back room deals and pay-offs to fence-sitting Democrats, Reid cajoled a cloture avoidance vote, sending the reform bill to the floor for debate.  This mid-level stall tactic buys Reid additional time to arm twist colleagues and to literally, buy votes.  Without this Chicago-style tactic, Reid knows the votes for passage are non-existent in the Senate.  In reality, the votes for passage in its current form may still be non-existent regardless of the price offered due to the taxation issues within the legislation, the abortion issue and the government option issue.

Looking at the Bill in detail (I’ll admit that I haven’t read the whole thing as of yet and frankly, I may not as I have now mastered the trick of speed reading these monstrosities, getting to the heart and soul and avoiding the painful tedium that is the politically and socially engineered garbage which consumes hundreds of pages), one quickly sees that key similarities with the House version are imbedded albeit with a more moderate twist in order to appeal to the more moderate Senate membership (if that’s possible).  For example, the government option is actually a state option, triggered only by the states that desire to introduce a government option (however that should work).  The payment methodology incorporates greater taxation options and fees (such as a 5% tax on cosmetic surgery) including on benefit plans – absent in the House bill.  The Senate bill still does not require all employers to offer health insurance while the House bill does although it does require all Americans to purchase insurance or face fines and penalties. Both the House and the Senate bills call for wholesale expansions of Medicaid as a means of providing coverage to lower-income individuals.  The House bill prices in at $1.2 trillion (not including the costs of the recently passed Doc Fix legislation) while the Senate bill weighs in at just under $900 billion and is mute about the doc-fix issue.

Before the fog of cynicism creeps fully into my brain and dulls all of my senses, I’ll finish this post with a few succinct and brutally honest comments on the Reform process.

  • I can’t say it any more plainly or write it any more plainly, what is happening now is not Reform.  Neither the House bill or the Senate bill does anything to reform how health care is delivered in this country or to frankly, improve it.  The incredibly antiquated, bureaucratic and inefficient programs of Medicare and Medicaid remain essentially untouched save for their funding mechanisms.  Medicaid, a horribly structured program rife with individual state bureaucracies and excessively varied benefit plans is being expanded but not reformed – a recipe for wholesale disaster for the millions of new beneficiaries who will enter a system incapable of providing adequate and decent care for the current beneficiaries.
  • The economics of all numbers attached to the reform discussions is literal, laughable dog “doo doo” (substitute if desired, B.S., crap, garbage, cow chips, etc.).  No person who can do simple math and apply any basic economic principles should buy for a moment that either plan (House or Senate) is capable of reducing the deficit, being deficit neutral or not ultimately deleterious to the U.S. economy.  The smoke and mirrors financing techniques applied in both bills (start with the revenue for a few years then gradually add the expenses) is alchemy of the poorest kind; a brew that no sane human should swallow.  Both bills will add billions to the deficit, increase taxes across the board and become an entitlement and bureaucratic monster unlike any that has ever been seen before in the lifetime of mankind.  If this sounds harsh, consider the following.  The Constitution of the United States, the seminal document of U.S. governance is sixteen pages in actual content, inclusive of all amendments and the Bill of Rights.  The House bill and the Senate bill are 2,000 plus pages in length, each costing the U.S. taxpayers over $1 trillion ($1,000,000,000,000), and neither substantively reforms Medicare or Medicaid or assures that any citizen will receive better health care despite the enormous price tag.  If that isn’t bureaucracy “Washington” style, I don’t know what is.
  • In spite of polls that show less than half of all citizens are in favor of the present course of reform (and a trend that continues to move lower), the elected officials in D.C. plow on their present course.  Someone once told me that the definition of insanity is when, in spite of not getting something correct, you continue to do the same thing over and over again, hoping to get a different result.
  • The U.S. debt load (deficit) now totals $12 trillion and change and the total GDP of the U.S. economy is $14 trillion.  Adding more debt, which both bills will certainly do, is preposterous and economically incomprehensible.  Granted, the economy will return to a growth pattern but no reasonable economist will assume that future GDP growth could possibly outstrip the present growth of Washington deficit spending or for that matter, be aided during recovery by additional deficit spending to the tune of $1 trillion or more.
  • In spite of the rhetoric and the foolish fodder from Washington, Medicaid and Medicare will geometrically expand and their growth will be unconstrained by either bill.  Medicare will be cut in the short run by $500 billion damaging providers and beneficiaries temporarily but Congress will come to the rescue, abandoning most of the painful cuts, restoring funding and adding more to the deficit, all in the shadows of their post-reform victory dance.  Trust me on this one as I have been involved in healthcare and health policy now for almost three decades and it is a cycle that constantly repeats.  For those that are even skeptical, look at the House’s bill for the physician payment fix.  In Washington, the squeaky wheel gets the grease and when the election cycle heats up, seniors, hospitals, doctors and any other interest group with voting blocks will be pounding the corridors in search of “Benjamins for votes”.
  • There are no winners in this process save a handful of special interests and the usual D.C. elitists and certain political classes.  The losers are too many to count but at the top of the list are individual tax payers, individuals with current health insurance, the poor without insurance (they ain’t seen nothing yet until they take their new Medicaid insurance in a state like Mississippi and try to get decent healthcare), companies that presently provide benefits, anyone with a HSA, and of course, anyone who owns or thinks about starting, a small business.  Again, if you think I’m full of you know what, read the gosh darn bills.

I try to avoid ranting in this Blog because I do find it somewhat counter-productive and often, overdone.  Personally, I am not really a ranter anyway as I rely generally on intellectual discourse and analysis to pose my point and to beg the questions.  In the end, I suppose I have found my breaking point for the moment courtesy of Harry Reid, Nancy Pelosi and President Obama, all I have never met and if I did, I would probably enjoy chatting with – maybe even over a cold beer.  Just not today.

November 24, 2009 Posted by | Policy and Politics - Federal | , , , , , , , | Leave a comment

House Approves Doc Payment Fix

Last night via a 243 to 183 vote, the House approved a bill that would stave off the projected 21% cut in physician (fees) reimbursement under Medicare, set for January 1, 2010.  The “Doc Fix” has been a hot-button issue within the health care reform debates as both the House and the Senate have not been able to incorporate the costs within their reform bills without busting the President’s deficit spending targets.  President Obama has stated that he will not sign a reform bill that is anything less than budget/deficit neutral. 

The House bill would cost the Federal government approximately $300 billion with no projected revenue offset.  This $300 billion is presumed to be all debt or certainly, the majority share will be debt.  The Bill does somewhat create a more permanent fix to the flawed formula presently in place.  The original formula, in place since 1997, ties physician reimbursements under Medicare to a GDP index, designed to theoretically reduce the overall growth in Medicare spending (the Sustainable Growth Rate formula).  Since 1997 however, Congress has seen wide swings in physician reimbursement levels and in periods or times when the rates would be reduced via the formula, the physician community has lobbied heavily for a “new money” infusion to avoid fee cuts.  What has occurred since the formula’s installation in 1097 has been far from a stabilization of physician fees and a near yo-yo battle every year between the Medical Community and Congress.  The “fix” in the House bill ties physician fees to GDP growth but provides a plus 1% add-on for all non-primary care physicians and a 2% add-on for primary care physicians.   

The Bill faces unlikely embrace in the Senate where earlier in the year (October), the Senate rejected a similar measure designed to stave-off physician fee cuts.  The Senate appears to approve of a pay-as-you-go approach or methodology rather than a wholesale restructuring of the current formula, despite strong sentiment among all Senators and Representatives that the present formula isn’t working.  In reality, the final issue will come down to money and how much the Senate is willing to allocate beyond a one-year fix.  With the House version of reform and the soon to be released Senate version of reform foreshadowing $1 trillion plus spending programs on health care, there may be little political muster left to add an additional long-term debt of $200 plus billion for a more permanent “doc fix”.

November 20, 2009 Posted by | Policy and Politics - Federal | , , , , , , | Leave a comment

Medicaid and Health Care Reform

With so much discussion and news review on Medicare spending and health insurance reforms at the center of the health care reform debate, Medicaid has taken a back-seat in terms of analysis on its programmatic impacts.  Today, Medicaid costs 76% of the cost of Medicare and covers approximately 20% of the population.  In the recently passed House reform bill, the language therein creates a broad expansion of Medicaid as a method of covering a large segment of the uninsured.  The primary methodology for this expansion is via a raising of the eligibility for participation limit to 150 percent of the poverty limit (133 percent in other versions).  Under present law, Medicaid on average, consumes 17% of a State’s budget and is projected to grow at a rate of 8.4% per year for the next ten years by then, consuming 3% of GDP.

What is unknown within the reform proposals is how the group that becomes eligible for Medicaid will spend or consume health services.  What is known is that people with insurance, especially those under a Federal entitlement program, tend to spend more on healthcare than those who are uninsured or have a private, high deductible health plan such as a HSA.  Given this truism, estimating the cost impact of a broadly expanded Medicaid program is difficult, especially since Medicaid by design, is an open-ended entitlement program.  Such programs do not require congressional approvals of spending as the funding is predicated on a formula whereby claims incurred at the state level are matched by a predetermined ratio of Federal dollars.  States that are economically poorer or less well-off receive a higher Federal match than states that are economically wealthier, ranging from 50% for the wealthiest states to 76% for the poorest states.

On the immediate surface of the issue of how health care reform will impact Medicaid is a host of economic and policy ramifications that are yet unaddressed by Washington policy makers.

  1. The economic conditions of the States is poor to dire (California) with only two states (Montana and North Dakota) projecting balanced or surplus budgets over their current fiscal years.  As a result, Governors have been adamantly opposed to Medicaid expansion without a dramatic increase in federal dollars.  To date, none of the health care reform proposals include such dramatic increases in money to support the expansion plans under Medicaid.
  2. The Federal Stimulus funding allocated to the states to support their lagging Medicaid budgets ($87 billion) evaporates in 2011.  Sadly, many states used some of this funding to increase or augment benefits that financially, will be unsupported by their budgets once the Stimulus funding disappears.
  3. Medicaid is not a program with any form of consistency or uniformity between the States.  The program emanates form the states and as such, it’s a maze of different and haphazard service offerings, benefit levels and provider participation.  Some states such as Minnesota, Wisconsin and New York are generous with programs that contain decent benefit levels and broad access.  Other states such as Mississippi, Idaho and Colorado have meager programs and as a result, geographic locations and benefit limits severely impact the quality and type of care that beneficiaries can access.  Across nearly all states, fewer and fewer dentists, primary care physicians and specialists are willing to accept Medicaid patients as a result of poor payment levels and bureaucratic and outdated claims processing systems.
  4.  Medicaid is a “locally” administered health policy decision and consequently, it is subject to heavy special interest lobbying at the state level.  The result is incredible inequities in funding between elder care and care for children and women and such swings can occur irrationally depending on power-shifts between parties and the status of election year cycles.

Taking the above into account as part of an analysis of health care reform and the implications for Medicaid, it becomes apparent that reform should principally concentrate on first gutting, redesigning and standardizing Medicaid’s coverage and benefit programs and then second, re-working its financing to assured adequate long-term funding and adequate payments to providers for care.  Today, the program’s financing creates an inverse incentive such that when state economies are good, Medicaid spending rises to garner additional federal dollars.  When however, economies decline, states become reluctant to stop Medicaid spending for fear that doing so would produce almost a rebate of federal matching funds to the Federal Government.  This perverse result causes (and has caused) enormous unfunded state Medicaid budgets that today, sans additional federal stimulus dollars or a dramatic rebound in the economy, will have states grasping for unavailable first dollars just with the hope of continuing a federal matching revenue that is inadequate to fund the total cost of the state program.  As an example, a state such as Mississippi which today receives an 83% federal match due to the additional stimulus funding would have to cut its total Medicaid program by nearly $6 million to achieve $1 million in savings at the state level.  By 2011, without more stimulus dollars, the hole expands as now Mississippi would have to cut $5.6 million to achieve the same $1 million in savings, plus realize the additional loss of $300K in reduced federal stimulus funds (76% match vs. 83% match).  As no doubs, states have spent the federal dollars associated with the additional stimulus funding, the 2011 reality will be harsh.

Another sharp and equally as absurd reality within the current Medicaid program lies in its distribution of dollars based on the “state wealth system”.  Dollars are allocated based on how “well off” a state is economically as opposed to how many poor people are actually within a particular geography or state.  For example, the five wealthiest states of Connecticut, New Jersey, Massachusetts, New York and Maryland  have 6.29 million poor people or 15.8% of their population.  Under Medicaid, these states received $36.7 billion in federal Medicaid payments or $5,405 per poor person.  In the five poorest states of Utah, Arkansas, Kentucky, West Virginia and Mississippi there are 2.97 million poor people or 21.1% of the population.  These states received $10.5 billion in federal Medicaid payments or $3,547 per person – nearly $2,000 per person less than the wealthy states.  It is no wonder that the programs in the poorest states compare in terms of access and quality of care sorrowfully with their wealthy state counterparts.

Given the present system and a seeming unwillingness on the part of Congress to address total Medicaid program reform, an expansion of Medicaid under current reform proposals is certain to exacerbate three significant existing problems.

  1. The spending and funding inequities from wealthy states to poor states will grow wider, not shrink.  While more people will be covered, it is logical to assume that the percentage growth of new eligibles under Medicaid expansion will come from states that are in the poor classification.  With no recognition that additional dollars need to be allocated outside of the current Medicaid funding equation or the program fully changed, states like Mississippi will be worse off, not better as their financial future contains no real means to garner additional federal matching dollars.
  2. Medicaid expansion does nothing to change the policy platform controlled by each state.  How good is expansion if providers are unwilling to treat the new population of additional Medicaid beneficiaries?  Likewise, how good is expansion if the new beneficiary resides in a state that has historically limited its program so severely that access is completely unavailable in a particular region?
  3. The states have no real source of money to participate in an expanded Medicaid program that requires their first dollars to gain additional funding.  Even the “wealthy” states have significant budget woes and the slow course of economic recovery will not re-fuel their coffers fast enough to provide for increased Medicaid spending.

November 16, 2009 Posted by | Policy and Politics - Federal | , , , , , | Leave a comment

Health Care Reform: Getting to the Details

Its been about ten days since the House passed its version of health care reform and just now,  it is possible to unwind and assess some of the cost/price details that are buried within the 2,000 page bill.  Similarly, it is also possible for the general public to begin the process of digesting the ramifications of what “may” happen to them (individually) if the meat of the legislation is enacted as written.  To clarify what’s beginning to take shape, take a look at two separate, recent information sources.

First, in a poll conducted by Stanford University, funded by Robert Wood Johnson for the Associated Press, the participants indicated a worried status on the costs of health care reform with 43% stating opposition to the legislation pending in Congress, 41% in favor and 15% undecided.  When asked more specific questions regarding cost trade-offs that could be faced, the 41% became less supportive. For example, there is broad support for requiring everyone to have health insurance (68%) but this same group of supporters when told about provisions that the Federal government would impose a fine, a penalty or a tax for people who chose not to buy insurance, support flipped to 63% in opposition.  Even among Democrats, 50% oppose the levy of taxes or fines on businesses or individuals in order to enforce the requirement of being insured.  The general consensus is a worry about rising taxes and an increased amount of federal debt to achieve health care reform.  Depending on the final amount of increases, the majority indicated that they were not in favor of reform if it caused taxes to rise substantially or the level of Federal debt to increase substantially.

The second piece of news comes from the Office of the Medicare Actuary (the Office of the Actuary) about the costs of the House bill.  Based on an analysis completed for the House Ways and Means Committee, requested by Republicans and released on November 14, the Office of the Actuary concluded that national health expenditures would rise by $289 billion between 2010 and 2019, consuming 21.1%  of GDP by 2019.  This compares to a projection of 20.8% of GDP in 2019 under current law.  While net Medicare spending is projected to reduce by $571 billion (not including the costs of the physician payment fix) during this period (primarily due to Medicare spending cuts), the Office of the Actuary warns that the projected effect of productivity adjustments as an offset to market basket increases is likely “unrealistic” as presented in the Bill.  They warn that such de facto price cutting or reimbursement reductions may lead providers to abandon the program altogether as they could find themselves fiscally unable to deliver the care required by Medicare beneficiaries.  The Office also states that the other provisions such as those related to comparative effectiveness research, administrative simplification, promoting health and wellness, and enhancing fraud and abuse prevention would have a minimal impact on reducing non-Medicare expenditures – $2.1 billion.  Compare this amount to a projected savings of $38 billion from instituting national tort reform provisions.  One final note: The Office of Actuary estimates that the number of uninsured (57 million) would reduce to 31 million under the House bill, principally as a result of the expansion of Medicaid and the increase in eligibility limits to 150% of the poverty limit.  This number is clearly higher than touted by Congressional members that support the House bill.

Unlike the Congressional Budget Office, the Office of the Actuary did not include a review of the income elements in the House legislation, focusing solely on the spending side of the legislation.  What is interesting to note however is that the income side associated with the “savings” activities contained within the Bill are viewed as “unrealistic” and minimal, suggesting perhaps that aside from direct cuts to Medicare expenditures, the economic results of reform are all on the tax versus spend side.

If there are any conclusions that one can draw from this news is that the Senate must be extremely wary of their task; namely, producing a companion bill to the House bill.  The House bill clearly does not achieve the desired reductions in overall healthcare spending as related to GDP and many of its provisions and its core, don’t even achieve the goal of eliminating the uninsured.  Frankly, the price of achieving less than a fifty percent reduction in the uninsured is astronomical and as concluded by the Office of the Actuary, at a greater cost to the U.S. economy than the present system (21.1 % of GDP vs. 20.8% of GDP under present law) with all of its inherent flaws.

November 16, 2009 Posted by | Policy and Politics - Federal | , , , , , , , | Leave a comment

Health Care Reform in the House: A Post Mortem

Late Saturday night by the slimmest of margins, the House of Representatives passed H.R. 3962 otherwise known as the Affordable Health Care Act for America – three votes the other way and the Bill would not have passed.  The Bill weighs in at over 2,000 pages (2,034) and represents the first major “stab” at reforming the U.S. health care system (the Senate has not yet debated or voted on its version).  Suffice to say, the Bill is ambitious in scope and its passage came as a result of a week’s worth of deal-making among House democrats.

Looking over the Bill and reviewing all of the analysis available, here’s the “post-mortem” on the Affordable Health Care Act for America.

  • The purported cost of the Bill is approximately $1.2 trillion over 10 years.  The actual cost is closer to $3 trillion when fully phased in after 2014.  The $1.2 trillion price is derived by using ten years of revenue against only seven years of expense.  This mathematical twist occurs as a result of the revenue implications (taxes and Medicare spending reductions) beginning immediately with the Bill’s benefits not kicking in until three years later.  A matching of Revenues with Expenses (full revenues vs. a full ten years of expense places the price at closer to $3 trillion).
  • From a deficit perspective, the Bill will add conservatively, $500 billion to the deficit over ten years.  Once fully phased-in, the Bill’s expenditures exceed its revenues from all sources by more than $1 trillion.  Nearly $500 billion of revenue is attributable to one-time Medicare spending reductions.
  • Spending cuts under Medicare total nearly $500 billion.  The majority of these cuts are in the form of payment reductions to providers for direct care.
  • Tax increases on anyone earning over $500,000 annually ($1 million as a couple) are included in the Bill as a source of revenue to pay for the Bill’s expenditures.  There is no exclusion for small businesses from this tax increase.  At issue for some economists and analysts is whether the figures quoted as coming from this source are anywhere close to accurate (overstated).  The tax break-down is as follows.  A total of $729 billion, $460 billion from individuals and small businesses, $135 billion in employer coverage mandates and fees, and $33 billion in individual mandates.
  • The price tag for the “doctor fix” (restoring projected cuts in physician fees based on the fee schedule’s ties to GDP growth) is $270 to $300 billion.  There is no revenue attached to the Bill to account for this adjustment.  In short, the Bill has a $300 billion “hole” due to the “doctor fix” being addressed outside of the Bill.
  • The majority of the source for additional coverage of the uninsured and underinsured is an expansion of Medicaid.  Over the next ten years, the states will be required to spend an additional $34 billion to accommodate this expansion.  If the federal government decides to somehow cover this expansion with funding, the Bill provides no additional funding to cover the added spending.  As of this fiscal year, only two states are without a projected budget deficit – Montana and North Dakota.  In 2009, the Medicaid SNF shortfall stands at $15.64 per day ( the difference between Medicaid per diem payments and allowable costs per day).
  • The Bill contains no provision for tort reform. 
  • Federal funding for abortions was deleted from the Bill at the last hour, except in the case of rape or incest.
  • The Bill disqualifies Medical Savings Accounts.
  • There is no provision within the Bill to allow insurance companies to sell policies across state lines.  In other words, no language was included within the Bill prohibiting the present practice of States to regulate individual insurance policies and to impose inidividual mandates for coverage.
  • The Bill includes a Government Option or a government sponsored plan that is required to negotiate with providers for rates as opposed to using a Medicare benchmark.
  • Estimates of the Bill’s requirements imply that 94% of all Americans will be insured via this legislation by full phase-in (2014). 

The next step in this process is for the Senate to put forth and to vote upon, its version of health care reform.  To date, the Senate debates and legislative trials vary from the House bill by a wide margin.  The probability that the House version and its critical components will appear in a Senate version is small as Republicans and Conservative Democrats theoretically, make up a majority in the Senate.  The Senate, because of its more conservative make-up, will be far less likely to entertain a government option, a price tag anywhere close to $1 trillion (Sen. Baucus had difficulty passing his bill through committee at a price of less than $800 billion) or to include the tax increases as a principal source of funding found in the House bill.


November 9, 2009 Posted by | Policy and Politics - Federal | , , , , , , | 1 Comment

Healthcare Reform Update: Inside Baseball Time

If you are a baseball fan, you’ll appreciate the correlation between a baseball game and the present course of healthcare reform.  A baseball game starts with anticipation and fanfare; speeches, the throwing out of the first pitch, the national anthem and the players taking the field.  The fans settle in and the game begins with cheers for the first hit, the first strikeout or the first double play.  As the game progresses, the typical fan loses a bit of interest and seemingly, little is happening across the middle innings.  People begin to mill around the stadium, seeking concessions or the restroom and the scoreboard becomes more of a video game/entertainment center, trying to keep fans engaged and entertained as the game appears to offer little excitement at the moment.  Nothing going on, right?

The course of healthcare reform has now entered the middle-innings.  The fanfare of the opening ceremonies and the introduction of various bills and propositions, the committee work and the initial passage of the “first-cut” of legislation has passed.  The news is now technical and policy oriented just like the stats laden reporting in the middle of the baseball game.  Polls show people have turned away; headed to the concession  stands or the restroom until the cheering erupts again.  Frankly, it is tough to watch as little substantive seems to be happening at the moment.  Who wants to hear about more stats and trivial poll data?  Does anyone really care about the current batter’s hitting streak over the past two weeks or the pitch count (or the fifth poll of the week comparing the last four polls of the weeks prior)?

So, if you like subtlety, drama, a bit of intrigue and the nuances of the game, you’ll appreciate this Inside Baseball view of healthcare reform.  Just like the middle innings of the baseball game, a lot is going on that will definitely shape the action in the latter innings; or, in this case, the actual votes on the respective floors.

  • This period of time is all about “vote counting” for the Democrats in the House and the Senate.  As of right now, there are not enough votes in favor of a bill containing a “public option” – at least not the fully loaded version.  Speaker Pelosi and Majority Leader Reid in the Senate will be posturing different options back and forth to gauge where the tolerance level is and in what form for any kind of a public option.  They also will be discussing a “trigger”; a clause in the legislation that will kick-in a public option in the event certain provisions are not met (such as number of insured, access to low-cost healthplans, etc.).
  • There is a budget buster monster that both the Senate and the House have to deal with and that concerns physician reimbursement under Medicare.  Right now, physician fee schedules are tied to GDP growth and the lack of GDP growth (actual shrinkage) in 2008-2009 would require a cut in physician fees under Medicare.  In order to provide for a modest increase in MD payments, Congress needs to infuse an additional $250 to $500 million into the fee schedule. This amount is in-addition to the cost associated with the various healthcare reform proposals.  The Senate version (the Baucus Bill) skirts the issue a bit by offering a one year fix with a higher level of taxation as an offset.  The House has tried to remove the issue and deal with it outside of the healthcare reform activity.  No matter how each side deals with the issue, the price tag is large and physicians are a powerful voice in the process.  Make the doctors unhappy and the prospects for major reform become dimmer by the day.
  • The financing of the legislation is still a major issue – in both the Senate and the House.  Two major components will bear the majority of the scrutiny; Medicare cuts and taxes.  Despite the rhetoric from the President regarding “savings” under Medicare, the reductions in Medicare spending in the healthcare reform bills are cuts in spending – not gains via reduced fraud or improvements in efficiency.  Medicare cuts and programmatic changes raise the ante for seniors and providers (including physicians).  Taxes, especially in the Senate version, are already being targeted by fiscal conservatives and anti-reform proponents as a breach of the President’s promise not “to raise taxes on the middle-class” and as a huge added cost to private insurance policies.
  • The issue of whether any final reform package can be truly deficit neutral will continue to be debated in the background and the foreground.  A great deal of pressure will be put on the CBO to use the most creative math possible in forecasting the costs associated with any final bill brought forward for a vote.  As of right now, neither major initiative as each stands is anywhere close to budget neutral – regardless of what is being said on the Hill.
  • Where does the President stand?  The President and the White House are oddly silent on their exact preferences and as a result, no one is quite sure when and if, Mr. Obama will attempt to push a particular package forward.  The reality is, the President is quietly maneuvering behind the scenes, watching and charting, hoping to make a move at the opportune moment.  To date, his moves including his speeches, have been less than effective in getting any piece of legislation closer to passage.
  • Polls, elections and timing are all being gauged carefully now.  Similar to vote counting, each legislator that faces an election battle in 2010 is carefully counting the days between a possible vote and the scheduled primary. Poll results that continue to show an anti-overhaul sentiment nationally or in a particular region will definitely influence a legislator as time ticks closer to election season.  In other words, the reform window will only be open so long for a number of legislators and therefore, forging a workable, viable plan is urgent business for the Senate and the House.
  • Finally, the economy is behaving like a two ton weight that each party is carrying at the moment – one uphill and the other down-hill.  The Democrats, as the party in power, must carry the weight uphill and cannot trip over healthcare reform as they go for fear that the overwhelming weight of both issues will send them crashing down, ultimately buried by the weight of both issues.  For Republicans, the weight is carried down-hill as they can use the deficit, the costs of healthcare reform, and other news of slow recovery to their political advantage.  The trick however in carrying a heavy weight down-hill is not to let gravity take over, pulling you down so fast that you lose control and tumble, risking the weight crashing down on you.

To close with some baseball lingo, don’t be surprised to see a squeeze play, a double-switch, a hit and run, and possibly even a steal or two go on over the next few weeks.  Remember, this is the middle of the game and a rhythm and tempo has been set.  Each party is charting the course of the game and has sufficient data now to begin to try to out-maneuver the other party.  Most of the moves will be subtle and may bear no relationship to what appears to be happening at the moment but rest assured, this is the time where the game is truly, most often, won or lost.

October 26, 2009 Posted by | Policy and Politics - Federal | , , , , , , | Leave a comment

Baucus Bill Survives Committee: What Next

The Senate Finance Committee this afternoon, on a vote of 14-9, approved the Baucus Bill out of committee, sending it theoretically to a floor vote. Sen. Olympia Snowe, a Republican from Maine, was the lone Republican vote in support.  The Bill, a center of recent controversy in terms of its lack of reported details, incomplete CBO scoring, and the target of a report released by the insurance industry via Price Waterhouse and Coopers, now faces an arduous re-write process as Senate Democrats, specifically Senate Majority Leader Harry Reid, will try to meld the Baucus version with the Dodd version (Health, Education, Labor and Pensions Committee), producing a single piece of legislation for a vote.

While this step is considered historic by many (the first piece of health reform legislation ever to be voted on by any aspect of the House or Senate), the Bill faces certain wholesale reconstruction over the next days.  Enormous questions and uncertainties remain over significant aspects of the legislation, none the least is what its actual cost will be.  In testimony today before the Finance Committee, representatives from the CBO admitted that a lack of time and detail prevented accurate estimates to be completed.  As I have noted before, the CBO has been historically inaccurate (low) on estimating the cost of major legislative initiatives.  Other major “questions” that need to be addressed are as follows;

  • The lack of requirement for private citizens to purchase insurance or companies to provide insurance.  The insurance industry is stating that without such a requirement, healthy individuals will opt to pay the very modest tax penalty and remain uninsured knowing that as soon as an illness of significance strikes, they can purchase insurance with no penalty – the bill prohibits insurers from barring coverage due to pre-existing conditions.  The insurance industry believes that only “ill” or “sick” people will be insured thereby creating adverse selection, higher costs and too small of a risk pool to spread the risk.
  • The issue of future private costs of insurance is a significant area of contention.  The legislation, without a mandate for all individuals to be insured, potentially raises significantly, the cost of private insurance.  With private insurers taking on a group with pre-existing health conditions and substantial cuts forthcoming (the Bill requires these) to Medicare and Medicaid spending levels, there is justifiable concern that private insurers will bear the brunt of cost-shifting among providers as well as the costs of an abnormally unhealthy cohort group.  While the Bill contains subsidies for private insurance companies, the levels are unlikely high enough to avoid or abate, rising private insurance premium levels.  Some estimates, such as those contained in the Price Waterhouse Coopers report suggest the increases could double the current average cost of insurance within ten years.
  • Considering the point above, smaller employers are now somewhat concerned that the Bill, containing no public option aside from the unknown and undefined co-op program, may bear significantly higher costs of insurance if they continue to offer health insurance.  Employers that choose to drop their programs altogether are concerned that they may become non-competitive in the labor market.  Employers also, if they choose to drop their health programs, face a penalty for every employee that sought insurance with a government subsidy.
  • The Bill includes a significant expansion of Medicaid as a means of covering low income individuals.  Medicaid is already considered by providers (doctors, hospitals, etc.) as the poorest payer (amount) of all sources of reimbursement.  Without a reform on the payment side to assure more payment adequacy under Medicaid or alternatively, rules mandating providers to treat Medicaid patients, access issues (already a problem in many urban areas) could be made considerably worse.
  • The Bill doesn’t address a number of issues that are significant to both parties – Republicans and Democrats.  On the Republican side, issues of tort reform, taxation, and funding are still an issue.  On the Democratic side, the issue of a public option, coverage mandates, and Medicaid access will need to be addressed.  Both parties will need to wrestle with the impact of Medicare and Medicaid spending reductions in the Bill as provider groups are already at arms over issues of reimbursement reductions, especially physician fees which only receive a one-year protection under the Baucus legislation.

Historic?  Yes but more history is yet to be made.  This first step is almost insignificant in terms of where the health reform movement will ultimately end.  This step if anything is purely symbolic and framing; a jumping off point for a journey that still must wander through the Senate, arise in the House, navigate through Conference, and then back to each floor for possible final approval.  In the world of politics and public policy, this is a lifetime with its requisite fits and starts, ups and downs, successes and failures.

October 13, 2009 Posted by | Policy and Politics - Federal | , , , , | Leave a comment

Senate Reform Bill Budget Neutral?

This afternoon, the Congressional Budget Office released a statement saying that the Senate Finance Committee Reform Bill (the Baucus Bill) prices out at $829 billion over ten years.  At this price-tag, given the revenue assumptions (fees, cuts, taxes, etc.) contained in the Bill, the CBO estimates that the Bill actually produces a modest deficit reduction – $81 billion over ten years.  The CBO further estimates that the Bill will provide coverage to 94% of Americans.  Now, as the late Paul Harvey would say, “stay tuned for the rest of the story”.

The number provided by the CBO is based on a summary of the Bill’s summarized provisions, not the legislative text of the Bill itself.  Senate Democrats who control the Committee (and the Senate for that matter), have decided not to release to the CBO or to the public, the legislative text and accompanying mark-ups.  Without the full legislative text of the Bill available, the CBO has no ability to provide even a reasonably accurate scoring of the Bill.  Plainly stated, the $829 billion is an EWAG (Educated Wild Ass Guess) at best.  Further, given the CBO’s history of under-estimating legislation price-tags, the number provided can’t be taken for anything other than what it is – the by-product of fuzzy math.

There is another problem with the press release; the estimation of how many Americans are or will be covered.  Without the legislative text for the Bill, there is no accurate way of measuring exactly how the Bill will create this level of coverage.  For example, the Bill contains no provision requiring employers to provide health insurance for employees.  Further, while the bill requires Americans to purchase health insurance, how this requirement will be enforced, implemented and monitored is unknown sans the actual legislative text.  Finally, there are wide discrepancies in the numbers of uninsured in America, in total and demographically.  As this uninsured population remains somewhat nebulous, it is literally impossible for the CBO to presume that the Bill will cover 94% of Americans and in all likelihood, even with the legislative text available, this level is unattainable.

The rest of the story?  My read is that the Senate Democrats are trying to avoid the inevitable – a complete and accurate scoring of the Baucus Bill (again, to the extent that the CBO can be accurate) which would conclude quite differently.  There is about as much chance that the Baucus Bill is budget neutral and deficit cutting as there is for the Detroit Lions to win the Super Bowl.  The age old adage that the Devil is in the details applies here. 

Let the games begin as the next steps precluding a vote will be interesting as pro-reform Democrats will use the very preliminary CBO estimate as ammunition for a vote while Republicans will call foul and conservative Democrats will lobby to see the legislative text and to have the CBO re-score the Bill the right way.  President Obama is certain to step forward and proclaim his support for passage again, supporting the illogical conclusion that this Bill is somehow budget neutral and deficit reducing.  We do live in interesting times.

October 7, 2009 Posted by | Policy and Politics - Federal | , , , | Leave a comment