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I I
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OMB MEMOS
PHOTOCOPY
PHOTOCOPY
PRESERVATION
OMB MEMOS
file
CENTER ON BUDGET
AND POLICY PRIORITIES
THE STENHOLM ENTITLEMENT CAP PROPOSAL
Representative Charles Stenholm has crafted a proposal that would establish annual
caps on all entitlement and mandatory spending programs, including Social Security, for
each fiscal year through 2000. These caps would be set significantly below the levels that
entitlement spending is expected to reach under current law. Rep. Stenholm estimates that
Congress would have to make approximately $100 billion in entitlement cuts over the next
five years to comply with these caps. That estimate appears conservative; the amount of
cuts needed might be significantly higher.
Originally developed by former OMB director Richard Darman, the entitlement cap
idea was a centerpiece of the 1992 Bush presidential campaign. Under the Stenholm
entitlement cap proposal, the caps would be based on the total fiscal year 1995 expenditure
level for all entitlements except deposit insurance and net interest. The fiscal year 1996
cap would equal the fiscal year 1995 expenditure level, adjusted for the general rate of
inflation and also adjusted up or down to reflect changes in the number of beneficiaries in
entitlement programs since fiscal year 1995. The same type of adjustments would be made
in the cap for each subsequent year. There also would be an adjustment in the cap of one
percent in fiscal years 1996, 1997, and 1998. Because these adjustments do not reflect such
factors as the rapid rates of increases in health care costs that characterize Medicare,
Medicaid, and the U.S. health care system as a whole, they produce caps that are well
below projected entitlement costs.
An automatic sequester - or across-the-board cut - of entitlement programs
would occur in any year the caps would be breached, unless Congress passed
reconciliation legislation bringing entitlement spending within the caps. Virtually all
entitlement programs - including Social Security and basic benefits for the poor - would
be subject to sequestration. Any benefit reductions made as a result of sequestration
would be permanent; they would not be lifted at the end of the fiscal year.
Last year, an entitlement review mechanism was implemented through the
combination of an Executive Order governing the executive branch and a change in the
rules that govern House procedures. These measures were designed to put into effect the
entitlement control language passed by the House last year as part of its budget
reconciliation bill. Under the Executive Order and the changes in House rules, the Office
of Management and Budget is required to establish entitlement spending targets for each
year through fiscal year 1997. When the Administration submits its budget each year, it
must report on whether the targets for the prior fiscal year, the current fiscal year, or the
coming fiscal year have been or are expected to be breached. If so, the President must
recommend - and Congress must vote on - whether to cut spending, raise taxes, or raise
the entitlement targets. Rep. John Spratt recently introduced legislation to write these
procedures and requirements into law.
777 North Capitol Street, NE, Suite 705, Washington, DC 20002 Tel: 202-408-1080 Fax: 202-408-1056
Robert Greenstein, Executive Director
The Stenholm entitlement cap would go far beyond the entitlement review
procedure embodied in the President's Executive Order and the change in House rules.
One key difference involves the levels at which the targets or caps are set. The Executive
Order set the entitlement targets at the levels projected for entitlement spending after
taking into account the entitlement savings contained in the 1993 budget reconciliation bill.
The Executive Order is designed to prevent entitlement costs from climbing above the
spending levels envisioned in that bill. By contrast, the new Stenholm proposal sets the
entitlement caps at much lower levels and requires large, additional entitlement cuts
beyond those enacted last year.
As noted, the Stenholm plan would require that if entitlement costs would
otherwise exceed the cap, entitlements would have to be cut (unless Congress raised the
cap). If specific cuts were not enacted, across-the-board reductions would be triggered
automatically, and no entitlements would be exempt - not even Social Security or basic
benefits for the poor, which are exempt from sequestration under the Gramm-Rudman-
Hollings law. Moreover, in seeking to avoid sequestration, Congress and the President
would have no options other than cutting entitlements or raising the entitlement cap. In a
departure from the Executive Order, no increase in taxes would be allowed to offset any
part of an "overage."
Entitlements and the Deficit
Congressional Budget Office analyses show that when the deficit begins to rise
again later in this decade, all of the rise will be due to the increasing costs of the health
care entitlements. Over the next 10 years, total spending for entitlements other than
Medicare and Medicaid will not increase the deficit; to the contrary, the CBO forecast
shows that such spending will decline as a percentage of the Gross Domestic Product.
This underscores the point that comprehensive health care reform with tough cost
containment measures which slow the long-term rate of growth in health care costs is
crucial for fiscal stability. Without health care reform of this nature, it will be virtually
impossible to address our long-term deficit problems without much larger reductions in
Social Security benefits and increases in taxes than the nation is likely to tolerate.
Effects of the Stenholm Proposal
The Stenholm entitlement cap proposal would have far-ranging effects.
1. It would make comprehensive health care reform more difficult to implement.
¹After the baby boom generation begins to retire, Social Security costs also will enlarge the deficit.
2
The Stenholm proposal would require that at least $100 billion in entitlement
reductions be achieved over the five years from fiscal year 1996 to fiscal year 2000.
Virtually all of the $100 billion gap between current entitlement cost projections and the
Stenholm caps stems from the fact that the caps would limit entitlement expenditures to a
rate of growth far below the projected growth rates for Medicare and Medicaid costs. (The
growth rates for Medicare and Medicaid are similar to the rate of growth in private sector
health costs.)
As a result, if health care reform legislation is enacted that is deficit-neutral over
this five-year period, the entitlement cap proposal will almost surely force the health care
legislation to be reopened and altered in subsequent years. Such action will be necessary
to produce large savings in Medicare and Medicaid, on top of those savings measures
contained in the health care reform bill, or to scale back substantially various costs in the
reform bill such as the costs of extending coverage to the uninsured.
The health care reform legislation on which Congress is now working would be
deficit-neutral over the next five years. This is primarily because the costs of covering
many or all of the uninsured will largely have to be absorbed and paid for during this
period. Health care reform has the potential to produce significant savings in years after
that, depending on various decisions Congress makes in the weeks ahead.
Under the Stenholm proposal, however, the entitlement caps would be set at levels
that would essentially require health care reform to generate large savings quickly.
Achieving deficit neutrality in the legislation's first five years as health care coverage was
extended to millions of uninsured Americans would be insufficient. This is why it would
be very difficult to comply with the Stenholm caps for the next five years without
extracting very large additional savings from Medicare and Medicaid or scaling back
health care reform.
Accordingly, health care legislation enacted in 1994 would almost certainly have to
be reopened. Revamping the legislation to achieve very large deficit reduction in the next
few years would run a high risk of producing measures that compromise those features of
health care reform that are designed to make major progress toward universal coverage.
Proponents of the Stenholm proposal are likely to note that the proposal contains a
provision under which the entitlement caps would be adjusted following passage of health
care reform legislation; the proposal's proponents may cite this provision as evidence the
proposal would not interfere with health care reform. The provision in question, however,
is minor and does address the issues discussed here. The provision does not alter the
need, under the Stenholm proposal, for deep reductions in health care programs in the
years just ahead. (See box on next page.)
3
Doesn't the Stenholm Proposal Adjust for Health Care Reform?
Proponents of the Stenholm plan are likely to argue their proposal does not stand
in the way of health care reform and that, in fact, it contains an adjustment specifically to
accommodate whatever health care reform bill Congress passes. This argument misses the
mark. While the Stenholm proposal does contain a provision to adjust the caps after enactment
of health care reform legislation, this is a minor provision with no significant bearing on the
issues discussed here.
The Stenholm proposal includes a provision that would adjust the entitlement caps
for each of the next five years up or down to reflect the amount that a deficit-neutral health care
reform law is projected to increase or decrease entitlement spending in each of these years. For
example, if a deficit-neutral health care reform law is projected to increase entitlement spending
by $3 billion in fiscal year 1997, the fiscal year 1997 entitlement cap would be raised $3 billion.
While modestly useful, all this provision does is to keep the huge gap between the
caps the Stenholm proposal would set and current projections of entitlement costs for the
next five years from growing even larger. The provision does nothing to help close this
gap. Steep cuts would still be needed, and they presumably would come primarily in the
health care entitlement programs. This means that a deficit-neutral health care bill enacted
this year would have to be reopened and potentially unraveled to produce tens of billions
of dollars in additional health care entitlement cuts in fiscal years 1996 through 2000.
2. The Stenholm proposal would restrict the flexibility of authorizing committees and
shift substantial power to the budget committees.
In a novel provision included in the Stenholm proposal, reconciliation instructions
contained in the Congressional budget resolution would dictate to the authorizing
committees how much to cut from each of the 20 budget functions in the federal budget.
Entitlement caps would be set annually for each budget function containing entitlement
programs. These caps would be in addition to the overall cap placed on total entitlement
spending.
The annual budget resolution would establish entitlement ceilings for each budget
function. Once the budget resolution was approved, these function-by-function ceilings
would be packaged as a separate bill and brought quickly to the House and Senate floors
for a vote. If the bill passed and was signed by the President, these function-by-function
ceilings would become legally binding caps. As a consequence, if an authorizing
committee wished to cut an entitlement program in one budget function by less than the
amount required in its reconciliation instructions - and to offset that shortfall through
additional entitlement cuts in another budget function under its jurisdiction - the
committee would be prohibited from doing so.
Under current budget rules, committees with broad jurisdictions - such as the
House Ways and Means Committee and the Senate Finance Committee - may meet a
reconciliation target by cutting any entitlement within their jurisdictions. Under the
4
Stenholm proposal, however, these committees would be required to produce specific
amounts of entitlement savings by budget function and not be permitted to save less in
one budget function and more in another budget function. If a committee failed to comply
with the instructions for any budget function, every program in that budget function -
including programs under the jurisdiction of other committees - would be cut by a
uniform percentage. In other words, there would be a sequester of all entitlement
programs in that budget function.
The proposal also would bar an authorizing committee from designing deficit-
neutral legislation that increased one entitlement and cut another entitlement by the same
amount, unless the two entitlement programs were in the same budget function or this
shift was reflected in advance in the function-by-function entitlement caps set under the
budget resolution. This restriction could create difficulty for proposals such as welfare
reform that help finance increases in the cost of entitlements in one budget function by
reducing entitlement programs in other budget functions.
3. The Stenholm proposal also would be likely to have unforeseen consequences.
The proposal would require cuts in entitlements when the cap would be exceeded,
including some circumstances in which the cap was breached as a result of economic or
other factors beyond policymakers' control. Although the caps would be adjusted to
reflect certain basic economic factors, those adjustments do not cover other economic
factors that also affect entitlement costs and could cause the cap to be exceeded.
For example, entitlement cuts could be triggered if income growth was slower than
forecast, poverty rates were higher than anticipated, health care costs rose more swiftly
than forecast, unforeseen weather conditions or international crop developments caused
farm program costs to rise, or a national disaster struck. If unforeseen conditions such as
these caused the entitlement cap to be exceeded, specific entitlement cuts would have to be
enacted or across-the-board entitlement cuts would occur. The only way to avoid such a
development would be through enactment of legislation raising the entitlement cap, and
such legislation would likely prove very difficult to pass. Legislation to raise the cap
could be subject to a filibuster or become a vehicle for other extremely contentious
provisions.
Another unintended consequence would be the creation of incentives for the use of
rosy economic forecasts and budget gimmicks that made it appear as though the
entitlement caps were being met. In seeking to place fixed, arbitrary targets on entitlement
costs that necessarily fluctuate with the economy and with other factors beyond
policymakers' control, the Stenholm entitlement cap proposal is akin to the Gramm-
Rudman-Hollings law. As with Gramm-Rudman-Hollings, the Stenholm entitlement cap
proposal would likely generate a plethora of gimmicks to shove entitlement costs into the
following year, accelerate receipts or delay payments in entitlement programs to meet the
cap for the current year, and above all, use rosy economic and technical assumptions to
make it appear as though entitlement costs would remain within the caps. The pressure to
resort to such devices would become particularly intense in election years.
5
The Stenholm proposal also could lead to sharp reductions in a number of
entitlements whose costs are not growing rapidly or adding to the deficit. This could
occur because the entitlements growing most dramatically could prove too difficult
politically to cut.
4. The Stenholm proposal raises significant equity issues.
The proposal would bar the use of reductions in tax expenditures or any other
revenue measures to offset even part of a projected breach of the cap. This raises equity
issues.
Benefits and subsidies provided through spending entitlements primarily benefit
low- and moderate-income households. By contrast, tax expenditures, many of which are
essentially subsidies provided on an open-ended entitlement basis through the tax code,
disproportionately benefit those at higher income levels. By walling off - and thereby
protecting - subsidies provided on an entitlement basis through the tax code, the
Stenholm proposal tilts in favor of the affluent. The proposal would not cap tax
expenditure growth, which is contributing to the nation's deficit problems. Nor would it
allow use of measures to restrain such growth as part of a package designed to offset part
of a projected breach of the entitlement cap.
The Stenholm proposal would even rule out measures that sought to reduce
entitlement benefits for people at higher income levels by using the income tax system to
identify these people and recapture a portion of the benefits they received during the year.
In programs like Medicare and Social Security - where the Social Security office lacks
information on beneficiaries' current incomes - this is the only practical means of scaling
back benefits for beneficiaries at higher income levels. Such measures would not count
toward meeting the Stenholm entitlement cap, however, because the savings they produce
are technically classified as an increase in revenues rather than a decrease in entitlement
spending.
Conclusion
The Stenholm entitlement cap proposal is ill-advised. It would hamper the
achievement of health care reform, the most important reform needed to slow the long-
term rate of growth in entitlement costs. In addition, by setting entitlement caps by
budget function, it would alter the Congressional decision-making process in ways that
restrict the ability of authorizing committees to make sound policy choices.
It also would likely produce regressive effects, tilting in favor of the wealthy and
hitting the middle class and the poor hardest. That would be a likely result of its
protection of entitlements delivered through the tax code, its prohibition on using the tax
code to reduce entitlement benefits for people at higher income levels, and its bar on
revenue measures to help achieve any part of the required savings.
6
How the Budget Process Would Work under the
Stenholm Entitlement Cap Proposal
1.
The annual Congressional budget resolution would specify the amounts to be saved from
entitlement programs in the coming fiscal year in order to meet the cap for that year. As
under the current budget process, the budget resolution would include reconciliation
instructions to various committees with jurisdiction over entitlements. And as at present,
the reconciliation instructions would specify the amount of entitlement cuts each
committee would have to produce. The instructions would, however, differ from current
reconciliation instructions in two key respects: each committee would be told how much
to cut by budget function, and committees would be barred from using revenue
measures to meet any part of their instruction.
2.
Once the budget resolution was passed by Congress, a "spin-off" bill would be brought
to the House and Senate floors. The spin-off bill would set function-by-function
entitlement caps, corresponding to those reflected in the budget resolution.
3a.
If the spin-off bill was enacted, Congress would have to pass legislation cutting entitlements
enough to meet the caps set for each function. If Congress failed to meet the cap for a
particular budget function, all entitlement programs in that function would be reduced
by a uniform percentage to meet the cap. In other words, targeted sequestration would
occur.
3b.
If Congress failed to approve a budget resolution or if the spin-off bill was vetoed, Congress
would be required to pass legislation achieving sufficient entitlement savings to meet the
overall cap. If legislation cutting entitlements enough to meet the cap was not enacted,
comprehensive sequestration covering virtually all entitlements would occur.
The proposal has basic design deficiencies as well. Its mechanisms to adjust the
entitlement caps to reflect changes in the economy are flawed, failing to reflect such factors
as slower-than-anticipated income growth, higher-than-expected poverty rates, or
unforeseen weather conditions or international crop developments that temporarily affect
agriculture program costs.
July 13, 1994
7
UNITED EXECUTIVE ONLITED OFFICE TRENSURY
EXECUTIVE OFFICE OF THE PRESIDENT
file
OFFICE OF MANAGEMENT AND BUDGET
WASHINGTON, D.C. 20503
FOR IMMEDIATE RELEASE
Contact: Barry Toiv
December 8, 1993
(202) 395-7254
STATEMENT BY DR. ALICE RIVLIN
DEPUTY DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET
The Lewin-VHI study essentially verifies our estimates and
the soundness of the financing of our proposal. The study
confirms that the Health Security Act is fully financed and that
it will reduce the deficit over the period from 1995-2000.
Our initial review of the Lewin-VHI study indicates that it
substantially confirms our estimates of the financial impact of
the Health Security Act. Because of slightly different
assumptions, the study yields slightly different results. Despite
these differences, the important point is that Lewin-VHI's
estimates of the costs of the Health Security Act are roughly the
same as the Administration's estimates; and their estimates of
the savings that will be realized from the Health Security Act
are roughly the same as the Administration's.
Lewin-VHI's estimates of the cost of the discounts for
small, low-wage employers and for low-income workers are slightly
lower than our estimates. Therefore, the Lewin-VHI analysis
confirms that the entitlement caps we have placed in the Health
Security Act are not likely to be exceeded.
We look forward to having an opportunity to review the
Lewin-VHI study more thoroughly.
###
Note: The Lewin press release appears to contain an inadvertent
factual error. The Lewin estimate of the discounts is $153
billion; the Administration's estimate is $161 billion, which is
the amount of funding assumed in the entitlement caps in the
Health Security Act. Therefore, contrary to a statement in the
Lewin release, the study actually concludes that the cost of the
discounts for individuals and businesses will not exceed the
entitlement cap in the legislation.
LEWIN-VHI, INC.
a Value Health company
9302 Lee Highway, Suite 500
Fairfax, Virginia 22031
(703) 218-5500
(703) 218-5501 (FAX)
Contact: Janet Ochs Wiener
(301) 652-4389
LEWIN-VHI REPORT FINDS ADMINISTRATION COST ESTIMATES OVERLY
OPTIMISTIC BUT STILL REDUCES BUDGET DEFICIT
WASHINGTON, D.C., December 8, 1993 - In the first complete independent analysis of
the financing of President Clinton's Health Security Act, Lewin-VHI says the
administration's plan to provide universal coverage will cost the country and the business
sector more than advertised.
However, according to Lawrence S. Lewin, Chairman and CEO of Lewin-VHI, the
internationally recognized health care policy and management consulting firm, the report
"shows that the plan's financing structure works: it meets the President's requirement of
providing universal coverage, and it does so without relying on an increase in broad-
based income taxes.
"We think it is time first to focus on the validity of the assumptions underlying the
plan, modify it as necessary, and then get on with the passage and implementation of a
Health Care Reform Plan, says Lewin-VHI's President Robert J. Rubin, M.D., former
Assistant Secretary for Planning and Evaluation in the Department of Health and Human
Services in the early 1980s.
"The broader issue - finding ways to control costs while expanding access and
retaining high quality care -- should not be lost in a contest of predicting winners and
losers," Rubin adds, noting that "any restructuring of this magnitude is bound to create
gains for some, and losses for others."
2-2-2 LEWIN-VHI ESTIMATES ON HEALTH SECURITY ACT
This analysis came as a part of a press conference today at which Lewin-VHI
announced publication of a detailed 196-page study "The Financial Impact of the Health
Security Act" explaining the Plan's complex financing scheme. The report's findings and
an analysis of its impact on providers of care, federal and state governments, employers,
households, and the pharmaceutical and biotechnology industries will be presented at an
all-day public meeting tomorrow, "Health Care Reform by the Numbers" at the Omni
Shoreham, in Washington, DC. The purpose of releasing these independent estimates,
is "to inject a measure of objectivity into the debate;" according to Lewin.
"These findings come at a time when there is growing skepticism about whether
the President's plan could work. "This report", Lewin adds, "validates the logic of the
plan's financing; it also clearly reveals how critical the underlying assumptions are". The
Lewin-VHI study includes calculations showing the sensitivity of the bottom line to
different behavioral assumptions. The "bottom line" here is the impact the plan's
financing has on the federal budget deficit.
The calculations in this report rely on Lewin-VHI's Health Benefits Simulation
Model (HBSM) the most commonly used model for estimating the impact of health care
reform proposals.
The Lewin-VHI analysis also shows that American families as a group are the
major beneficiaries under President Clinton's health care reform package, with
employers, especially those not now providing insurance, bearing most of the cost of
expanded national coverage.
"The 'magic' in the administration's plan, is community rating" says John Sheils,
author of the study and an architect of Lewin-VHI's Health Benefits Simulation Model,
created ten years ago to estimate the impacts of alternative health reform plans.
Community rating is the phenomenon through which the costs of relatively sicker
individuals are spread across a larger population. "This is quite simply a return to the
way insurance used to work before insurers competed to avoid risk" Sheils said.
(MORE)
LEWIN-VHI, INC.
a Value Health company
3-3-3 LEWIN-VHI ESTIMATES ON HEALTH SECURITY ACT
Under the Health Security Act, all individuals in a given health plan would pay the
same premium for their type of family, regardless of age or health status. By putting
individuals with high utilization into the larger community pool, younger, healthier
populations and their employers would share in the cost of their care. While community
rating spreads these costs among employers and individuals, the federal government
contributes subsidies to those employers and families unable to pay.
"Our analysis indicates that premiums in the Regional Alliances would be about
17 percent higher than those estimated by the administration and this influences much of
the resulting financing." says Sheils. Lewin-VHI's estimate of higher premiums results in
federal subsidies to employers and families of $153 billion from 1996 through 2000, a
figure that is $37 billion higher than the Administration's five-year estimates.
Because of the higher premiums and the expansion of coverage to the 40 million
uninsured, private employer health spending (after subsidies), will increase gradually
from 1996 through 1998 and will be higher through the end of the century than under
current policies. However, the growth rate of private employer spending is expected to
decline after 1998.
The Act relies upon price competition among insurers as the primary means of
cost containment. As a backstop measure, however, the plan places limits on the rate of
growth in premiums to assure that the rate of growth in health spending is constrained
"There is ample evidence that the kind of managed care the Health Security Act
envisions can slow health care spending growth, but whether it will do so on a national
scale and to the extent the President's plan requires, remains a bet, not a certainty." says
Lewin. "On the other hand, premium caps, while a sure thing on paper, have to be
achievable in practice, and will depend on the political will of elected officials and the
voting public; so they are not a sure thing either."
The administration estimated a total deficit reduction between 1994 and 2000 of
$103.0 billion including $45 billion reserved as a cushion against unanticipated increases
in spending. The Lewin-VHI estimates predict that the reserve cushion will be exceeded
and that the net deficit reduction will be about $25 billion over the same period.
(MORE)
LEWIN-VHI, INC.
a Value Health company
4-4-4 LEWIN-VHI ESTIMATES ON HEALTH SECURITY ACT
In addition to detailing the financial effects of the plan, Lewin speakers at the all-
day workshop will describe their analyses of the effects on key sectors of the health care
economy. Highlights are:
States:
States will spend less ($12.4 billion in 1998) under HSA but will have the
responsibility of supervising the Regional Alliances.
Strong incentives to begin implementing alliances in 1996 will tax the capacity of
most state governments.
Alliance budgets will exceed the current state budget in a majority of states.
Local Governments
Local governments will spend $3.4 billion more in 1998 than they would under
current policy, primarily due to the loss of DSH and the mandate to cover local
workers.
The HSA, although, addressing many of local governments historic needs, leaves
gaps: many mental health and substance abuse services, prisoners and
undocumented immigrants.
Providers of Care
Hospital spending will be $23.8 billion less in 1998, chiefly because of the impact of
reduced utilization due to managed care and cuts in Medicare
Physicians will see $20 billion more in 1998, due to the impact of managed care and
providing coverage for those currently uninsured, however, there will be distributive
effects among physicians.
(MORE)
LEWIN-VHI, INC.
a Value Health company
5-5-5 LEWIN-VHI ESTIMATES ON HEALTH SECURITY ACT
Physicians will face a ban on balance billing and other regulatory restraints if they
remain in a fee for service setting.
HSA will accelerate the current trend of provider integration.
Employers
HSA's effect on employers is varied and complex. As a group they will pay more
through the year 2000 then under current policy . a finding different than the
Administration's.
In general, firms that now offer insurance will see a reduction in spending while those
that do not will see an increase.
Manufacturing, transportation, communications, and utility companies will see a
reduction in costs by 1998 while retail trade and service companies will see
increases.
Pharmaceutical Industry
The HSA expands access to pharmaceuticals and will result in a 6 percent increase
in spending by 1998; there will however be an increase in regulation of drug prices
especially new products.
Lewin-VHI, a subsidiary of Value health, Inc. is a health care consulting firm
providing health policy, research and management consulting services to government
agencies, health care providers, health industry suppliers, Insurers and Investors. It has
offices in the Washington, D.C. and San Francisco bay areas.
Value Health, Inc. is a leading provider of specialty managed care benefit
programs and health care information services.
(MORE)
LEWIN-VHI, INC.
a Value Health company
5-5-5 LEWIN-VHI ESTIMATES ON HEALTH SECURITY ACT
Physicians will face a ban on balance billing and other regulatory restraints if they
remain in a fee for service setting.
HSA will accelerate the current trend of provider integration.
Employers
HSA's effect on employers is varied and complex. As a group they will pay more
through the year 2000 then under current policy - a finding different than the
Administration's.
In general, firms that now offer insurance will see a reduction in spending while those
that do not will see an increase.
Manufacturing, transportation, communications, and utility companies will see a
reduction in costs by 1998 while retail trade and service companies will see
increases.
Pharmaceutical Industry
The HSA expands access to pharmaceuticals and will result in a 6 percent increase
in spending by 1998; there will however be an increase in regulation of drug prices
especially new products.
Lewin-VHI, a subsidiary of Value health, Inc. is a health care consulting firm
providing health policy, research and management consulting services to government
agencies, health care providers, health industry suppliers, Insurers and Investors It as
offices in the Washington, D.C. and San Francisco bay areas.
Value Health, Inc. is a leading provider of specialty managed care benefit
programs and health care information services.
(MORE)
LEWIN-VHI, INC.
a Value Health company
EXECUTIVE OFFICE OF THE PRESIDENT
OFFICE OF MANAGEMENT AND BUDGET
SEAVIS
WASHINGTON. D.C. 20503
September 10, 1993
THE DIRECTOR
MEMORANDUM FOR THE FIRST LADY
FROM:
Leon Panetta and Alice Rivlin Alice
SUBJECT:
Comments on the 8/6/93 Draft of the Health Care
Reform Plan
The attached memorandum to Ira Magaziner responds to your request
last week that we provide our comments and suggestions regarding
the draft Health Care Reform Plan dated 8/6/93. The memorandum
is organized into two parts; the first section provides an
overview of some of the areas of the plan where we believe
further clarification is needed, while the second section
provides detailed, chapter-by-chapter comments about aspects of
the policy that are unclear or have Federal budgetary
implications that may not have been considered. This detailed
analysis was conducted under our supervision by OMB's staff of
budget examiners who have the day-to-day responsibility for
analyzing the various Federal health programs.
As noted in the memorandum, we are continuing to review the draft
plan in order to ensure that it is consistent with the policy
assumptions we have made in the preliminary budget estimates that
have been used in the modelling process. Because the chapter on
financing was incomplete at the time we reviewed it, and several
elements of the financing proposal are still evolving, our
analysis of this critical element of the draft plan is still
preliminary. Our understanding is that the new estimates of the
most current financing proposal will be delivered from the
modellers next week. We will direct OMB staff to analyze these
cost estimates along with the revised 9/7/93 draft of the plan
that we have just received, in order to ensure that the estimates
are consistent with the policy. We also want to highlight any
budget "scorekeeping" issues that we see as a result of this
review, so that we will not be surprised by CBO's scoring of the
reform plan. We will provide you and Ira with our analysis of
these issues as soon as possible.
We appreciate the opportunity to review this draft of the plan,
and stand ready to discuss and clarify any of our comments and to
work with you and Ira on subsequent drafts.
Attachment
OF
EXECUTIVE OFFICE OF THE PRESIDENT
OFFICE OF MANAGEMENT AND BUDGET
STATE
WASHINGTON, D.C. 20503
September 10, 1993
THE DIRECTOR
MEMORANDUM FOR IRA MAGAZINER
FROM:
Leon Panetta and Alice Rivlin
Alice
SUBJECT:
Comments on the 8/6/93 Draft of Health Care Reform
Plan
We appreciate the opportunity to review the draft Health Care
Reform Plan dated 8/6/93. In general, the draft reads well and
reflects the tremendous amount of work that has gone into the
development of the plan. You and your staff are to be
congratulated for addressing this important issue with such
dedication and persistence.
A number of detailed comments and questions, organized by
chapter, are attached. The comments represent our initial
reaction to aspects of the policy that are unclear or have
Federal budgetary implications that may not have been considered.
We are continuing to review the draft policy in order to ensure
that it is consistent with the policy assumptions we have made in
our budget estimates and modelling; however, because the chapter
on financing is not complete (and indeed, was still in the
process of being discussed with the President last week), our
analysis of this critical element of the draft plan is still
preliminary. A few more general comments follow here,
highlighting major issues that our initial review has uncovered,
and that we believe need clarification.
It is my understanding that OMB staff met with you and your staff
this weekend to discuss the chapters of the draft plan dealing
with public health initiatives. We are prepared to do that with
respect to other aspects of the draft plan if a fuller
explanation of the detailed comments that follow would be helpful
to you.
Allocation of Responsibility
The draft calls for a complex set of responsibilities to be
shared by the Federal government, the new National Health Board,
States, and Health Alliances. At each of these levels, there is
further division of responsibilities as well. For example,
within the Executive Branch, responsibilities are distributed
across DHHS, Labor, Treasury, Justice, Commerce and others.
We appreciate the essential American traditions of pluralism and
decentralized sharing of powers. At the same time, the practical
complexity of the interrelationship of the various agencies and
levels of government requires more specificity concerning duties,
powers, shared responsibilities and -- most importantly -- final
accountability. Specific issues related to implementation and
long-term management of the Nation's health sector are difficult
at best to predict. It is critical that the structure created to
manage this reform be well-designed and easily understood by all
concerned.
It is certainly the case that the precise allocation of
responsibilities will be a primary focus of negotiations with the
Congress, and in that sense, leaving the lines deliberately vague
is a rational opening gambit. Insofar as we have not had the
opportunity to discuss the contours internally very much, we
believe it would be productive to focus on this issue and begin
to develop our preferred outcome of this distribution before
serious negotiations with the Congress begin.
One particular assignment merits mention here: we strongly
object to the proposal set forth in the draft plan that the
National Health Board will be organized as an independent agency
that will issue regulations without the benefit of OMB review
(see Chapter 5, p. 48). We believe it would be extremely unwise
to cede Executive Branch control over the Board, especially in
the early years, when the Clinton Administration will bear sole
responsibility for its successes and failures. For example, the
Board will be responsible, at least initially, for developing and
enforcing the national health care budget. It is far from clear
that it would even be possible, much less desirable, for an
agency located outside the Executive Branch to assume such
responsibility. Further, the purpose and effect of OMB review of
agency-issued regulations is to ensure compliance with the goals
and policies of the President. Ceding the authority to review
regulations issued by the Board, and in general interposing an
independent body between the President and the Executive agencies
in effect relinquishes control of a crucial policy. As there may
also be constitutional issues involved, at a minimum there should
be further discussions about this proposal within the
Administration.
Federal Budget Risk
Related to concerns about authority and management, the draft
plan calls for a number of new programs, policies, and
initiatives that involve Federal dollars, either in direct
funding or as a "backstop" for a potentially turbulent early
implementation phase. Several direct subsidies are mentioned,
including premium subsidies for low-income persons, an iron-clad
cap for employer premium contributions set at 7.5% of payroll,
additional subsidies for small, low wage firms, full tax
2
exemption for health insurance payments by the self-employed, and
subsidies for co-pays and deductibles for low-income persons.
Several new sources of funding or funds (similar in concept to
national trust funds) are discussed in the draft, including a
national Fund/Risk Pool for the Uninsured, Fraud and Abuse Fund,
the Veterans Administration Fund for Development into Health
Plans, Long-Term Care Trust Fund, State Plan Guaranty Funds, the
graduate medical education All-Payer National Pool, and the
Inter-Alliance Security Trust Fund. Some or all of these funds
could be substantial, both in terms of new tax burdens or
potential outlays of Federal dollars. For example, the risk
pool/fund discussed in Chapter 29 could be larger than either the
Medicare Trust Fund or current Medicaid funding -- with as many
as 50 million newly entitled persons. In most cases, the
estimated cost or size of these funds is not specified.
We note that the draft plan itself is a discussion of the policy
proposals without detailed budget tables. Of course, we have
seen and helped to prepare draft estimates of various pieces of
the overall reform plan, including proposed Medicare and Medicaid
reductions, but as you know, the net cost of the draft health
reform proposal has not been estimated as a total package. This
is particularly true with respect to the proposal for financing
the subsidies discussed with the President late last week, which
we understand is still evolving. Interactive effects can be
significant, especially in a systematic reform as complicated as
this one. Thus, any numbers we have at the moment must be
considered preliminary, and must be so regarded and described.
The further point is that there is quite a bit of irreducible
uncertainty in any estimate of the ultimate effects of health
reform on the Federal deficit. Given that, it seems prudent to
spend more time and detailed effort designing "stopgap"
protection for the Federal purse, especially in the early years.
We at OMB would be glad to undertake this effort.
Our understanding is that estimates of the current financing
proposal will be delivered from the Urban Institute next week.
Armed with a fuller appreciation of the reform proposal as a
whole, we will direct OMB staff to assess the new cost estimates
to ensure that they are consistent with the policy as we
understand it and will provide you with our analysis of this
early next week.
Global Budget Enforcement
Nancy-Ann Min's memorandum to you dated July 29 expressed our
concerns about the preliminary versions of the global budget.
Although the guidelines for calculating the global budget have
been amended to change the focus from GDP to CPI, the current
version of the policy is similar to the one her memorandum
3
discussed, and therefore our concerns remain. Several dimensions
of this policy raise related concerns about the unpredictability
of Federal outlays. The Federal health budget enforcement and
responsibility for Years 1 through 3 poses a number of
challenges, including the following:
Although the policy calls for Federal enforcement by the
National Health Board of each State's global budget,
currently there is no reliable state-by-state baseline of
spending for the guaranteed benefit package. The only data
available are gross estimates of total spending by HCFA's
Office of National Cost Estimates, the accuracy and
timeliness of which leave a great deal to be desired;
Premium bids by plans could be skewed by estimates of
increased demand for services by the newly-insured,
estimates of adverse risk selection, and general market
uncertainty. It will be difficult at best -- without better
utilization and risk status information -- to assess the
extent to which premium bids reflect efficient plans or
delivery of services.
Taken together, these factors could have enormous implications
for short-term Federal outlays, and thus for our ability to meet
the global budget targets. With respect to the Federal health
programs in particular, your argument that Medicare and Medicaid
continue to grow at a rate higher that the private sector under
the plan's scenarios is a persuasive one; but the fact remains
that the global budget scenarios call for the growth rates in
these Federal programs to be cut in half very quickly. We should
not underestimate the difficulty of persuading the Congress that
this is possible, and of actually doing it.
Administration of Subsidies
Under almost any plan, the administration of specific subsidies
requires a fair amount of complexity and detail, which may in
turn be less than helpful to the average reader. Perhaps under
separate cover or in the next draft, it would be useful to share
the details of the current proposals for the several provisions
that imply or directly call for administration or distribution of
funds. These include areas such as:
subsidies to small businesses and/or businesses with low-
wage workers;
subsidies for Medicaid wrap-around coverage, as well as
subsidies for co-pays and deductibles for the low-income
groups;
coverage and eligibility rules for the working aged,
relative to both the worker and the spouse;
4
tax incentives and tax credits for long-term care coverage;
and
transitional policy issues such as moving from a single
national payer fund for the uninsured to coverage in private
plans under a state-based alliance structure.
We strongly believe that the administration of these aspects of
the plan must be reviewed carefully to ensure that there is
coordination and streamlining across these administrative
structures, rather than duplication and needless fragmentation.
Thank you again for the opportunity to review this draft and
provide you with preliminary reactions. OMB stands ready to
discuss and clarify any of these comments and to work with you on
subsequent drafts.
5
Specific Comments by Chapter
Chapter 2: Ethical Foundation
Missing are two ideas: a principle of medical care is that it should be provided
only with the "informed consent" of the patient. Informed consent is a means to
ensure that treatment is expected to be in the best interests of the patient, as
understood by the patient. One concern that has been expressed about managed
competition is that it will accelerate the abandonment of this principle. A clear
signal to consumers about the importance of their welfare could be made by
appealing to this principle.
The notion of "wise allocation of resources" (p. 11) could be made more
informative and specific by adding to it a note about the importance of cost-
effective medical care. Presumably reform should help people get well while
imposing no avoidable costs. Care of a given quality should be delivered at the
lowest possible cost.
Chapter 3: Coverage
Categories of Eligibles
"Long-term non-immigrants": The draft indicates at page 13 that "long-term
non-immigrants" would be covered under the plan. It is unclear what is meant
by this category. In the long term, the only non-immigrants in this country are
Native Americans. They are already covered as American citizens, raising a
question about the apparent need for this new category.
Alternatively, the term long-term non-immigrants may refer to illegal aliens, or
undocumented workers. It has been our understanding that these populations
were not intended to be covered. Therefore, if this phrase is intended to refer to
populations that are in this country illegally over long periods, then it should be
clarified and explained in terms of exactly how they are covered and how their
coverage is financed.
Territories: the policy states that individuals who reside in territories of the U.S.
receive the comprehensive benefit package "in a manner consistent with their
existing systems" (p. 18). What does this mean? Are there alliances in the
territories? Does the mandate extend to the territories? Are low-income
subsidies available to citizens living in the territories? Non-citizens?
1
American citizens: The draft indicates that all "American citizens" will be
covered. Does this mean that we intend to cover U.S. citizens living abroad?
Unemployed workers: The draft states on page 14 that health care coverage
continues without interruption for individuals who become unemployed.
Unemployment insurance funds assume payment of the employer's share of
premiums for up to 26 weeks on behalf of any employee who works at least 20
hours per week for the preceding four quarters and becomes unemployed.
Alliances provide financial assistance to unemployed workers and their families
on the basis of income, subsidizing all or part of the employee's contribution
toward the cost of the premium, deductibles, and co-payments. If an
unemployed individual is covered through a corporate alliance, the unemployed
individual may remain in the corporate alliance for up to one year. There are
several potential issues that need to clarified.
(1)
Is this program for all unemployed workers or only for those who qualify
for unemployment benefits? For example, in the late 1980's, only about
1/3 of the unemployed received unemployment insurance (UI); while this
proportion increases during recessions, a gap still remains. Even looking
at workers who have lost their jobs (a subset of the unemployed) shows a
gap: a recent CBO study of dislocated workers reported only about 70
percent of those jobless for at least five weeks collected UI.
(2)
The proposal limits the benefit to those employees who works at least 20
hours per week for the preceding four quarters. State UI laws are
typically based on quarters worked or wages received, not numbers of
hours per week. This means an individual may qualify for UI benefits
but not for coverage of health benefits.
If this 20-hour requirement is supposed to be a proxy for part-time, this is
not consistent with definition of part-time employee on p. 18 ("as defined
for purposes of Social Security withholding"), which has no hours worked
requirement.
(3)
The proposal looks very expensive for the Unemployment Trust Fund
(UTF) and could require an increase in payroll taxes. What part of the
UTF pays -- individual state accounts or a Federal accounts?
Correspondingly. what happens after 26 weeks -- who pays the
employer's share for the long-term unemployed?
2
(4)
Will there be any special provision for UTF payment of the employer's
share of premiums for participants in UI programs that provide benefits
beyond 26 weeks -- e.g. temporary Emergency Unemployment
Compensation program or permanent stand-by Extended Benefits
program?
(5)
How long will the alliance provide a subsidy for the employee's
contribution -- only for 26 weeks or until the unemployed worker finds a
job or qualifies for Medicaid?
(6)
What happens in terms of coverage and financial liability if an
unemployed worker stops paying for health insurance? Page 15 states
that no health plan may cancel an enrollment until the individual enrolls
in another plan. Does this mean that a worker will continue to be
enrolled in a health plan whether on not the premium is paid? Page 69
says that if a corporate alliance fails to make premium payments to a
health plan, the plan may terminate coverage after reasonable notice. If
coverage is terminated, the corporate alliance is responsible for providing
coverage to individuals previously insured under the contract.
(7)
Is there a different outcome for a worker who doesn't pay his share
within the first 26 weeks (when the employer's share is being covered)
versus a worker who doesn't pay after 26 weeks?
(8)
Are unemployed members of corporate alliances eligible for subsidies?
Student insurance coverage costs: This chapter mentions at page 18 that
students would enroll in the alliance in the region where they go to school.
Currently, most students are insured by their university at a relatively low cost
due to the age and health characteristics of this pool of enrollees. Under
community rating, however, the premiums for these students could be increased
to reflect the greater health care needs of non-students. The cost of students
obtaining health insurance may increase sharply, depending upon how subsidy
levels are calculated.
An important issue, therefore, is how subsidy levels related to income will be
calculated for students. With little or no income, they could be eligible to
receive large subsidies, unless their income is determined based upon the
income of their family. Administrative and financing issues surrounding health
insurance for students need to clarified.
3
Employer payment obligations are discussed at page 16 as 80% of the premium,
but later there is a discussion that employers can contribute more than 80% to
offset any out-of-pocket or cost sharing of employees. To the extent employers
contribute more than a flat dollar amount, consumer price sensitivity to choosing
the most efficient plans will be watered down. Correspondingly, plans will tend
to "shadow price," as well as market themselves based less on efficiency and
more on other aspects such as equipment or amenities -- similar to what
providers do currently.
Choice
According to page 14, employed persons choose a health plan through a
corporate or regional health alliance. It is not clear whether family members of
employed individuals also can exercise choice about the plans in which they
enroll. In other words, can spouses who are not connected to the workforce, as
well as divorced spouses and their children, voice their plan preferences
independently from the employed family member through whom they gain
coverage?
Chapter 4: Guaranteed National Benefit Package
Covered Services
Preventive services: Are the preventive services listed on page 22 illustrative, a
minimum, or a maximum for the package? (For example, was a PSA test for
prostate cancer discussed?)
Regardless. it should be considered whether the list of preventive services
should be included as a tentative list subject to change, rather than being
enacted as part of the American Health Security Act. Changes in the
understanding of effective medical practice could easily render this list obsolete.
For example, although covered on this list, the Harvard Community Health Plan
no longer provides annual medical screenings for its patients since there is no
clinical data supporting it. If research were to support the Harvard Community
Health Plan's practice, the list of clinical preventive services would be difficult
to amend if it were enacted as part of the Act.
Immunizations: The list of immunizations discussed is fairly comprehensive. If
covered, this should be taken into account in Public Health Initiative section
which would enhance grant support for immunizations. Additional grant funds
for immunizations will not be needed. Since immunizations will be covered,
4
some of the base funding for vaccine purchase grants could be retargeted to
address education, outreach and infrastructure.
Instead, the National Health Board, in consultation with other bodies, should
have the flexibility to amend this list based upon the findings of outcomes
research on effective practice patterns. As a better understanding of effective
practice patterns develops, the types of preventive services that should be
covered in a standard benefit package will also have to change.
The draft at page 32 states that services and procedures will be included in the
standard benefit package to the extent that these are found to be "effective".
The overwhelming majority of services and procedures routinely covered by
insurers -- public and private -- have little or no accompanying evidence of
effectiveness. Often these are high volume procedures. Carotid endarterectomy,
for example, is performed at a rate of nearly 100,000 per year in the U.S. with
little or no evidence of clinical effectiveness.
The effect of this language is to either raise questions about what is currently
covered relative to new procedures (effectively a double standard) or to slow
down the process of covering new procedures that would be subjected to multi-
year trials. While the latter problem is no different from the current policy for
most insurers, whether private or government (e.g., Medicare), it is not clear
whether that is the result.
Clinical trials: Also at page 32, the draft states that the benefit package includes
coverage for medical care provided as part of an "approved clinical trial." The
text goes on to say that the intention of this provision is to cover routine
medical costs associated with an investigational treatment that would occur even
if the investigational treatment were not administered.
Sometimes, however, no costs would occur if the investigational treatment were
not administered (e.g., if there is no alternative or the patient would not have
been hospitalized), producing no coverage, which seems inconsistent with the
intent of the policy. As written, the provision is unclear and invites arguments
about what constitutes "routine medical costs."
A simpler approach more likely to achieve the policy goal could be for the
benefit package to cover room and board charges for individuals involved in
approved clinical trials. This way, there is no guessing (or cost-shifting) about
which portion of the treatment regimen would have been provided anyway and
what portion was experimental.
5
Research guidelines: The draft states at page 33 that research guidelines will be
centralized and promulgated by DHHS. This will politicize scientific inquiry
and/or reduce it to a bureaucratically defined straitjacket. It may also slow
down willingness to initiate research (e.g., scientists waiting for the release of
periodic regulations).
The Federal government does not currently approve all research, nor is it a
desirable policy to establish. A more desirable policy would be to require
research trials to be peer-reviewed and consistent with requirements for the
protection of human subjects.
Government funded research: Also at page 33, coverage for investigational
procedures is described as automatic for government-conducted research only.
This tends to bias interest in the scientific and medical community towards
government-funded science only. Again, science will become more politicized,
more centralized, and may be less able to accommodate room for truly
innovative and new ideas/projects. Secondly, scientific funding may become
more vulnerable to annual congressional appropriations and/or changes in
ideology in the Executive Branch.
Providers
The draft plan states that plans "will be expected" to "provide a sufficient mix"
of providers. This leaves unstated what the penalties would be for plans that
fail to "provide a sufficient mix" of providers.
The intentional vagueness of not requiring any plan to pay any provider or
category of provider makes it very difficult to price the overall proposal. It is
not clear, for example, whether or not end stage renal disease is covered under
this chapter.
One alternative is to specify that the same services covered by Medicare are
required of all health plans, plus explicitly identified services, i.e., pregnancy-
related and preventive services.
Cost Sharing and Limits
Mental health: Limitations on inpatient and resident mental health and substance
abuse treatment are established at 30 days per episode and 60 days annually for
all settings (p. 24). The paper should define what constitutes an "episode" of
6
care, or state that the National Health Board will promulgate regulations
governing the definition of "an episode".
Vision/hearing: Limitations on coverage for vision and hearing care should
include a dollar limit on coverage, and/or a limitation of one pair per year (p.
31).
Low cost-sharing option: The low cost-sharing option would not require a
coinsurance on home health, extended care, preventive care, durable medical
equipment, or most mental health services. We are concerned that the lack of
any cost-sharing requirements on these services may encourage excessive
utilization and higher spending.
Medicare's experience with home health care is illustrative. Medicare does not
require any cost-sharing for home health services, and the benefit has been the
fastest growing Part A benefit over the last five years. The decrease in inpatient
stays in response to PPS encouraged home health providers to increase the
variety and amount of services provided to Medicare beneficiaries. The lack of
any cost-sharing required of beneficiaries has only fueled the growth in home
health outlays.
An alternative would be to require some cost-sharing with respect to all services
to encourage more appropriate utilization. Home health care, preventive
services and mental health services could require $5 per visit cost-sharing, while
consumers could pay 10% of the costs of durable medical equipment.
In almost all cases, this cost-sharing structure will continue to be less expensive
to the consumer than the high cost-sharing alternative.
Prescription drugs: Federal policy should encourage the substitution of
chemically equivalent generic drugs for brand-name prescription drugs.
Differential cost-sharing amounts for generic and brand-name drugs should be
established, as well as differential payments to pharmacies to encourage generic
substitution.
Public Services for Mental Health and Substance Abuse
Maintenance of Public Funding: The draft states that "the benefit package
requires the maintenance of the existing public system for mental health and
substance abuse" (p. 31). We note that mental and addictive disorders are the
only illnesses for which the plan mandates maintenance of public-tier services.
7
We question the requirement of special protection for these public funds for the
following reasons:
(1)
It relieves the private sector of its responsibility to provide these essential
services. If public funding is required to be maintained, plans will be
able to shift mentally ill and addicted patients onto the public sector by
making it difficult enough for enrollees to obtain services that they turn
to the public tier, which may be perceived as second-rate. Indeed, the
existence of the public tier provides an incentive for plans to avoid
treating this difficult population.
(2)
It misses an important opportunity to bring the quality of mental health
and addiction treatment up to par with other treatments. Without the
capitated payment's incentives to improve quality and reduce costs,
mental health and substance abuse services will continue to be perceived
as inferior to "medical" services in quality and scientific rigor. In
addition, the public tier will relieve pressure to expand the mental health
and substance abuse benefit in the year 2000, so health plans will never
have to deal comprehensively with their enrollees' mental and addictive
disorders.
(3)
It makes the treatment of mental health and substance abuse services
under health reform inconsistent with the comprehensive approach to
health care embodied in the basic benefit package. The basic package
requires health plans to prevent and/or deal with the whole range of
potential illnesses, including mental illness and addictive disorders,
because insurers and even many providers do not accept the validity of
the connection between medical and mental health. Health reform should
not let plans "off the hook" by maintaining a set of public services not on
a par to meet the requirements of a capitated, market-oriented system.
HHS now spends some $2 billion annually on two mental health and substance
abuse services block grants -- some or all of which could be used to offset an
even more generous benefit than the one included in the basic package, and/or
to phase-in benefits more quickly.
Chapter 5: National Health Board
8
We strongly object to the proposal to designate the National Health Board an
independent agency, exempt from Executive Branch coordination, and do not
think that the Board could perform the responsibilities outlined with this status.
Clarification of role: The 8/6/93 and 9/1/93 drafts generally assign overall
responsibility for policy development to the National Health Board, an approach
which makes sense. In some cases, however, this pattern is not followed and
responsibilities are mistakenly assigned to HHS or its subcomponents or to other
cabinet departments. The draft should be modified to clarify the roles and
missions of the players involved.
Secondly, the role of the National Health Board relative to other entities --
Congress at the Federal level, States, health entities, and plans should be
clarified.
Regulatory review: We object to the proposal that OMB does not review the
regulations issued by the Board. The purpose of OMB regulation review is to
ensure consistency with White House understanding of the law and policy, and
exemption from OMB review raises the following concerns:
(1)
What entity primarily responsive to the White House will coordinate
policies from the Board, HHS, Labor and Treasury?
(2)
Will the Board have an obligation to ensure cost-effective regulation?
Who will oversee the policy analysis of a regime that regulates what is
approaching one-sixth of the nation's economy?
(3)
The structure of the National Health Board seems unable to sustain its
intended functions. The board is given substantial executive functions
with only advisory board support and the ability to "contract" with
agencies and outside entities. We do not endorse a new and expansive
bureaucracy, but some staffing even for more of an oversight function
will be necessary for the Board to perform even an oversight function.
Depending upon the set of responsibilities assigned to the Board, it may
require the attention of a relatively large professional staff, including
skilled medical personnel of all types, health economists, lawyers, budget
analysts, auditers, and experts in all manner of health-related professions,
including insurance, information systems, hospital administration, medical
education, etc. A professional staff of 300-500 could be expected. If the
Board will not be staffed then HHS or other Cabinet-level agencies
(Labor, Justice, Treasury) should probably have more of the regulation
9
writing. implementation, and enforcement responsibilities, leaving the
Board to have more of a policy development, audit, and oversight
function.
The discussion at page 44 is unclear as to whether the benefit package can be
amended through regulation rather than legislation. Although the words "issue
regulations" are included, the draft also discusses "recommendations" to the
President and Congress. Our view is that given the fast changing pace of
medical treatment, changes in legislation would be entirely too cumbersome or
political.
Clarification of responsibilities: to make the draft consistent with better
delineated roles and missions, corrections may need to be made to clarify the
Board's responsibilities relative to:
(1)
determining the research agenda for health services/outcomes research (p.
147);
(2)
information systems (pp. 113-127);
(3)
quality standards and management systems (p. 112);
(4)
supervision of corporate alliances through ERISA (p. 49);
(5)
assuming responsibility for out-of-compliance health plans (p. 49);
(6)
ensuring individuals have access to benefits (p. 48);
The Board will develop state measures of performance. Measures of state
performance used in the document as illustrative appear process-based; measures
should be outcome-based to the extent possible. This allows more in the way of
true state flexibility. We can make recommendations for more outcomes-based
measures if that would be helpful.
There is no discussion of how large the Board might be in terms of
authorization monies. It should be considered that, to the extent that HHS' (or
other Cabinet agency) responsibilities are reduced, their operating budget and
FTE levels could be reduced to offset the costs of the National Health Board.
10
Chapter 6: State Responsibilities
Single payer: The draft indicates at page 57 that states that establish a single-
payer system would be prohibited from imposing cost-sharing requirements that
exceed those charged by regional alliances. Since there are nationally-
standardized cost-sharing schedules, it is unclear whether the single payer
systems would be held to the rules established for fee-for-service plans or for
HMOs.
Alliance Boards: The specifications for the boards of directors of health
alliances (p. 53) may be so exclusionary as to impede effective functioning of
the boards. For example, the specifications seem to exclude everyone with any
specific knowledge of the health care field even if they aren't connected
financially with a health plan (e.g., university professors). We question whether
that is what is intended.
Qualification process: The draft details that "States qualify health plans to
participate in alliances," and then lists qualifications of alliances that states will
set. The logic for requiring states to qualify plans for participation, instead of
alliances doing this using state guidelines, is not clear. The proposed
arrangement divests alliances from an appropriate responsibility while
lengthening implementation time for no obvious advantage.
Service requirements: States must establish requirements on health plans related
to the levels of service and geographic distribution of service to ensure adequate
choice in low-income and inadequately served areas (p. 54). Are there any
broad standards that should be met (outcomes regarding service level achieved,
perhaps determined by the National Health Board), or is it entirely up to the
state? Secondly, this new role of the states may help render Federal subsidies
for direct provision of services in low-income communities no longer essential.
State Guaranty Funds: The draft also states that state guaranty funds will
provide financial protection to health care providers if a health plan becomes
insolvent (p. 56). It is not clear why the entire burden falls on the state, and
hence the state's taxpayers. Burden-sharing among losing parties, including
providers, should be considered as an alternative.
Expansion of benefits: The draft addresses ways in which states could finance
additional benefits beyond those in the proposed package (p. 57). The draft
would place limits on the sources of financing states could tap for these
additional benefits. This raises two concerns:
11
(1)
Does this raise constitutional issues regarding the relationship of the
Federal government and the states?
(2)
Does the requirement that states use revenues "from sources other than
those established by this Act [for the] guaranteed benefit" mean that
states are limited to those sources of funding for all expenditures under
the single-payer system opt-out, or only for the reduced cost-sharing
portion of health care expenditures in the state?
Capital Standards: The concept of "capital standards" is not defined and,
because the concept is not in common use, it is not clear what it is intended to
encompass.
State Guaranty Funds: Will there be any minimum standards on the size of the
state guaranty funds? Given the experience of state guaranty agencies and the
guaranteed student loan program, this should be carefully examined to avoid the
possibility of yet another Federal bail-out.
The last paragraph of the chapter states that "All health plans must participate in
a guaranty fund," but the conditions of "participation" are not defined. Does
participation mean that all health plans must pay an assessment into the fund?
Chapter 7: Regional Alliances
Advertising: Rather than get the alliances into the business of premarket
approval of advertising why not establish general standards for plan marketing
and a post-market penalty?
Enrollment: The draft sets fixed dates of enrollment at the beginning of the
month based on whether or not the application is submitted by the 15th of the
prior month (p. 60). Fixed timing of that sort can create unnecessary
administrative pile ups. Why not leave this to the alliance to sort out with an
absolute maximum on it taking no longer than X days.
Allocation of consumers to plans: The draft provides at page 60 for random
allocation of consumers to plans in the event there is not enough capacity. This
This fundamentally collides with freedom of choice, and could be politically
inferior to allowing consumers second and third choices.
Fee-for-service requirement: The plan proposes that every state create a fee
schedule and conversion factors for the state's fee-for-service plans. HHS
12
would develop a national fee schedule, expanded beyond Medicare services to
all services, that would serve as a model, or default fee schedule, for states.
Aside from the difficulties in developing and implementing such a fee schedule
in time for the reformed plan, this approach is overly rigid and we question
whether such a regulated approach is consistent with the commitment that each
alliance would provide at least one fee-for-service plan. A fee-schedule does
not allow the flexibility to adjust fees to respond to changing market conditions.
We would suggest an alternative that plans should be allowed to establish their
own fee schedules to assure timely responsiveness to the market.
Alliance administration: It is not clear who is responsible for financing the
administration of alliances, nor is the role of the Provider Advisory Board is not
clearly spelled out.
Chapter 8: Corporate Alliances/ERISA
Oversight responsibility: We question the proposal to bifurcate regulatory
responsibility between the National Health Board for state plans and the Labor
Department for corporate plans.
Government experience with divided regulatory responsibility arising from
political and bureaucratic reasons is bad. This is most notably true in the
related case of ERISA, now twenty years old. Because of feuding committees
and agencies, ERISA administration is divided in three among the DOL, the
IRS, and the PBGC. Sponsors of ERISA benefits plans have to comply with
regulations of all three, although for most purposes they have to be concerned
about only two:
(1) the IRS, which must annually certify the tax deductibility of plans for
compliance with coverage and participation requirement; and
(2) the DOL for compliance with fiduciary behavior requirements.
This division increases regulatory complexity in the eyes of employers that
sponsor pension and health plans for their workers. The duplication and
resulting complexity probably results in fewer benefits being provided because
the cost of regulatory complexity consumes resources available in company
budgets that would otherwise be available for benefits.
13
The division also gives rise to expensive and difficult coordination within the
Federal government that too frequently requires Executive Office of the
President intervention to coordinate or settle agency disagreements.
In addition, there is the question of agency experience and role. Most Labor
Department experience with benefit plans under ERISA has been with pension
plans and not with health plans. DOL experience with health plans is limited to
collecting information and to some enforcement of ERISA's fiduciary standards
among company sponsors and service providers who may profit wrongly from
sponsorship or administration of health plans.
For these and other reasons we question the wisdom of setting up a bifurcated
system of administration and enforcement. We recommend further analysis of
this proposal.
Chapter 9: Health Plans
The draft states at page 75 that plans with limited capacity can turn away
enrollees if/when approved by state. We question this authority being given to
the state, when giving this authority to health alliances might be more consistent
with other parts of the plan and would probably allow decisions which are more
timely and less cumbersome bureaucratically.
This chapter. at page 80, states there will be 2 levels of cost sharing -- this
conflicts with Chapter 4 which states there will be 3 levels of cost sharing.
The plan allows supplemental insurance to cover cost sharing (p. 81), but also
requires that the premiums for these plans cover the cost of any additional
utilization caused by the insurance. To be consistent, therefore, this "utilization
surcharge" should apply to supplemental cost-sharing plans under Medicare as
well.
Utilization Review protocols must be revealed by plans -- revealed to whom?
This could discourage innovative approaches being developed by plans; it would
also take away yet one more competitive dynamic between and across plans.
Chapter 10: Risk Adjustment
The document should state whether the risk-adjustment system will apply to
individuals or to groups. Language indicated individual adjustors. Accurate
14
individual adjustors are not yet fully developed, and will require intensive
developmental work.
Data have not been refined to the point of yielding great predictive
powers on a case-by-case basis.
Data often currently available, i.e., past use of health care utilization, may
reflect abuse and inefficiency in health care delivery. As a basis for
prospective payment of a risk-adjusted amount, past use of health care
resources may reward inefficient providers who allow payment for
duplicative services and lack strong utilization review controls.
As a result, classification schemes that rely on measures of morbidity
(e.g., diagnosis) might be more useful that purely utilization. Ambulatory
Care Groups (ACGs) and Diagnostic Cost Groups (DCGs) represent two
approaches that use a combination of diagnostic information and
utilization experience. Both of these approaches demand evaluation and
refinement over the next few years if considered for use by Health
Alliances.
Insurers may continue to find ways to "cream-skim" the "healthiest" sick
cases, e.g., a cancer diagnosis early in the disease's progression in any
risk category. And providers and/or payers could have incentives to
upcode diagnoses and health risk categories to receive a larger payment
from the pool and/or pay less into it. These issues imply ongoing
monitoring and refinement may be needed.
Other administrative issues remain. For example, a purely prospective
system could hamper a plan's efforts to be reimbursed for an enrollee
who joins half-way through the year. No look-back mechanism appears
to exist in the document to address enrollment turnover and will need to
be thought through.
Risk adjustors are intended to account for an individual's level of risk;
they may not necessarily account for the differing practice patterns
among regions, which may have heavy influences in the amount of health
care resources consumed.
Risk adjustors could entail overhead costs in enforcement and
implementation for private plans and regulatory bodies; improved
15
software or actuarial methods being tested by Blue Cross and Blue Shield
and HIAA (among others) may minimize these burdens.
The draft plan appears to include community rating, a standard benefit package,
and annual open enrollment periods. Inclusion of these elements will add to the
"arsenal" available to HA's to prevent or discourage risk selection, though some
individual variance will continue to exist.
Allowing for a waiver if the alliance demonstrates an alternative system as "at
least as effective and accurate" could create opportunities in the first few years
for waivers.
Chapter 11: Rural Communities in the New System
The financial incentives for providers seem generally skewed toward physicians
specifically, rather than all health professionals generally.
In describing the infrastructure development grants, it may be clearer to state the
level of loan guarantees committed per year (note: the BA level of $16 million
per year mentioned on page 86 is probably the estimated subsidy level -- which
sheds little light on the actual volume of lending and scope of the program).
Does the plan envision an increase in these guarantees or maintenance of the
current level of support?
It is not clear why only community-based organizations would be eligible to
receive these guarantees. What about health plans expanding into rural areas?
Page 87, do the cost estimates for the expansion of the National Health Service
Corps (NHSC) take into account the cost of the tax expenditures of the
proposed tax incentives? In addition to awarding more scholarships and loan
repayments and supporting a greater field staff?
NHSC loan repayment recipients already receive a payment equal to 39% of the
loan repayment award for the purpose of completely offsetting the additional tax
liability. Setting up a special exclusion from gross income is not necessary.
Given that hospitals in rural areas have excess capacity, could some of the
excess capacity of rural facilities be converted to serve underserved areas?
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Chapter 12: Integration of Workers' Compensation and Automobile Insurance
The plan should deal more forthrightly with the fact that workers' compensation
and health insurance have been set up for different purposes. The purposes of
medical, rehabilitative, and care requirements in state and federal workers
compensation laws are very broad. The care allowed under most medical care
insurance is limited. The state workers' compensation laws are all different, and
there are two federal laws (covering longshore and harbor workers and federal
workers). Under all workers' compensation laws coverage of treatment and
procedures allows for no deductibles. Coverage may even extend, for example,
to providing comfort, in addition to unlimited medical treatment, care, and
rehabilitation. The different purposes mean that programs of workers'
compensation are not usually able to adopt fee schedules of "regular" health
insurance.
Page 89 of the draft plan states that "The [workers' compensation] case manager
ensures that the health plan complies with medical and legal requirements
related to workers' compensation." This suggests that the care provided must
suit the purposes of the workers' compensation law that covers an injured
worker. On the same page it states that "Health plans are reimbursed by
workers' compensation insurance carriers in accordance to the fee-for-service
schedule in the alliance," and that "alliances are permitted to adopt per case
capitation payments." It further states (page 90) that "Health benefits for work-
related injuries and illnesses continue to be defined by states." These apparent
contradictions suggest that the plan should be expanded or clarified so that:
(1)
Alliances are required to have fee schedules that allow for the broad
purposes in the workers' compensation laws in effect in the area(s) they
cover; or
(2)
The broad purpose of care in workers' compensation state and Federal
laws is preempted in the Federal law so that it will match the purposes of
health care that will otherwise be under President's plan.
Chapter 13: Inter-Alliance Health Security Fund
Page 93, what is the average "float" or reserve that will be available to this
fund, and how will it be used -- entirely loans? This discussion needs
clarification with regard to safeguards.
17
Page 94, the Administration component of the Reserve needs to be specified
with more detail; in particular, will this reserve be part of the funds flow of the
Federal government? Or will it be part of some banking and holding operation
in Kansas City, etc.?
This fund duplicates functions currently performed by the Automated Clearing
House for substantially similar activities that collect and disburse funds. The
Automated Clearinghouse processes billions of dollars of transactions efficiently,
with an established network of corporations and financial institutions. A second,
new health payment network, seems unnecessary, duplicative and costly. Use of
the Automated Clearinghouse should be considered to route payments from
employers to health alliances.
Creating a separate fund that "holds" billions of dollars of health contributions
and payments could engender the gaming of cash flow and other financial
techniques that are not efficient in applying these funds to health uses. In an
era of budget stringency, the temptation to tinker with this fund may be
irresistible, particularly with the commingling of the Funds financial and loan
functions.
Chapter 14: Budget Development and Enforcement
Covered Expenditures
Current version: Medicare and Medicaid expenditures are included under
separate budgets. Suggested revision: All Federal direct health expenditures are
included under separate budgets. This would include Medicare, the Federal
portion of Medicaid, the IHS, DoD, and VA.
Adjusting the Budget Inflation Factor
Current version: "If, however, an alliance's actual weighted average premium in
a given year exceeds its premium target, then the inflation factor for that
alliance is reduced for the following two years to recover the excess spending."
Issue: Is the two-year "lookback" sustainable from the beginning, particularly
with the uncertainty in setting the per-capita premium in the early years? Is it
possible to keep track of the "lookback" recovery over a number of years? This
mechanism sounds good, but the implementation could be quite complicated if
the alliance or state miss the target over a number of years.
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Second Level of Enforcement: Compliance with Federal Cost Containment
Current version: state alliances are in compliance with national cost
containment goals if the increase in the weighted average premium falls within
a 1% band above the inflation factor. Question: 1% of what? 1% of premium
costs, 1 percentage point of the inflation factor?
Current version: If spending is below the inflation factor plus 1%, the 50% of
the unused amount may be rolled over to the following year, up to a 5
percentage point maximium. Suggested revision: Eliminate the 50% roll-over,
except with National Board approval. The states, alliances, and enrollees all
benefit from coming in "under budget" through lower premium payments in the
following year. Allowing premium rates to climb faster than needed in the
market is unnecessary.
Current version: Actual weighted average premium is no more than 10% higher
than the per capita budget target for the state. Suggested revision: Narrow the
variance from 10% to 1-5%. A ten percent error band is too large a cushion,
with the temptation to allow the premium to match the 10% band every year.
An alternative is to allow the 10% variance for X number of years to allow for
stabilizing the baseline, then reducing the variance to a lower level.
Budgets for Corporate Alliances
Current version: After the third year of implementation of health reform, each
corporate alliance annually reports its average premium equivalent for the
previous three years to the Department of Labor. Suggested revision: Instead
of the Department of Labor needlessly developing its own health insurance
pricing and analysis capability, give the reporting requirements for large
corporate employers to the National Health Board. Since it set the corporate
alliance premium equivalent originally, it would best be suited to review, and
enforce as necessary, the corporate alliance cost performance.
There is little or no discussion of developing a state-by-state or alliance by
alliance baseline. Of course, this does one not now exist so the issue is
whether one will be developed to allow enough precision for the National Board
to distinguish between appropriate and inappropriate premium targets. If one is
not available that can both track spending and adjust for various degrees of
risk, it may be both technically difficult and perhaps politically impossible for
the National Board and the Federal Government to develop enforceable targets.
19
Chapter 15: Quality Management and Improvement
In general: the entire section is very unclear as to who is doing what and
instead attributes actions to the program.
There seems to be unnecessary overlap between HHS functions and the
National Board functions regarding evaluation of health care (see p. 106 and p.
119) and assessing the impact on the health care system.
The discussion (p. 107) of state licensure and certification does not appear to
comport with current DHHS initiative to license and certify essential health
providers in the PHS sections.
Is there duplication of effort between the National Quality Management
Program of the National Health Board (pp. 110-111) and AHCPR activities?
Are quality standards of the Indian Health Service, Medicare, VA, or DoD
superseded by National Board standards?
It is unclear who is auditing the plan's measure and disclosure of performance
on quality.
Demonstration projects are to be completed by 1/1/96 for new performance
standards and standards will be revised according to findings. Most
demonstrations take up to a year to design and implement; as such this timeline
may be heroic.
Regional centers are stated as auditing for data integrity where we were
previously told they were only going to serve a switch function.
Relation to Existing Legislation
OBRA-87 nursing home reforms: this chapter does not the address the
requirements of OBRA-87, which created stringent quality standards and
enforcement authority regarding Medicaid and Medicare nursing homes. These
requirements are responsible for the bulk of survey and certification spending.
Annual surveys of all Medicaid and Medicare nursing homes are mandated, and
the average cost per survey is approximately $14,000. While the nursing home
standards are the most burdensome and costly responsibility for Federal and
State quality assurance programs, they also have strong Congressional support.
Congress enacted the nursing home reforms in response to widespread concerns
20
over the treatment of the elderly and disabled. Changing or eliminating the
current nursing home survey and certification program will be very difficult
politically.
CLIA: proposed changes to the Clinical Laboratory Improvement Act (CLIA)
are extremely vague. This section should address at least the general principles
for reform of the program.
Chapter 16: Information Systems and Administrative Simplification
In general, this chapter does not appear to have been sufficiently vetted. There
is a confused division of responsibility between HHS and the National Health
Board, not to mention between the States, Health Alliances, health plans and
the Federal government.
Page 115 states that "health providers will use current information system
technology as the foundation for the system," which implies that all providers
and not just plans will be automated. The sense of the working group was it
would be left to the plans and the pressures of a competitive environment
whether automation would occur at the point of service. We recommend
replacing "providers" with "plans."
The draft at page 119 assigns responsibility for conducting surveys to a
particular department -- DHHS -- which seems to be an unnecessary amount of
detail for this document, given its purpose of communicating to a broad public.
It would be better to vest authority for such activities in the National Health
Board, which will be in the best position to decide how it wants to collect data,
etc.
Consistent with the National Performance Review, consumer satisfaction
surveys should be conducted at the lowest possible organization levels, closest
to the people being served.
The privacy section states that the Federal government would stipulate that
individuals "have the right to know and approve the uses to which data are put"
(p. 121). Although this is an example, it should probably state "non-routine"
or "certain" uses. The approval should not create health care delivery
inefficiencies.
At pages 125-127, the draft discusses streamlining Medicare: Medicare data
systems are not currently designed to collect information on plans -- only fee-
21
for-service experience. This is clearly one of the many information challenges
facing HCFA. Many of the specific ideas have conceptual merit, but are
premature, and should be developed in consultation with HCFA's Medicare
Technical Advisory Group (M-TAG). In particular:
delete the proposal requiring performance evaluations of carriers by
physicians. This appears to involve a direct conflict of interest, because
carriers may feel increased pressure to liberalize coverage rules and
payment policies to obtain positive evaluations from providers. At a
minimum, the current five-state pilot project should be evaluated to
determine its effects before deciding whether to commit to national
implementation of such an approach.
check with the OIG on whether enforcement abilities are weakened by
moving from an annual requirement to a one-time requirement for
physicians to sign an acknowledgement of awareness of penalties
associated with falsifying claims information;
clarify that the proposal that "repeals legislation requiring review of at
least ten surgical procedures" refers to PRO review;
delete the proposal to limit system changes in Medicare and Medicaid to
once every six months, and to require 120-day advance notice for major
billing procedure changes. This would be administratively costly and
burdensome, requiring simultaneous review of thousands of pages of
regulations every six months as HHS responds to deadlines with last-
minute completions of regulations. The likely effect would be delays in
regulatory improvements and fee schedule adjustments (i.e., increases for
inflation)by six months every time a deadline is missed. This proposal
may inhibit needed actions to live within budgeted amounts.
revise the proposal to develop standards for single annual inspections of
health care institutions to single, periodic inspections. Some facilities
with quality problems may require more frequent inspections, while
others may require less frequent inspections. There is no need for
uniform schedules among a diverse group of institutions.
Medicaid: There is little or no discussion about Medicaid information systems.
There could be a critical need - even on an interim basis -- to collect better
information on Medicaid experience.
22
This is especially crucial in the context of Medicaid managed care programs.
As states shift their entire Medicaid population to managed care organizations
(e.g., New York and Tennessee), HCFA data systems "lose" the ability to track
these groups, because current HCFA data systems are designed only to track
fee-for-service experience.
HHS Control of Information: HHS proposes that it control information
collection and dissemination in several instances. The National Health Board
should assume this function.
National, uniform standards -- timing: development of national standards for
coding and content requirements for all insurance transactions by July 1, 1994
seems ambitious. In addition, the plan calls for "immediate" adoption of
national standards by all government health programs. It is unclear whether
this means the day after enactment of health care reform, or what may be a
more realistic timetable for implementation of this measure.
Chapter 17: Creating a New Health Workforce
General Points
There is a heavy Federal regulatory role in determining and distributing
physician residencies as presented in this section. The approach outlined
represents a fairly radical departure from more market-oriented approaches, and
it is unclear whether such a system would be politically feasible. These points
were raised early on during the tollgates.
In addition to advocating heavy Federal regulation and control of residencies,
this approach will do little over the short term to narrow the gap between
primary care and specialists. The goal of the draft's proposed Federally
managed system would be to make sure that at least 50% of new physicians are
trained in primary care fields (after a five year phase-in period). Yet, even if
this goal were achieved, it would take 40 years to achieve the desired
distribution between primary care and specialist physicians.
This section discusses options for tinkering with Medicare's physician payment
schedule to create incentives for providing primary care services. First,
Medicare is not and should not become the spearpoint of policy for health care
reform. The reform package must create incentives for primary care delivery
23
on a system-wide basis, because Medicare fee-for-service incentives alone will
be too weak to change overall physician behavior.
Medicare physician payment on the fee-for-service has already undergone the
radical shift toward primary care called for in this section. OBRA 89 enacted
the most sweeping changes in physician payment since Medicare was created in
1965. In 1989, Congress required the use of the Resource-Based Relative
Value Scale (RBRVS) which fundamentally shifted the distribution of Medicare
physician payment away from surgical procedures and toward primary care
services. For example, fees for family and general practice services increased
by 10 percent when the RBRVS was implemented, while fees for general
surgery decreased by 10 percent.
OBRA 93 has put even more pressure on physicians to focus on providing
primary care services, and in many cases the provisions of OBRA 93 supersede
the specific policies suggested in this section:
the reductions that will be applied to physician fee increases in 1994 and
1995 will not apply to primary care services, resulting in relatively
higher payments for primary care services;
the separate "expenditure target rate of growth for primary care
services" called for in this section has been enacted in OBRA 93. The
separate target will eventually result in higher fee increases for primary
care services. An arbitrarily higher target for primary care is
unnecessary;
the physician overhead component of the RBRVS was reduced in relative
value by OBRA 93, increasing the overhead reimbursement for primary
care services relative to other services. HHS is already working on a
methodology for basing overhead payments on actual resources used.
The FY94 President's Budget proposed that this methodology would be
implemented by 1997.
The Administration and Congress have already created incentives for primary
care by drastically altering Medicare physician payment. The other proposals
in this section (increasing payments for office visits and bonus payments to
primary care physicians in Health Professional Shortage Areas) should also be
advanced as Medicare reform proposals, not health care reform proposals.
Medicare should not be in the vanguard of health reform, but should take
advantage of and build on the successful policies implemented by the health
24
alliances. The entire section on Medicare physician payment changes is either
premature or outdated, and should therefore be deleted.
The report, instead, should make the point that managed care plans are the best
friends of primary care. It is HMOs and other organizational arrangements that
have historically valued primary care relative to specialty care -- the report's
chapter should be built more around this theme. Medicare payment policies
can and should build on integrated networks of care. For example, bonuses
should revolve around use of primary care case managers in HMOs or some
adjustment to the AAPCC payment. Continued tinkering with fee-for-service
bonuses to physicians will only encourage fee-for-service style of medicine
which could be both fragmented and volume-driven, placing increased risk on
Federal outlays.
If one end result of health reform is a much broader application of managed
care, the demand for primary care physicians should increase. Why wouldn't
this market response encourage more medical students to enter primary care, as
well as practicing specialists to change over to primary care?
Specific Comments
Page 130, the draft outlines an approach that would pay teaching hospitals
which are required to reduce their residency training positions at a rate of
150% of the national average for direct medical education payments. In
essence, these transition payments would reward non-performers more than
performers and establish perverse incentives for non-compliance.
Page 131, use of the word "appropriation" is confusing. Does this suggest that
the Federal government would appropriate $6 billion or is this what the balance
of residency training fund would be?
It is not clear who would collect the revenue raised from the premium tap on
the insurers and on Medicare. It is also not clear what body would administer
this fund.
The draft does not specifically state how much it would cost to administer the
fund, as well as the new system for determining the distribution of residencies.
It is not clear whether these costs have been taken into account.
25
Page 131, the draft also does not specify the amount or the source of financing
for the transition payments mentioned. It is not clear whether these costs have
been taken into account.
Pages 132-135, the section on "other workforce related programs" discuss
expansion of existing health professions curriculum assistance grants. The
draft, however, makes no reference to the current investment of $270 million in
these programs, why additional investment in these programs is warranted, and
what the net effect of the additional investment.
The investment in "other workforce related programs" essentially builds on
existing health professions programs. However, many of these existing
programs have not had much effect in achieving desired policy goals. Could
some of these expansions be funded by downsizing low-priority health
professions programs?
An alternative approach would take advantage of changes in physician
employment market within the context of health reform and build off of the
retraining proposal contained on page 131. Health reform's emphasis on
managed care settings will increase the demand for primary care physicians,
and reduce the demand for specialist physicians. As health reform takes hold,
an increasing number of physicians currently practicing subspecialties will have
to be retrained to practice primary care.
Rather than continue Federal subsidies for training medical students, this
alternative would phase-out Medicare GME payments overall and allocate a
portion of Medicare GME funds on sharing the cost of retraining specialists for
primary care work with HMOs and other managed care providers. Retraining
physicians would provide a much shorter "pipeline" -- already practicing
physicians would not need the same basic medical training that a medical
student receives. Channeling funds for retraining through HMOs and other
managed care providers would enable HMOs to determine who to retrain and
extent and nature of retraining. Federal cost sharing would decline as
specialists gradually met the need for primary care physicians. HMO's and
other providers would have to pay back a portion of the Federal cost sharing if
specialists did not stay in primary care for at least five years.
Chapter 18: Academic Health Centers
The draft states that Medicare payments and a surcharge on private health
premiums would flow into a pool to support academic health centers. The
26
analytic justification for this separate funds flow has not been identified, nor is
the size of the fund made explicit. Is this in addition to other GME & premium
funds? What is the total burden of these "taps"? Is the total dollar flow
necessary for the level of academic health centers needed? Aside from this tap,
how much increased funds will be flowing to such health centers through
increased reimbursements due to universal coverage and due to some
experimental treatment expenses being covered through the benefit package?
Would any additional tap be required?
The draft would create a separate set of grants to encourage people to have
access to academic health centers. Is this necessary, given increased
reimbursements, benefit plan coverages, the proposed pool, and existing NIH
grants -- and the access initiatives described in another chapter? If access
assistance is necessary for these specific type of centers, it should be part of a
single assistance package coordinated by the access initiative described
elsewhere.
The document states that plans will be required to provide coverage for routine
patient care associated with approved clinical trials. This could be a
disproportionate burden to plans, depending upon the relative number of
individuals enrolled in trials. Trials tend not to be randomly allocated across
areas and providers, but often concentrated in areas in large research
institutions and academic medical centers.
Secondly, plans could discourage patients to either not enroll in trials or else
encourage them to disenroll from plans if there was such a burden. This would
have the effect of discouraging over time good clinical trial activity.
There is little or no discussion about rebuilding rural academic health centers.
Good empirical evidence to date indicates that rural centers tend to be an
effective approach for attracting and retaining a rural workforce of medical
professionals.
Chapter 19: Health Research Initiatives
Page 140-142 lists many, many areas of research interest, implying that all of
them will receive additional funding. Text should be modified to present the
items on the list as illustrating the Types of areas in which investments could be
made.
27
The draft states that an additional $1.5 billion would be used for "prevention"
research. NIH will spend about $2.6 billion (roughly 25%) of its total $10.8
billion FY94 budget on research which can be labeled "prevention-related". It
is not clear whether more of this type of research would help Health Reform
accomplish its goals. If desired, "prevention" research could be made a higher
priority within NIH or within PHS' total FY95 planning ceiling, which would
not require additional discretionary financing.
Page 146 lists specific agencies which would assume responsibility for research
on the impact of health care reform. The document states that AHCPR and
HCFA/ORD will take the administrative leads in developing new research and
demonstration initiatives. The document should note the DOL's contribution
and importance in future activity related to employment-based health insurance.
Secondly, HHS/ASPE, and OMB have played critical roles in developing and
guiding longer-term strategies in these areas, and should continue to do so.
Finally, this is not consistent with the chapter on the National Health Board,
which assigns ultimate responsibility for determining such details with the
Board.
Chapter 20: Public Health Initiatives
Public Health Service programs: In general, many current Public Health
Service programs are "gap fillers," providing services to groups not currently
covered by comprehensive health service benefits. These benefits include
mental health and substance abuse services, immunizations, prevention, breast
cancer screening, community health centers, etc. These services are included
in the standard benefits package, and therefore the full array of PHS programs
are no longer necessary.
Rather than phasing-down these benefits, PHS assumes full continuation of
current funding levels, as well as expansion of these PHS duplicative benefits
by another $3 billion per year.
These increased Federal health costs are unnecessary and wasteful. These
funding levels and programs undermine the objective of health reform --- to
lower cost, consolidate disparate delivery mechanisms, and improve quality and
access.
The chapter is written as if public health will continue to be separate from the
rest of the reformed health system. This would simply perpetuate the 1930's
28
model of public health -- a two-tiered system. Re-drafting this section to talk
about public health as integrated into a reformed health system should be
considered.
This section calls for the creation of series of new state formula grants for a
variety of functions already supported by the Federal government and state
public health departments. It is unclear why such additional support for state
public health departments would be needed within the context of the reforms
mentioned in the other sections of the document.
The document refers to "core" public health functions, which seems to protect
activities that might no longer be essential within the context of a reformed
health system.
Pages 149-152 describe a new block grant that states could use for any of the
"essential functions" outlined in the draft. However, the draft seems to ignore
current Federal assistance provided to states for many of these same activities.
Since most of these responsibilities are not new, why is additional funding
required?
Several of the core functions described on pages 149-152 appear to duplicate
investments that would be made elsewhere, including assistance of underserved
populations, health data collection and outcomes monitoring, training and
education, and quality assurance. It is not clear how funds provided through
these grants relate with grants described in other sections of the document.
Chapter 21: Long-Term Care
Clarify the relationship between expanded home and community-based service
program and Medicaid. Previous information indicated that this new program
would be completely independent of Medicaid home and community-based
services. The program had been described as wholly Federally funded. In
contrast, this chapter describes funding for the program as a Federal/state
match with the state contribution set roughly equal to current state Medicaid
spending on the severely disabled. This new information raises several issues:
Are Medicaid long-term care services for the non-institutionalized to be
pulled into this program? If so, a significant cost-shift from Medicaid to
the new program should be accounted for in our scoring tables.
29
Many individuals currently receiving Medicaid home and community-
based care may not qualify for services under the more stringent
disability determination standards of the new program. Will these
individuals continue to receive services from Medicaid; and if so, should
this situation be accounted for when calculating the State contribution
towards the new program?
The non-cash Medicaid home and community-based care recipients will
be moved into health alliances where, presumably, they will no longer
receive such services. Should costs for these individuals be counted
towards the State match?
Will the same rates be paid for both Medicaid and non-Medicaid
recipients? If Medicaid rates are increased, the resulting fiscal impact
should be scored. If providers are paid lower rates for services to
Medicaid recipients, how will the distinction be handled in an
otherwise "non-means-tested" program?
Alternatively, if current Medicaid home and community-based services
are not supplanted by the new program, State spending for these services
will double under the match formula.
Medicare beneficiaries' premium. The chapter indicates that Medicare
beneficiaries will pay a premium of $20 dollars per month to help finance the
new home and community-based service program. At recent health care
reform meetings, HHS policy officials appeared to indicate that Medicare
beneficiaries will not pay this premium. The latest budget impact tables are
based upon a $10 dollars per month premium. The final draft should reflect the
President's decision on this issue.
"Cash-only" rule. Recent policy documents and discussions have referred to
the residual Medicaid program as available only to cash recipients. This draft
makes it clear that Medicaid will retain and expand eligibility for non-cash
institutional recipients through more liberal spend-down programs. References
to the Medicaid program should specify that the "cash-only" eligibility rules do
not apply to institutional care. In addition, eliminating Medicaid long-term care
services for non-cash recipients who are disabled but who do not meet the 3-
ADL standard could create political problems.
30
Transfer-of-asset and estate recovery proposals. OBRA 93 provisions regarding
transfers of assets and estate recovery overlap with many of the proposals
advanced in this chapter. OBRA 93 has already made the following changes:
estate recovery programs are now required in all States;
consecutive (rather than concurrent) penalties are required for transfers
of assets;
transfer-of-asset penalties now apply to many transfers of
income; and
the lookback period for transfers of assets has been increased from 30
months under previous law to 50 months for trusts and 36 months for all
other transfers;
capping transfers of assets to an institutionalized patient's spouse was
proposed during OBRA 93, where the provision met stiff Congressional
resistance and was eliminated from the bill; and
the proposal to protect additional assets for purchasers of long-term
care insurance does not address the OBRA 93 provision making such
assets subject to estate recovery. These assets may not be recovered in
five "grandfathered" states. Nevertheless, individuals in most states are
now unlikely to purchase long-term care insurance in order to protect
their assets.
Demonstration study of acute and long-term care integration: The proposed
demonstration could overlap significantly with current HCFA demonstrations
involving social HMOs (S/HMOs) and On Lok or PACE projects. While the
proposed demonstration may be more comprehensive in scope, differences
between it and current projects should be specified in order to avoid duplicative
efforts.
Quality and utilization control: Expanding home and community-based services
raises a host of related concerns. The recent explosion in Medicare home
health spending indicates the potential for abuse and overutilization in this area.
Issues to consider include:
Who will be allowed to provide these services?
31
What, if any, medical authorization will be required before the
government pays for these services?
Will there be limits on the amount of services individuals may
receive?
Will there be any utilization review?
How will quality care be defined and assured?
Cash payments to individuals: According to this chapter, the new home and
community-based service program will permit States to make cash payments to
disabled individuals. Direct cash payments may create a moral hazard problem,
reduce government control over quality of care, and significantly increase
program participation.
The Federal match rate formula for home and community-based program will
treat states inequitably. Spending for non-institutional, long-term care varies
greatly from state to state. For example, New York alone accounts for more
than 70% of all Medicaid personal care spending. Basing the Federal matching
rate on current state spending creates a bonus for states like New York while
penalizing states that have not been big spenders in this area.
Fiscal impact of eligibility expansions for institutional care. Liberalization of
the financial eligibility standards for institutional coverage may significantly
increase Medicaid costs. All states would be required to establish medically
needy programs for institutionalized patients. Currently, 15 states do not have
such programs. In addition, single individuals with up to $12,000 in assets will
be eligible for Medicaid. The current asset standard is $2,000 in most states.
These changes will make more individuals eligible for Medicaid coverage
sooner, thus increasing Medicaid costs. The resulting costs should be taken
into account when projecting the Medicaid baseline, especially in light of the
entitlement caps requirement and global budget targets.
Why is the tax incentive limited to individuals with disabilities who work?
Why not all individuals with disabilities? Advocates for individuals with
disabilities will argue that all individuals with disabilities who can work want to
work but have great difficulty finding jobs. They will argue that if the goal of
this policy is to encourage individuals with disabilities to get jobs, it is
unnecessary; they want jobs. If the goal of this policy is to help individuals
with disabilities afford the services they need to live independently, the policy
32
should be expanded to all individuals with disabilities because they all need that
kind of help.
In addition, the cost of expanding the tax credit to the entire disabled population
would likely be small since the taxable income of the non-working disabled as a
group is not great, thus the loss in tax revenue would not be significant.
If the tax credit is limited to the employed, how will "employed" be defined?
How many hours a year will have to be worked? Many individuals with
disabilities are employed sporadically; would they lose the ability to afford the
services they need to find a new job while they were unemployed? A case can
be made that all individuals with disabilities who are capable of holding a job
should be eligible for the tax credit at all times. Furthermore, the tax credit
itself--the marginal increase in the value of their earnings--would be enough of
an incentive to get individuals with disabilities who can work to look for work.
Does the income tax deduction apply to unearned income? This distinction is
important because if employed individuals with disabilities are allowed to
deduct unearned income, unemployed and unemployable individuals with
disabilities will want the same right.
Chapter 24: Fraud and Abuse
This section describes specific types of health care fraud and abuse that would
be expressly prohibited under reform, and it describes the penalties to be
applied for breaches of the law. While detailed in these respects, the section is
somewhat vague in describing actual enforcement mechanisms (aside from
procedural legal mechanisms, e.g, the role of administrative law judges).
The text says that the Departments of Justice and HHS will coordinate "federal,
state and local law enforcement activities aimed at health care fraud and abuse."
Further, the two agencies will "jointly direct the program." This policy raises
the following questions:
Is there a successful precedent for this kind of coordination activity that
one could present as a model(s)? Exactly how will these two Federal
agencies coordinate with each other and with myriad state and local law
enforcement agencies? Primarily through data-sharing? By actually
making joint raids, inspections, undercover investigations, etc.?
33
How will fraud investigations be coordinated with quality assurance
activities? Will case-by-case quality review be used in abuse
investigations? There may be some question whether the same evidence
can be used for two very different purposes.
--
The text mentions that funding for enforcement activities will be
"supplemented" by monies and assets recovered or confiscated by
successful fraud and abuse prosecutions. In which agency will funding
for implementation and regular operations originate? Will law
enforcement agencies receive funding from the alliances (i.e., from
premiums) or will general funds at all levels be diverted or increased to
support enforcement activities?
Will an exception on self referral for rural areas be allowed? If so, the
conditions and back-up alliance monitoring mechanisms should be specified.
Chapter 25: Programs for the Underserved
The draft outlines steps to continue Federal subsidies to selected classes of
providers in underserved communities (i.e., community health centers, health
care for the homeless centers, family planning clinics, and others). Through an
"essential community provider" designation, the draft would also give these
providers competitive financial advantages in serving underserved communities.
These efforts could discourage other plans and providers from expanding into
underserved communities. Maintenance of a two-tiered system would seem to
undermine some of the overall goals of health reform.
Chapter 26: Medicare
Medicare is kept virtually intact in the health reform plan, except for the
prescription drug addition. Cost-effective innovations in service delivery will
be incorporated into the Medicare program over time, but the consensus is
clearly to have Medicare remain a follower, not a leader/experimenter, in
health reform. There is plenty of room for reform within the Medicare
program itself, but there is also awareness that reform with the elderly and
disabled populations should proceed prudently.
The status of working Medicare-eligible beneficiaries is not clear in this
chapter. We understand that the plan assumes $59 billion in federal savings
34
(from 1996-2000) from workers who would get primary coverage through their
employers. This raises the following questions:
--
Does the mandate apply to employers of Medicare eligibles, or is
employment sponsored insurance merely a mandated option for Medicare
eligibles?
--
Does the mandate apply to the cohort of working aged in corporate
alliances?
--
Suppose both spouses are Medicare beneficiaries, and only one works.
Does the mandate force the worker/employer to buy a couples policy or
a single?
If a Medicare beneficiary is married to a non-Medicare worker, does the
worker/employer have to buy a couples policy or could they decide to
purchase only a single plan?
State Integration
HHS position: "If only an enhanced benefit package is offered, the cost to the
beneficiary still can be no greater than under traditional Medicare."
Suggested revision: "If only an enhanced package is offered, the cost to the
federal government and the beneficiary still can be no greater than under
traditional Medicare."
Assurances
Current position: "Savings accruing to the state are shared with the federal
government and/or Medicare beneficiaries (savings may be used to reduce the
Medicare Part B premium in the state.)"
Suggested revision: strike language regarding giveback to beneficiaries,
particularly mentioning the Part B premium. If a giveback is allowed, let the
state decide how. If the Medicare beneficiaries cost less than expected, the
savings should not be applied to "rewarding" the beneficiaries. The following
year's lower premium estimates should be sufficient.
Cost sharing
35
Current position: the annual deductible amount is set at a variable rate to
assure that the same number of beneficiaries meet the deductible each year as
during the first year of coverage.
Suggested revision: the deductible should be adjusted so that the same
percentage (emphasis added) of beneficiaries meet the deductible each year as
during the first year of coverage. This accounts for absolute beneficiary
growth.
Prescription Drugs
Single-pricing. The Medicare drug policy includes a rebate provision,
specifically tied to the ratio of average wholesale and retail prices. Medicaid
has long had a "best price" drug price rebates. Extending the forced rebate to a
larger portion of the market threatens cost shifting. This could then have the
perverse effect of eroding large hospital and HMO discounts, especially if
further actions (e.g., "single price" policies) are put into place to protect retail
pharmacists, as was once part of the short-term cost control strategy.
Chapter 27: Medicaid
State flexibility. State-option Medicaid benefits seem to be frozen not just for
purposes of maintenance of effort, but the specific benefits that are covered.
This is not only a change from current policy, but seems to run contrary to
State flexibility and the desire to have states develop and run more efficient
health care systems. Even if the decision was made to avoid political
opposition, perhaps we could have a time in the future when states could again
determine what optional benefits are provided. Such a time frame could
coincide with the expanded benefits in the year 2000. This does not have to be
tied to maintenance of effort. States could be required to redirect the funding
for other health care purposes.
Eligibility. The description implies that both cash and non-cash Medicaid
recipients would be enrolled in Alliance health plans and that Medicaid would
be responsible for paying specially-determined capitated payments to plans on
their behalf. This is inconsistent with our understanding that non-cash
recipients would no longer be eligible for Medicaid and would enroll in
Alliance health plans at the going rate with Federal low-income subsidies, if
eligible. Whether non-cash recipients are "in" or "out" affects the computation
of the State maintenance-of-effort requirement, the costs of low-income
subsidies, and whether to include a Medicaid savings offset associated with
36
switching these individuals from Medicaid to the low-income subsidy payment
stream.
Many individuals, particularly pregnant women and children, gain and lose
Medicaid eligibility frequently. How will the Alliances assure smooth
transitions between payments from employers, Medicaid, and Federal low-
income subsidies?
Apparently, Medicaid recipients could choose any Alliance plan, but would be
charged if they chose a plan costing more than the weighted-average premium.
Will Medicaid recipients receive a "refund" if they choose a plan that is
cheaper than the weighted-average premium?
State-by-State variation and wraparound coverage. According to the plan,
Medicaid will function as a secondary payer, providing wrap-around coverage
for Medicaid recipients. Many potential wraparound services are optional.
States differ dramatically in what kinds of optional services they offer and in
the amount, duration, and scope of mandatory services they provide. Will the
wrap-around package vary State-by-State, depending on the mix of services
each State now provides? Can States alter the wrap-around package? Will
non-cash recipients receive any wraparound services, post-reform? If so, don't
they then have to maintain a "dual" eligibility within the Medicaid program?
Will wraparound services be funded as Medicaid is now, i.e., a Federal/State
matching arrangement? Will States or Alliances be responsible for coordinating
the delivery of wrap-around services?
As noted above, Medicaid recipients gain and lose eligibility frequently. How
will the States or Alliances that coordinate wrap-around services accommodate
a continuing changing eligible population?
Under the plan, would Medicaid continue to finance the Medicare cost-sharing
expenses of Qualified Medicare Beneficiaries now covered by Medicaid?
There is an apparent inconsistency between the global budget and maintenance-
of-effort requirements. Under the global budget, States can spend no more for
Medicaid capitated payments to plans than 95% of each State's historic per
capita spending for services in the benefit package multiplied by the number of
recipients enrolled. Under the maintenance-of-effort requirement, States must
spend at least 100% of what they used to spend under Medicaid for these
services. If Medicaid enrollment stays constant, the level of State spending
37
required for maintenance-of-effort would exceed a State's global budget
expenditure limit.
Do the maintenance-of-effort and global budget requirements include
disproportionate share hospital expenditures?
Provider tax limitations. If the match rate system is retained, States will
continue to have an incentive to generate Federal funds through "costless
spending" programs involving provider taxes. Current provider tax limitations
may need to be reviewed to maintain the integrity of the State-Federal financing
relationship. Existing limitations were created to apply to the taxing and
reimbursing of numerous providers, rather than a small number of plans.
Chapter 28: Government Programs
Department of Defense
It is not sufficiently clear that DoD beneficiaries cannot obtain health care
coverage from both a health alliance and from DoD. It is critical to controlling
costs that individuals choose a single plan (either a DoD plan or a health
alliance plan) for all of their health care coverage. The VA section (on page
215) makes explicit that an individual may receive health care coverage under
only one plan. DoD should do the same either on pages 13 to 15 or on page
213 under eligibility.
Is the intent to give Alliances real power to certify or refuse to certify DoD and
VA plans? The requirements of the plans and the latitude given Alliances in
certifying allowable plans should be made very clear.
The word "centers" in paragraph 2 on page 212 should be changed to "care".
There is no debate that DoD must be ready to provide necessary medical care
for contingency operations. It is less clear that DoD needs to maintain large
numbers of expensive medical centers in peacetime.
In the second paragraph under "Appropriations and Reimbursement" the word
"since" should be changed to "prior to". (p.213) DoD's intention is to protect
current beneficiaries, not necessarily future beneficiaries, from any increase in
costs. As written, the proposal could be very expensive.
38
On page 213, add "Title 10 of the United States Code" after "described in" in
the first paragraph, and after the word "under" in the fourth paragraph.
DoD currently spends an estimated $1.3 billion to provide medical care to
Medicare beneficiaries. Most of these costs would be shifted to Medicare
under the proposal. In order to control total health care costs and limit the
DoD incentive to provide a richer than national reform health care benefit, we
could impose conditions that would limit Medicare payment to circumstances in
which:
-- Medicare beneficiaries pay at least the minimum premium and cost
share they would pay in a private health alliance; and
-- benefit levels are the same as the standard benefit package; and
-- DoD costs, as certified by either HHS, OMB, or GAO, do not exceed
the costs of local health alliance plans.
Veterans Administration
Start-Up Costs:
The plan would establish a revolving fund to provide seed money to VA
facilities through a one-time appropriation. The seed money would have to be
paid back by the borrowing facilities, with interest, over several years.
This proposal implies that VA will need a substantial funding increase because
of health reform. In the current budget guidance, VA Medical Care is not
treated as a priority program. In fact, it is currently funded significantly below
what the VA will likely request. The proposed revolving fund could set the
stage for VA's requested increase in FY 1995 -- expected to be $2 billion over
FY 1994.
If the one-time appropriation, which is likley to be substantial, is scored as
discretionary it will crowd out other discretionary priorities under the "hard
freeze" budget caps.
Global Budgets:
It is not clear whether VA would be included in global budget targets. IF VA
is permitted to compete within health alliances, then the VA spending should be
39
included in global budgets. Otherwise, VA would not be subject to the same
level of oversight and pressures for efficiency as its competitors in the alliance.
Exemptions for VA plans:
The draft states that VA facilities participating in the health alliance must live
by the alliance rules, except when the rules are in conflict with laws governing
the VA system (Title 38).
This gives the VA a wide loophole for circumventing reform requirements
(e.g., global budgets, providing data for quality management, following rules
for enrollment).
VA should not have exemptions to the rules of the health alliance if they are to
compete on a level playing field under health reform.
Indian Health Service
As described, the proposal is significantly broader (at least $3 billion per
annum in additional resources just for IHS) than the estimates provided to Bob
Anderson (roughly $3 billion per annum in additional resources for all public
health functions in the first year of reform).
Duplicate coverage: Current direct Federal coverage through IHS is continued,
as well as an employer mandate. Should not working IHS eligibles choose
either employment sponsored insurance or IHS but not both, as VA and DoD
eligibles are forced to do?
Duplicate funding: Current direct Federal appropriation, plus added
appropriations, plus premium collections, plus reimbursements for services.
Multiple, over-lapping financing sources for each individual.
Open-ended entitlement: Removing Anti-Deficiency Act requirements from
IHS, while keeping IHS a Federal agency, allows IHS to obligate current and
future funds irrespective of annual appropriations or revenue, and which the
Federal Government would be required to finance. Essentially, this creates a
separate Indian Health entitlement program. Current budget estimates do not
take this effect into account.
Removes current eligibility rules (p. 218). Traditionally, IHS has provided
health care only to American Indians and Alaska Natives living "on or near"
40
reservations. These rural Indian populations have limited access to medical
care, and IHS was designed to fill that role. Urban Indians have access to the
same health care as any other American. By removing current eligibility rules,
IHS expands its eligible population from roughly 1 million to 2.2 million
American Indians and Alaska Natives, urban and rural. Further, this puts IHS
in the business of providing direct care in urban areas, which is both
unnecessary and wasteful.
(Note: the Health Reform Work Group 16A did discuss building brand-
new IHS hospitals and clinics throughout the country, including large
"Indian medical centers." Removing current eligibility restrictions, and
creating an open-ended IHS entitlement, seems to be heading in this
direction.)
Creating specific organizational positions in this document borders on excessive
micromanagement, e.g., creation of a titular Assistant Secretary for Indian
Affairs with no line authority.
Questions
The package states that tribal employers are exempt from the national employer
mandate. However, the term "Tribal" is not defined. Can any employer
become a tribal employer by moving to a reservation? Why should tribal
employers be treated differently from any other employers?
Are IHS facilities capped under the global budget? What mechanism to control
costs exist for IHS, since IHS is outside of the Health Alliance structure?
Federal Employees Health Benefits
In the last paragraph before the heading "Eligibility" regarding enrollees
moving, add a new second sentence: "For those moving in the opposite
direction, the reverse is true."
The last point on page 220 reads: "Annuitants will be held harmless." It is not
clear what this means for annuitants under age 65, both current and future. If
the policy is for government to continue paying the employer share for such
annuitants until they reach Medicare eligibility at 65, the text should say so
explicitly.
41
Under the "Transition" section: last paragraph, last sentence calls for
automatically enrolling people from terminated plans in the Standard Option of
the government-wide Service Benefit Plan. This assumes that Service Benefit
Plan will continue to be available everywhere during the transition. Add: or
the most comparable plan available, as determined by OPM."
Under "Contributions during Transition" the first statement should be restated
as: "During the phase-out-period, the employer contribution continues at the
level provided by current law." The modification is to the end of the
statement. This reflects action in 1993 Reconciliation legislation which made a
small change in the outyears to the "Big 6" formula that determines the
government share of the FEHB premium.
Under "Employee Health Benefits Fund:" What happens if reserves are not
sufficient to pay the remaining claims after old plans close out? Does the
Federal government then bear all the risk as the employer, or are remaining
plans assessed? If the Federal government has to bear all the risk, it would
seem consistent to allow the Federal government to claim all remaining
resources the enrollees contributed to their health insurance for a specified
period, and they were covered for that period.
Chapter 29: Transition
Financial
States that expedite implementation of the plan would receive some type of
relief from the Medicaid maintenance-of-effort requirement. Given that States
will be required to pay their current share of Medicaid costs when Medicaid
recipients are enrolled into Alliances, how could a change in the maintenance-
of-effort requirement reduce States' expenditures? There is either a
contradiction in the policy, or some share of assumed maintenance-of-effort
should be discounted when pricing the package.
Medicaid maintenance of effort specifies current levels of financial support
from the States. For what year do these current levels refer? Do the current
levels remain constant or are they adjusted (e.g., for inflation, changes in
population that would have been Medicaid-eligible) over time?
States are required to match Federal financial support. Is the match dollar-for-
dollar or at some other rate?
42
Timing
Rulemaking (p.225): The use of interim final rules is likely to impose large
costs because it forces immediate compliance while leaving open the possibility
of changes between the interim final rule and the final rule. Such changes
would likely require costly changes in contractual arrangements. Delays
between interim final rules and final rules tend to raise the costs of such
changes.
The lack of court authority over the implementation of interim final rules may
be viewed as an affront and result in increased lawsuits rather than decreased
lawsuits. Since the Board is not required by the Statute to implement final
rules by a particular date, and may be sued only after failing to implement final
rules without "unreasonable delay", the effect of this clause is to delay court
action for a period of years, but not to prevent it. Such delays raise
compliance costs, by prolonging the uncertainty about how to comply with
regulations. An inelegant solution would be to require that the final rules be
issued by a particular deadline.
Current: "States that do not begin implementation by January 1, 1995 enter the
new health care system either on January 1, 1996."
Question: What is the assumed alternative to January 1, 1996?
Current: "Relief from short-term cost controls imposed as part of the transition
to reform."
Suggested revision: If short-term controls are off the table now, a different
form of incentive must be found to replace this relief.
Corporate alliances are given the option to join regional alliances after health
reform is implemented in all States. Are there any restrictions on this option?
Is this an open-ended option? Are there penalties or incentives for early or late
enrollment in the regional alliance by a corporate alliance?
Other
The concept of "group credibility" is not defined and, because the concept is
not in common use, is not clear.
43
In the phrase, "the pool is voluntary" -- Voluntary for whom? If the pool is
voluntary for insurers' participation, it appears to contradict the previous
paragraph regarding insurer assessments. If enrollment is voluntary by
individuals seeking health insurance, this should be stated more clearly.
In the phrase, "[the pool] operates under traditional insurance rating methods" -
- "Traditional" rating methods would appear to include rating based on claims
experience. However, the next sentence suggests that only age, gender, and
place of residence can be used as rating factors. This should be stated more
clearly.
How do the phrases "first year," "second year," and "until full implementation"
relate to January 1, 1995; January 1, 1996; etc.?
44
EXECUTIVE OFFICE OF THE PRESIDENT
OFFICE OF MANAGEMENT AND BUDGET
STATE
WASHINGTON, D.C. 20503
September 24, 1993
THE DIRECTOR
MEMORANDUM FOR:
Ira Magaziner
R.
FROM:
Leon Panetta and Alice Rivlin
SUBJECT:
Timetable for Budget Estimates
As you have often emphasized, it is important for the
credibility of the health reform proposal that all Federal cost
and savings estimates be thoroughly scrubbed. In order to
provide thorough the estimates, our OMB budget examiners will
need clarification of some of the policies in the health reform
plan. Decisions are also needed on certain economic and
technical assumptions to be used in preparing estimates of the
Federal budget effects of the reform.
This memorandum lists the points that need clarification.
We understand the pressures for a very rapid turnaround. We will
be able to produce cost estimates 2 weeks after we get a complete
set of programmatic specifications to price out.
Policy Clarifications: There are a number of policy questions
that must be clarified before OMB can estimate the plan's total
costs to the Federal budget. A list of these questions is
attached at Tab A. (These should look familiar: Many of our
questions were forwarded to you as an attachment to our
memorandum on the 8/6/93 draft of the health reform plan, and we
have compiled an additional list of new questions pertaining to
the 9/7/93 draft, which was forwarded earlier this week.)
Economic and Technical Assumptions: Up until now, the economic
assumptions used for estimating the costs and savings from the
health reform proposal have been the January 1993 "CBO"
assumptions, the same assumptions used for the President's
February and April budget submissions to the Congress. They
include the assumption that inflation will average 2.7 percent
per year in 1996-2000. In August, the Administration revised its
economic assumptions for the Mid-Session Review. The new
assumptions are no longer based on the CBO economic forecast.
Inflation averages 3.5 percent per year in 1996-2000 in the new
projections.¹ We recommend basing the budget estimates for
health reform on the new Administration economic assumptions so
that we will be able to compare it with other Clinton
Administration proposals and forecasts and to produce an
internally consistent estimate of the impact of the proposal on
1
CBO has also revised its economic forecast. The current
CBO economic forecast calls for an inflation rate of 3.0 percent
rather than 2.7 percent.
the deficit. You should also be aware that the health reform
proposal, as a pending Administration legislative proposal, will
have to be re-estimated for the President's FY95 budget
submission, using revised economic and technical assumptions.
The practice has been that these budget estimates are made by the
affected agencies on a budget-account basis using the
Administration's own economic assumptions. These are likely to
differ somewhat from current forecasts, but the disparities are
likely to be minimized by adopting the current Administration
forecast now.
"Scorekeeping" Issues: As we have discussed, there are certain
Budget Enforcement Act (BEA) "scorekeeping" issues that will need
to be resolved before legislation is proposed to implement the
health reform proposal. We will need about two days after the
OMB/Treasury estimates are final to assess these scorekeeping
issues. Please note that for presentation to Capitol Hill, OMB
and Treasury estimates will have to be divided into the following
categories: discretionary, PAYGO (receipts and mandatory), and
indirect impacts. Depending upon how the current policy divides
into these categories, we may want to suggest changes in the
language used to describe the policy in the detailed
specifications you are drafting. Moreover, it might be
productive for us at OMB to surface any scorekeeping issues with
CBO in advance of finalizing the policy specifications.
In addition, it appears that there will be BEA issues
relating to the proposed increases in discretionary spending in
the health reform plan, which appear to be far too large to fit
within the existing discretionary caps. We have discussed this
issue with respect to the proposed increased spending for various
programs of the Public Health Service; if these increases are
maintained, the BEA will have to be amended, because it sets an
absolute limit on discretionary spending that would be breached
by this additional spending. While this might conceivably
justify a proposal in the health reform bill to amend the BEA to
raise the discretionary caps (which might be justified with the
argument that the new discretionary spending is more than offset
by PAYGO savings that will be achieved by the Medicare savings
proposals), this depends on how much of the increase in receipts
and the decrease in mandatory spending will be scoreable under
the BEA. (It appears that some of the receipts that are
currently being scored may reflect indirect impacts that cannot
be scored under BEA). As you can see, these issues involve
complicated technical questions, as well as questions regarding
our approach to the Congress that must be carefully considered as
part of the overall legislative strategy for the reform effort.
Attached at Tab B is a proposed schedule for completion of
our work. Please let me know if you have any questions.
CC: The First Lady
Attachments
The following code applies to each question or set of questions:
Priority 1:
Cross-cutting questions that more than one group
needs answered before pricing can begin.
Priority 2:
Questions that must be answered before pricing of
a specific component.
Priority 3:
Questions whose answers may not affect the pricing
but which may highlight the need to sharpen the
focus of legislative specs.
PRIORITY 1
15 Sep 93
1.
From/To health coverage status over time (FY94 . 2000) - where are people
now, where will these go each year - detailed pricing and modelling
assumptions and data.
state and local coverage . mandated? subsidized?
uninsured
movement from one of two spouses employer's paying premiums to
two working spouses having employers pay contributions - When?
Alliance by alliance, time period
are welfare recipients induced off the AFDC, General Assistance, or
Food Stamp rolls
coverage of temporary employees - particularly federal temporaries
2.
What is the premium plus surcharge, guaranty assessments and other
amounts - Are the weighted average premiums ex ante or ex post?
Timing of development of health alliance premium by major state and
concentrations of federal beneficiaries
Breakout the surcharges for Nationally desired activities, their timing,
State Guaranty funds
Growth of premiums, and surcharges, etc. over time and changes in
benefits - 2000 etc.
3.
Amount of payment by FEHB on behalf of over 65 non-Medicare annuitants
and the increase in premium cost
4.
Interaction of Medicare and Medicaid drug benefits - what are the rules?
5.
Maintenance of Effort for Medicaid - detailed description and HHS pricing
over time.
6.
Assumptions on VA Health Plan participation and direct appropriations -
same with Indian Health, DoD/Champus
7.
National Health Board function and staffing
8.
Health cost containment, its effect on the CPI - and federal revenues/outlays
9.
Income and firm subsidy designs E. G. What is income, etc. and the costs of
administration and including underlying eligibility, participation and error
rates.
10.
Changes in federal tax income from for profit health plans and physician and
other provider income.
11.
Details on early retiree policy especially DoD and FEHB early annuitants
12.
Interaction of Medicaid and Medicare with the new long term care benefits (pric 4-!
rules, etc.
13.
Treatment of Federal auto and workers compensation — Federal Tort Claims
Act, FECA
13.
Are those in Federal State and other institutions covered (jails, mental
hospitals, juvenile centers, etc.)
15.
If calculations are on a CY basis, please provide your methodology for
estimating the FY/CY switch.
16.
Pleaase provide the cash flow incurred costs, outlay lags and related
assumptions.
Please provide a list of contact for each of the items.
24-Sep-93
MEDICARE OUTLAY AND BENEFICIARY ASSUMPTIONS FOR
4:26 PM
PRICING OF HEALTH CARE REFORM
(savings positive, outlays negative)
Note: for all streams, please identify whether estimates are calendar year or fiscal year, and explain key assumptions.
1994
1995
1996
1997
1998
1999
2000
Current Law
Baseline updated for August CEA economics
Beneficiary Population
Per-Beneficiary Outlays
Less Employer-covered Aged (assumes full-time work for full year)
Outlay savings
Beneficiaries opting out
QMB offset
Admin. costs
Early Retiree Coverage Effect
Outlay Change
Number of Early Retirees
Admin. costs
Revised Pre-Savings Baseline
Outlays
Beneficiary Population
Savings Package Assumed for HCR
Outlay savings
Effect on Beneficiary Population
Change in Admin. costs
Post-Savings Baseline
Outlays
Beneficiary Population
1
24-Sep-93
MEDICARE OUTLAY AND BENEFICIARY ASSUMPTIONS FOR
4:26 PM
PRICING OF HEALTH CARE REFORM
(savings positive, outlays negative)
Note: for all streams, please identify whether estimates are calendar year or fiscal year, and explain key assumptions.
1994
1995
1996
1997
1998
1999
2000
HCR Effect on Baseline
Number of enrollees in "standard" Medicare
QMBs
Dual Eligibles
Standard Medicare HMO
Other/Fee-for-service
Total
NON-ADD Supplemental coverage effect on outlays
Number of enrollees moved to alliances
QMBs
Dual Eligibles
Other
Total
Enrollees in VA health plans with Medicare as primary payor
NON-ADD Supplemental coverage effect
Where does Medicare pay (plan or point of service)
Admin. costs VA
Medicare
Enrollees in CHAMPUS/VA health plans with Medicare as primary payor
NON-ADD Supplemental coverage effect
Admin. costs CHAMPUS/VA
Medicare
2
24-Sep-93
MEDICARE OUTLAY AND BENEFICIARY ASSUMPTIONS FOR
4:26 PM
PRICING OF HEALTH CARE REFORM
(savings positive, outlays negative)
Note: for all streams, please identify whether estimates are calendar year or fiscal year, and explain key assumptions.
1994
1995
1996
1997
1998
1999
2000
Enrollees in CHAMPUS health plans with Medicare as primary payor
NON-ADD Supplemental coverage effect
Admin. costs CHAMPUS
Medicare
Enrollees in DoD/Champus health plans with Medicare as primary payor
NON-ADD Supplemental coverage effect
Admin. costs DoD/CHAMPUS
Medicare
Average Federal Medicare contribution for
Alliance-based Medicare beneficiaries
Average Beneficiary Contribution
Admin. costs
Average Federal Medicare contribution for
DoD plan Medicare beneficiaries
Average Beneficiary Contribution
Admin costs
Average Federal Medicare contribution for
VA plan Medicare beneficiaries
Average Beneficiary Contribution
Admin costs
POST-HEALTH CARE REFORM, NET MEDICARE OUTLAYS
3
24-Sep-93
MEDICARE OUTLAY AND BENEFICIARY ASSUMPTIONS FOR
4:26 PM
PRICING OF HEALTH CARE REFORM
(savings positive, outlays negative)
Note: for all streams, please identify whether estimates are calendar year or fiscal year, and explain key assumptions.
1994
1995
1996
1997
1998
1999
2000
Related Assumptions
Drug price growth rate
Drug premium
Pre rebate
Post rebate
W/O rebate
Admin costs
Cost shift/capturing secondary effects
Revenue affects
Employer taxes
Employee taxes
State and local government taxes
Medicare Beneficiary Cost-Sharing
Average for standard plan
Premium
Deductible
Copay.
Total
Plus:
Drug Premium
Drug Copay.
Total
Effect of supplemental
coverage on drug
utilization
4
September 24, 1993
Health Care Reform Pricing Issues - Medicare
The cover table and the following list of pricing and policy questions contains
significant overlap and duplication. The intent is that the answers to these
questions and stated assumptions will provide enough specification to provide
estimates of health care reform's impact on Medicare.
On a fiscal year-by-fiscal year basis through the year 2000, what are the assumptions
concerning:
Medicare beneficiary enrollment through the Alliance rather than traditional
Medicare? Does the percentage of enrollees gaining coverage through the
Alliance increase over time? (See table; Categories 1 & 2)
-
What percentage of them enroll in HMOs? (See table; 2)
-
Do Medicare beneficiaries pay the surcharges on the premium, or does
the Federal subsidy include them? (1, 2, 3)
--
What incentives, e.g., differential premiums, will exist to encourage
enrollment in managed care settings? (3)
--
What is the assumed deductible in health plans for Medicare-eligible
enrollees? (1, 2)
How many (and what percentage of) non-working, non-QMB people who
would have been in Medicare will elect to enroll in alliances instead? (1, 2)
Does the employer mandate apply to employers of Medicare-eligibles or is
employment sponsored insurance merely a mandated option for Medicare-
eligibles? (3)
--
Does the mandate apply to the cohort of working aged in corporate
alliances? (3)
-
Suppose both spouses are Medicare enrollees, and only one works.
Does the mandate require worker/employer to buy a "couples" policy
or a single policy? (1, 2, 3)
-
If a Medicare beneficiary is married to a non-Medicare worker, does the
worker-employer have to buy a couples policy or could they decide to
Category 1: Cross-cutting issue. Category 2: Necessary for budget and scoring
purposes. Category 3: Policy decision that could be necessary for drafting legislation.
2
purchase only a single plan? (2, 3)
What limits on enrollee choice of policies/coverage exist? (3)
How will savings accruing to the States be shared between beneficiaries and
Medicare? (1, 2, 3)
For the Medicare-eligible alliance enrollees, what will be the total amount the
alliances charge, and the average per capita amount, to Medicare?
-
What are the assumptions regarding the amount charged to Medicare,
e.g., is it based on the average per capita amount? (See table; 3)
-
Is it risk-adjusted to a level lower than the average Medicare fee-for-
service level to reflect an assumed better health status and/or younger
average age of Medicare-eligible alliance enrollees? (See table; 3)
-
Is it geographically adjusted by state? Would Medicare subtract lost
premium income from the amount paid to the alliance? How much?
(See table; 3)
Are Medicare IME outlays folded into the funding pool for academic health
centers, along with the GME payments? Or are they held separate, but at a
lower IME rate of payment, e.g., 3%? (1 & 2)
-
What are the assumed impacts on Medicare GME/IME payments
under the workforce changes contemplated by the 9/7 draft?
Are those eligible for Medicare through disability enrolled in a separate pool,
or do they continue to receive care under Medicare? What are the
assumptions about the disabled's enrollment through Alliances and the effect
of marriage status? (1, 2, 3)
Are dual eligibles folded into the Alliances along with the rest of the
Medicaid population, or does Medicare cover them?
-
Who is the primary payor for prescription drug cost-sharing for dual
eligibles, Medicare or the States? (See table; 1 & 2)
--
Are States required to cover Rx cost-sharing for QMBs? Is this going to
Category 1: Cross-cutting issue. Category 2: Necessary for budget and scoring
purposes. Category 3: Policy decision that could be necessary for drafting legislation.
3
be reflected in the MOE calculation? How will the Medicare and
Medicaid drug benefits be integrated? (1, 2)
-
What percentage of QMBs will enroll through Alliances?
Are there separate assumptions about elderly utilization of health care
services under different cost-sharing schemes? If so, what is assumed about
Medicare beneficiary utilization with lower cost-sharing requirements, e.g.,
managed care enrollment with no Medigap allowed? (2)
Will the elderly be allowed to purchase Medigap if they enroll in managed
care settings? (3)
-
What are the assumptions about reduced Medigap purchasing as the
result of the new Medicare benefits/options, e.g., coverage of
copayments on drugs rather than the entire drug? (See table)
What income levels are assumed of veterans before Medicare will pay VA for
covered services? (1, 2, 3)
--
What are the assumptions about the number of Medicare beneficiaries
also eligible for VA care? What is the assumption about Medicare
payment to the VA for care rendered Medicare enrollees? (2)
What are the assumptions about Medicare beneficiary utilization of VA and
DoD facilities? What are the assumptions about Medicare enrollees enrolling
in DoD, VA, CHAMPUS, and CHAMP/VA plans? (2)
What assumptions are made about the average out-of-pocket cost for a
Medicare-eligible alliance enrollee (i.e., 20% of premium with subsidies for
low-income, $200 deductible, some coinsurance), versus the average out-of-
pocket cost if they choose to stay in Medicare (i.e., 25% of Part B costs, $676 Part
A deductible, $100 Part B deductible, and copays). Are these relative costs
taken into account in developing a model to determine how many will opt
for alliances versus staying in Medicare? (See table; 3)
-
In addition, do the assumptions about how many Medicare-eligibles
enroll in alliances take into account the varying levels of income-
related subsidies for alliance premiums? (3)
Category 1: Cross-cutting issue. Category 2: Necessary for budget and scoring
purposes. Category 3: Policy decision that could be necessary for drafting legislation.
4
The plan asserts that States will assume Medicare administrative costs in
situations in which Medicare is enrolled into the alliance (pg. 191). If
Medicare is not reimbursing the States for these costs, how much
administrative savings are assumed for the Medicare program? (1, 3)
What are the assumptions regarding Medicare beneficiaries already enrolled
in managed care plans? (See table)
-
How many stay in existing plans versus joining plans under the health
alliances?
What are the assumptions regarding beneficiaries joining Medicare point-of-
service plans (pg. 193)?
-
How many from current baseline enrollees in Medicare managed care
plans will switch to point-of-service networks? How many additional
beneficiaries will join point-of-service networks? What will be the
average per-capita Federal cost and savings versus the baseline for
these plans? What Federal administrative costs are assumed for these
point-of-service plans? (3)
What are the assumptions about physician discretion in waiving Medicare
coinsurance requirements in cases of "financial hardship and professional
courtesy" (p. 120)? What is the induced utilization effect? (2, 3)
What are the assumptions about the effects of Medicare proposals on
administrative costs? (2)
Category 1: Cross-cutting issue. Category 2: Necessary for budget and scoring
purposes. Category 3: Policy decision that could be necessary for drafting legislation.
Pricing Questions Concerning the Medicare Drug Benefit
1.
What effect do you assume the drug benefit will have on drug usage and
2
expenditures among Medicare Part B beneficiaries?
2.
How many beneficiaries do you assume will enroll in Medigap policies that
cover the cost-sharing requirements included in the drug benefit and what
2
affect will Medigap coverage have on drug usage and Federal expenditures?
09/23/93 09:21 2202 456 7739
WHITE HOUSE
002/003
To: Leo Nichols
Grom DK
Kronick 9/22
Medicare As Secondary Payer Policy ag- HF -3
Policy questions that need to be answered in order to accurately
astimate the size of the 'Offset for Medicare Eligibles in the
Alliance's
1) Is policy that Medicare beneficiaries who are full-time
It
2
workers must be members of the alliance (either corporate or
regional) with Medicare as a secondary payer, or that they can
choose to be alliance members with Medicare as secondary payer?
a) If a Medicare beneficiary works for an employer who only
contributes the required 80%, than choosing alliance
coverage will require an additional payment (20% on average,
more for a more expensive plan less for a less expansive).
For a single person, this will average $380, for a couple
perhaps $800. For most this will be a better value than
Medigap has to offer. It is reasonable to require the full-
time worker beneficiary to take alliance coverage; however,
it is, at a minimum, politically sensitive to require
payments for the 20% (more or less) for people who are
eligible for Medicare.
If it is decided to require alliance membership for a
full-time over-65 worker, it would make sanse also to
require membership for the spouse of a full-time worker
evan if the spouse is a Medicare beneficiary.
b) TO avoid disruption and reduce appenditures, if a
beneficiary is working full-time duting annual open
enrollment but subsequently etops working, could potentially
leave then in the alliance for the rest of the calandar year
and provide the BOX retiree subsidy (this would probably be
less expensive to the federal till then returning them to
Medicare because of the community rating effect).
Alternatively, if a full-time worker stops working during
the year, could end alliance coverage and return them to
Medicare. (If there is thought of leaving them in the
elliance, would we require this or leave it as an option?)
c) If a Medicare beneficiary is not working at time of open
enrollment but starts working full-tima during the year,
makes sense to add them to the alliance rolee during the
year. Same questions about what to do if they stop working
during the year.
2) Part-time workers
1+2
a) If a Medicare beneficiary works part-time, could
potentially require employer pro-rata payment, require the
beneficiary to Join the alliance, and provide the retiree
subsidy to fill in the unpaid portion of the BO& employer
contribution. Similar issues " for full-time workers on
whether we are willing to require such persons to pay the
20%.
3) Modelling, not policy question: If we leave to workers the
decision on whether or not to join the allianos and Day (more or
less) the 20%, what will OACT and/or others assume about
112 beneficiary behavior?
a) What was assumed, either for policy or behavior, in the
estimate that the Medicare offset is $59 billion?
9/24/93
MEDICAID OUTLAY AND CASELOAD ASSUMPTIONS FOR PRICING OF HEALTH CARE REFORM
5:15 PM
(savings positive, outlays negative)
Note: for all streams, please identify whether estimates are calendar year or fiscal year
1992
1993
1994
1995
1996
1997
1998
1999
2000
Current Law
Caseload
AFDC (under 65)
AFDC (over 65)
SSI (under 65)
SSI (over 65)
QMBs
Dual Eligibles
Other Non-Cash
Institutionalized (non-add)
Per Capita Costs (Basic Benefits) 1/
AFDC (under 65)
AFDC (over 65)
SSI (under 65)
SSI (over 65)
QMBs
Dual Eligibles
Other Non-Cash
1
9/24/93
5:15 PM
MEDICAID OUTLAY AND CASELOAD ASSUMPTIONS FOR PRICING OF HEALTH CARE REFORM
(savings positive, outlays negative)
Note: for all streams, please identify whether estimates are calendar year or fiscal year
1992
1993
1994
1995
1996
1997
1998
1999
2000
Current Law
Per Capita Costs (Supplemental Benefits) 1/
AFDC (under 65)
AFDC (over 65)
SSI (under 65)
SSI (over 65)
QMBs
Dual Eligibles
Other Non-Cash
Per Capita (Long Term Care) 1/
Nursing Facilities
ICFs/MR
Non-Institutional Care
Aggregate MAP Costs 1/
Administration Costs 1/
Total Medicaid Costs 1/
2
9/24/93
5:15 PM
MEDICAID OUTLAY AND CASELOAD ASSUMPTIONS FOR PRICING OF HEALTH CARE REFORM
(savings positive, outlays negative)
Note: for all streams, please identify whether estimates are calendar year or fiscal year
1992
1993
1994
1995
1996
1997
1998
1999
2000
Health Care Reform
Caseload
AFDC (under 65)
SSI (under 65)
QMBs
Dual Eligibles
Institutionalized (non-add)
Former Recipients
Community-Based Long Term Care
Alliance Buy-Ins
Per Capita Costs 1/
Basic Benefits (Budgeted Premium)
Supplemental Benefits
Institutionalization
Community-Based Long Term Care
(new LTC program)
Aggregate MAP Costs 1/
Administration Costs 1/
Total Medicaid Costs 1/
3
9/24/93
5:15 PM
MEDICAID OUTLAY AND CASELOAD ASSUMPTIONS FOR PRICING OF HEALTH CARE REFORM
(savings positive, outlays negative)
Note: for all streams, please identify whether estimates are calendar year or fiscal year
1992
1993
1994
1995
1996
1997
1998
1999
2000
Health Care Reform
Table Line Items
Aggregate State Maintenance of Effort
Liberalized Long-Term Care Eligibility (Institutionalized)
Offset for Current Law Medicaid Eligibles 1/
Community-Based Long-Term Care
Alliance Buy-Ins
Savings Due to Budget Cap 2/
Notes
1/ Show State, Federal, and total computable costs where appropriate.
2/ Break out for specific savings provisions, including DSH.
s
Questions About Pricing of Medicaid Provisions
General.
3
HCFA is largely dependent on State data to estimate future Medicaid
spending and to disaggregate projected, as well as actual, Medicaid
spending into particular categories, e.g., acute care spending for AFDC
recipients. What data sources have been used in pricing the President's
plan, e.g., determining State's maintenance-of-effort contribution,
estimating the number of employed Medicaid recipients, and carving
out current Medicaid spending for services in the national benefit
package?
3
Will these same sources continue to be used or will there be special
State data queries, surveys, or audits to validate currently-available
data?
2
Which Medicaid service categories will be included in the national
benefit package and which are defined as long-term care services?
2
What assumptions were made about the behavior of States in response
to the proposed changes in Medicaid? For example, what assumptions,
if any, were made about the effect of likely State efforts to reduce
Medicaid spending during the year prior to reform or to move
individuals from Medicaid to fully-Federally financed low-income
subsidies? Also, if the match rate system for financing Medicaid is
retained, what assumptions were made about States' ability to generate
Federal funds through "costless spending" programs involving
provider taxes?
Caseload.
2
On a fiscal year basis through the year 2000, what are the assumptions
regarding the size of the Medicaid caseload in the absence of reform
and where these Medicaid eligibles "go" under the President's plan, i.e.,
how many obtain coverage through:
-
their employers?
--
low-income subsidies?
--
remaining on Medicaid?
(see attached table).
2
In developing these caseload estimates, what assumptions were made
September 24, 1993
about the behavioral effects of increased work incentives on the
number of Medicaid cash recipients?
Per Capita Costs. Please provide a detailed description of policy, assumptions, and
pricing over time.
3
Will different premiums be computed for AFDC and SSI recipients?
2
According to page 201 of the 9/7 draft of the plan, annual rates of
increase in the per capita payments from Medicaid to alliances will be
"subject to the national health care budget." Does this imply that
annual increases will be equal to, no greater than, or otherwise related
to the budgeted amounts? Please explain how the negotiating process
with plans will work and how the budgeted annual increases in State
Medicaid payments to alliances will be computed and enforced.
2
Will Medicaid per capita payments be adjusted to include costs
associated with services that will be included in the national benefit
package but are not currently covered by Medicaid, e.g., coverage for
treatment of persons age 21-65 in institutions for mental diseases
(IMDs)?
Wrap Around Coverage.
2
Will the wrap-around package vary State-by-State, depending on the
mix of services each State now provides? Can States alter the package?
Who will be eligible for these wrap-around services, who will pay for
these services, and how will payments be computed? If Federal
funding for wrap-around services is provided through block grants,
will the grant amounts be established to approximate the Federal
portion of current State spending on wrap-around services?
2
Will Medicaid recipients in the Alliance be subject to the same cost-
sharing requirements as other low-income individuals or would cost-
sharing subsidies be included as part of Medicaid wrap-around
coverage?
2
Under the plan, would Medicaid continue to finance the Medicare cost-
sharing expenses for Qualified Medicare Beneficiaries and dual eligibles
now covered by Medicaid?
Maintenance of Effort.
2
What are the various components of the State's maintenance-of-effort
September 24, 1993
(MOE) contribution?
-
Does the MOE contribution include States' share of DSH
payments, as well as payments for services not included in the
national benefit package? If the MOE contribution does not
include State DSH spending, will these dollars be netted out of
the initial calculation of Medicaid per capita payments to
alliances?
Does the MOE contribution include current State spending for:
Medicaid services that are not included in the national
benefit package; and
for individuals who are no longer eligible for Medicaid,
but also not eligible for low-income subsidies, e.g.,
pregnant women with incomes between 150% and 185%
of poverty?
2
In calculating the annual growth in the MOE offset, what assumptions
were made about the level of budgeted growth in States' average
weighted premiums?
3
3
Will States be given an opportunity to appeal the calculation of their
initial MOE contribution, i.e., will there be some sort of appeals process
for States?
Long-term Care.
2
Exactly how will State contributions and Federal matching be calculated
for new community-based long-term care (both low-income and non-
means-tested)?
2
What will the Medicaid offset be for home and community-based
spending folded into the new long-term care program?
2
How will acute care for Medicaid institutionalized patients be
coordinated and financed?
2
How will institutional long-term care spending be budgeted?
September 24, 1993
Working (AFDC cash) Recipients.
2
Will Medicaid continue to buy into employer health plans?
2
What are the transition payment rules for those moving into and out
of AFDC and into and out of employment?
DSH.
2
What is the schedule for phasing-out DSH?
2
Medicare DSH payments are computed according to a formula that is
based on the number of the Medicaid inpatient days. What
assumptions have been made regarding the effect on Medicare DSH
payments resulting from the substantial reduction in the number of
Medicaid eligibles under reform?
Cash Flow.
3
What assumptions were made about the effect on Medicaid spending
at the point of implementation when States are paying for Medicaid
costs that have been incurred by current beneficiaries, as well as paying
prospective premiums to Alliances?
Long-term care program questions
By year, how many individuals are projected to receive services from the new
community-based LTC program? Please show projections for both the 3-ADL
2
program and the low-income program. How many of these individuals would
otherwise have been Medicaid-eligibles?
2
Will reimbursement rates under the new program be comparable to those under the
current Medicaid program? Will there be a difference between reimbursement rates
for the 3-ADL program and the low-income program?
2 What assumptions are being made about the phase-in of coverage over several
years?
How will program spending be budgeted? What annual growth rates are assumed?
What assumptions are being made about utilization rates and costs per recipient
under the new program? Do these assumptions change over time?
Will Medicare beneficiaries have to pay a premium for the new program? Who
will pay and how much will the premium be? What is the projected revenue from
premiums?
What will the Medicaid offset be for home and community-based spending folded
into the new program?
Exactly how will State contributions and Federal matching payments be calculated
under the new program? How much are the State and Federal government
expected to spend?
Are the costs of tax credits for the working disabled included in the LTC program
estimate, or do these costs only affect the "receipts" line item?
Long Term Care (pp.151-165)
Status: Changed
Budget Issues
P. 152. It is possible that a portion of the SSI/DI population who are not
currently receiving institutional care or home based care would qualify for
community based care as under the eligibility standards described. Limited
ADLs are used as eligibility criteria for SSI/DI, but this population rarely uses
institutional care.
P. 158 Would the monthly living allowance change for recipient of
federal benefits (SSI, VA) change?
P. 162 This tax deduction would represent a double exclusion for SSI/DI
recipients. Work related expenses are deducted from an SSI/DI recipients
total income when calculating benefits.
Policy Issues or Clarifications
Medicare beneficiaries pay a premium toward coverage, with individuals
having incomes below 100% of poverty exempt from the premium.
Should assets be included in the in the computation of the premium
exemption threshold?
Matching rates: The Secretary of HHS determines matching rates for
allowable costs.
How are administrative costs treated under the matching rate computation?
Tax treatment of premiums for long-term care insurance. Such premiums
for qualified plans are excluded from taxable income.
Are the premiums excluded for both income and FICA/FUTA payroll
taxation? What is the tax treatment for the self-employed?
Tax incentives for individuals with disabilities who work. Employed disabled
individuals who require assistance with daily living receive a 50% tax credit.
Is this credit refundable? Does the credit only apply to earned income? How
does the credit interact with EITC? Was this considered in pricing.
. SD, RP
(IM branch comments)
23 September 93
Financing for the Under 65 Population
(based on provisions listed in prior drafts,
however these items were mentioned in the President's speech.)
Policy Questions or Clarifications
An employer premium subsidy is limited to firms with 50 or fewer employees.
Employers also have a cap on premiums for all employers equal to 7.5% of payroll.
3
Subsidies for Employers: for firms with less than 50 employees in which the
average full-time wage is less than certain thresholds, employers receive
government subsidies for health premium contributions on workers with
wages under certain thresholds. All employers benefit from a cap on
premiums limited to 7.5% of payroll.
The eligibility criteria for subsidies for employees and employers, and
premium caps for employers could be based on total employee compensation,
including fringe benefits, instead of payroll. Large segments of the nation's
working population receive employer provided fringe benefits such as health
and life insurance, flexible benefit packages, housing, and pensions. Such
benefits accounted for 16 percent of total employee compensation in 1989, up
from 8 percent in 1960. Most of the growth in employee remuneration over
the past 20 years is attributable to the growth in benefit spending. For
example, inflation-adjusted benefit spending per full-time employee grew by
63 percent between 1970 and 1989, while average cash wages remained almost
flat. The proposed employer subsidy could further encourage firms to pay
employees in fringe benefits in order to remain eligible for the government
health subsidy, or meet the 7.5% payroll cap.
The President has stated that under the proposed plan, the self-employed will be
able to deduct 100% of alliance premiums.
2
Premiums for Self-employed The self-employed are currently allowed to
deduct only 25% of their health insurance premiums for tax purposes.
Would the proposal result in a reduction in SECA income to the OASDI and
HI trust funds?
23 September 93
Priority Code 2
HCR Administration: Overview
The fundamental issue is to clearly specify the functions that
will be performed by each entity, new or existing, and to draw
the boundaries between these entities as clearly as possible.
Since there is so much Federal oversight and backup or default
control, in the absence of a clear demarcation, we will have to
assume the function will be performed at the Federal level,
either by an existing agency or the National Health Board
(perhaps through a contract with an existing agency).
We intend to provide an estimate of the total administrative cost
associated with each function and the portion of that cost that
would be borne by the Federal government.
Priority Code 2
HCR Administration Questions
Pricing Issues: Scope & Parameters
(I)
Define administration. Is this Federal only? Or system-wide (Federal, State,
local, Alliance, plan, corporate, etc.)? Keeping pricing limited to the Federal
level makes the task 'easier' (though not necessarily possible), and begets the
question of whether Federal costs are being shifted to other levels of the
system.
How is this to be measured? Dollars? Staffing? Paperwork burden? All?
What encompasses administration? Is it 'direct only (i.e. Health insurance
administration; Provider administration)? Or does it include 'indirect' but
essential support functions (i.e. Fraud and abuse investigation and
prosecution; Data system management; Data analysis)? What about consumer
education, advertising, etc.?
(II)
Assignment of administrative functions in the plan. There are a host of
administrative functions identified in the plan, but little consistent
assignment of these functions to a specific entity, or discussion of how they
will be financed.
Examples of unfunded, vague (difficult to price accurately), or unassigned
functions: State qualification of health plans. State establishment of
demographic service requirements. State Guaranty Funds. Establishment of
'capital standards.' Regional alliance administration. Administration of
allocation of consumers to plans when capacity is insufficient. Development
of State fee for service schedule. Alliance administration. Federal
coordination among principal agencies (DOL, DHHS, VA, DOD), and with
States, local grantees, alliances, plans, etc. Health professions loan
administration, as well as other Federal programs (training and education
oversight and administration). Administration of the Inter-alliance Health
Security Fund. Budget administration, oversight, and enforcement. State
licensure and certification of plans, health professionals. Federal licensure
and certification of 'essential providers.' Survey administration and analysis
(outcomes, quality, satisfaction, etc.). Premium tap fund collection and
administration. Research and demonstration administration. Income
monitoring and subsidy administration. Administrative capacity for Federal
assumption of alliance operation for non-starting States or or States in
default. Quality control program.
(III)
Funding sources. There are numerous, over-lapping funding sources for data-
1
Priority Code 2
related activities. Presumably some data costs (capital, maintenance,
administration, data processing and analysis, etc.) are funded within alliance
or plan budgets. But, PHS also includes some start-up funds for state data
systems, as well as separate funds for special surveys (the data from which
could easily come from hospital admitting records, coroner reports, etc). PHS
also includes funds for data analysis. PHS also has a separate 'administrative
cosť category, which we have no idea what is contained therein. These need
to be identified.
Are funds for data activities also included under more generic administration
funding sources, such as premium taps? What about HCFA ORD? Medicare
administration? VA, DOD, and IHS administration? This gets back to
assignment of functions to specific entities, and funding sources for each.
What is a centralized, Federal function, and what are private responsibilities?
(IV) Medicaid Administrative Expenses
Will current Federal policy with regard to matching of administrative
expenses be changed to reflect a smaller, simpler Medicaid program?
Have potential savings from the reduced administrative burden in the
Medicaid program been identified? Even if Federal matching policies remain
intact, some savings could be expected.
Will States and Alliances continue to administer wrap-around benefits (i.e.
current Medicaid benefits not included in the basic benefit package)?
(V)
National Health Board
Fundamental questions about the board's functions, responsibilities, and
operations require clarification (e.g. contract, in-house..):
Is the board to be advisory to an existing or new Executive Branch agency
which is under control of the President or is the board to be free-standing and
accountable primarily to Congress?
Will the states be responsible for enforcing budgets within the states (subject
to board monitoring), as requested by NGA on 9/23/93, or will the board have
both monitoring and enforcement responsibilities?
Will the benefits package be defined in law or by the board, through
regulatory rulemaking? Will the benefit package be exhaustively described or
2
Priority Code 2
merely sketched out, deferring details to States? Will the Board adjudicate
disputes between individuals and plans regarding the benefit package or will
such disputes be handled in Federal district courts?
Will data and quality management systems be operated by states and
monitored by the board or operated by the board? What will the adjudicatory
responsibilities of the board be?
What will be the extent of the board's actions to oversee state plan
implementation? How much flexibility will be left to states and how much
will this monitoring role resemble the current Medicaid waiver process?
Indicate which portion of each of the functions described above are to be
carried out by Federal employees of the board and which may be contracted
out.
3
Priority Code: 2
Questions for Pricing 9/7/93 HCR Package: Public Health
Contacts for Public Health Q's -- Bill Dorotinsky (x 4926; h-301-916-1227)
Richard Turman (x4926; h-301-270-0895)
Part One: Basic Questions on Scope & Parameters
In order to evaluate the PHS funding proposals, we need the following for each
proposal or initiative.
(I)
Proposed Increases. Exactly what are these funds for? Specific programs?
What will these funds buy (number of vaccines, trips to the doctor,etc.)?
What are the assumptions for these estimates?
Do these duplicate items funded through the benefit package?
What is the amount of the proposed increase above current appropriation
levels? What is the amount of funding in the current 'base' reallocated to
each initiative?
How much of the increases and reallocations are for administrative costs
versus services? What are the bases for these assumptions? How many more
Federal staff will be required for these proposals?
How much money will flow to these activities from alliances, plans, and
insurance? (Include basic payment rates, as well as any special incentives to
rural/underserved/primary care providers, etc.)
Does initiative funding increase over time? How was the timing of increases
determined?
(II)
What are the secondary and interactive effects of these proposals? For
example, assuming a simple linear relationship between NIH funding and
new discoveries, what is the effect of increasing NIH funding on the cost of
the health system for new procedures produced? What will happen to the
cost of research when we suddenly increase demand significantly (researcher
salary, etc.)? If academic health centers receive special subsidies, special grants,
1
Priority Code: 2
and indirect cost funding through NIH, how many times are we funding the
same things? What effect does this have on the cost of research? The type of
health innovations produced? What effect do these have when adopted into
the health system? Does this excessively favor high-tech medicine?
Or, if we have PHS health professions programs in addition to DME/IME and
other provider incentives, what happens to the absolute number of health
professionals as well as their distribution by specialty? What happens of we
have too many doctors (in Canada, it increases total cost, as each doctor
produces roughly the same volume; in Germany, with global budgets,
increased number of doctors means lower average physician salary, so
physician' associations tightly regulate medical school entry)? How many
types of supply-management do we really need?
Or, States are required to establish service requirements for health plans
related to the level of service and geographic distribution of service to ensure
adequate choice and in low-income and underserved areas. Plans will spend
funds to provide access, or face penalties. This is a regulatory approach. What
effect, then, do all the PHS 'access' and 'enabling' services have on utilization?
Will it increase utilization beyond medically-necessary limits? Is it necessary?
(This applies to mental health & substance abuse, as well as general medical
care.) And where does personal responsibility come into the equation? How
broad is "enabling service" (e.g. public health police)?
(III) Proposed Off-sets. What are the assumptions underlying the proposed off-
sets? How were they calculated? How were individual programs categorized
between service and non-service aspects? On what basis was this done?
What are the administrative expenses associated with these off-sets? Are
administrative costs included in the off-sets? How many FTEs are associated
with the off-sets?
Do off-sets increase over time? How was the timing of off-sets determined?
For all facts and figures used in calculations or estimates, please cite the source.
Please provide copies of internal studies or documents used to support the proposals
or assumptions (e.g. MDS study referenced in HRSA off-set background material).
2
Priority Code: 2
Part Two -- Questions about Specific Sections of Proposal
"Prevention" Research -- What is the basis for the $1.5 billion (58%) increase in
biomedical and behavioral research labeled "prevention"-related. How many more
multi-year research projects would be funded? How much out-year funds would
commencing so many projects commit? Is there sufficient capacity in the health
research system to make such an expansion without requiring massive new capital
spending by Federal and university laboratories? What specific connections do
these increases have with the implementation of Reform during FY96-2000, since
the results of such research funding would not be available until well into the 21st
Century?
Health Services Research - How much of this increase would be spent on each of
the categories listed on pp. 138-9 of the draft plan, and what would be accomplished
with each allocation? How soon would the results of the consumer choice and
decision-making research be available, if funds are appropriated in FY96 and
initiated in FY96-7?
Workforce -- Please provide estimate details, including numerical outputs desired
and how $204 million would be used to achieve the outputs.
Access
NHSC -- how would the $75 million increase for NHSC be split between state
loan repayment, Federal loan repayment, and Federal scholarships? How
many more doctors and other health professionals would this bring into the
field over a 20-year period, starting in FY96? How much of an increase in
field staff support spending would be required in FY2000-2010 to support the
increased numbers of scholarships &loan repayment agreements awarded in
FY96-2000? What is the cost of maintaining NHSC field staff on a per person
basis?
Capacity - How many additional low-income Americans currently uninsured
would these funds help? How many. low-income Americans would this
funding help connect up to health plans so that they no longer need
assistance through publicly-subsidized clinics? How many health plans
would this funding encourage to serve rural and other uninsured
Americans? How many provider networks would be established? If the
design assumes continued maintenance funding as opposed to short-term
capacity expansion linked to the implementation of Reform, please describe
and explain. Would funding be granted to states or local districts? How
many Federal FTE's would be required under either scenario?
3
Priority Code: 2
School-based Expansion -- How many schools with high proportions of low-
income Americans would this funding assist? How many students would
be served? How much of clinic funding would be captured from health plan
payments for covered services provided through these clinics? What is the
start-up costs of opening a clinic? What are the annual costs of maintaining a
clinic? What portion of each of these costs would the Federal assistance
provide in the first, second, third, etc. years?
Formula grants -- what services would the formula grant support, and how
would they differ from the capacity expansion grants? Would funding be
granted to states or local districts? How many Federal FTE's would be
required under either scenario? How many low-income Americans would be
connected to health plans each year through these grants?
Indian Health
The package states that tribal employers are exempt from the national
employer mandate. However, the term "tribal" is not defined. Can
any employer become a tribal employer by moving to a reservation?
Why should tribal employers be treated differently from any other
employers?
What mechanism to control costs exist for IHS, since IHS is outside the
Health Alliance structure?
Mental health/substance abuse - what will the additional funds pay for (e.g.
short term treatment vs. long-term treatment; residential vs. outpatient;
heave users vs. casual users; inside or outside of the criminal justice system,
etc.).
If the policy is to provide high-quality, cost-effective drug abuse treatment,
will the parameters described meet that objective? Most of the studies on the
effectiveness of drug abuse treatment indicate that time in treatment is the
most significant indicator of success (as measured by reduced drug use and
criminality and increased employment). The substance abuse treatment
benefit is capped at 60 days initially, expands by 1998 to 90 days, and by the year
2000 the day limits appear to drop off entirely. The benefit structure appears
to provide incentives for 30-day programs, far less than 12-24 months in
treatment recommended for heavy users. Moreover, thirty days in a hospital
setting can cost than one year in a community-based residential program.
What is the rationale and/or underlying assumptions for placing a day-limit -
4
Priority Code: 2
-as opposed to a dollar-limit -- on residential substance abuse treatment, given
that the community-based programs which tend to provide more days of care
cost substantially less than the hospital-based programs that tend to provide
fewer days of care? If two of the principles of HCR are cost-containment and
quality, why design a benefit that may encourage higher costs (hospital rates
versus alternative settings) and lower quality care (fewer versus more days in
treatment)?
"Core" Public Health functions
Health-related data collection, surveillance, and outcomes monitoring:
1)
How will funds for these activities be allocated, and who is eligible to
receive these funds?
2)
Will these funds support Federal data efforts or will States, Alliances,
providers, and insurers also receive funds?
3)
What exactly will these funds purchase: What kind of data processing
hardware would be purchased (computers, printers, network support,
dedicated phone lines), and exactly how many of each type of unit would be
purchased? What kind of software would be purchased to operate the
envisioned hardware?
4)
How many and what type of personnel would be hired to support these
activities (i.e., computer programmers and operators, epidemiologist,
statisticians)?
For each of the four categories of listed below, please answer questions 1-4:
Protection of environment, housing, food, and water
Investigation and control of diseases and injuries
Public information and education
Accountability and quality assurance
1)
How will funds for these activities be allocated, and who is eligible to
receive these funds?
2)
Will these funds support Federal efforts or will States, Alliances,
providers, and insurers also receive funds?
3)
How many and what type of personnel would be hired to support these
activities?
5
Priority Code: 2
4)
What type of equipment or materials would be purchased to support
personnel? How many units of each type of equipment or material would be
purchased?
Laboratory services
1)
How will funds for these activities be allocated, and who is eligible to
receive these funds?
2)
Will these funds support Federal efforts or will States, Alliances,
providers, and insurers also receive funds?
3)
How many laboratories would be supported and which specific
laboratory services would be financed?
4)
What is the estimated volume of each laboratory service.
5)
How many and what type of personnel would be hired to support these
activities?
6)
What type of equipment or materials would be purchased to support
personnel? How many units of each type of equipment or material would be
purchased?
Training and education
1)
How will funds for these activities be allocated, and who is eligible to
receive these funds?
2)
Will these funds support Federal efforts or will States, Alliances,
providers, and insurers also receive funds?
3)
How many of each type of health professional would be trained?
4)
Would professionals trained using these funds then be hired and
supported using Federal funds?
"Priority" Public Health
Immunization
1)
How many and what type of personnel would be hired to support these
6
Priority Code: 2
activities?
2)
What type of equipment or materials would be purchased to support
personnel? How many units of each type of equipment or material would be
purchased?
3)
Will these funds be used to purchase vaccine, and if so how many
doses of each specific vaccine would be purchased?
For the four categories of funding listed below, please answer two questions:
HIV/AIDS
Tuberculosis
Chronic and Environmentally Related Diseases
Health-related Behavior and Other Priority Issues
1)
How many and what type of personnel would support these activities?
2)
What type of equipment or materials would be purchased to support
personnel? How many units of each type of equipment or material would be
purchased?
7
FRIORITY 2
9/23/94
National Health Reform
Cost Questions - - Veterans Affairs
1.
What should be the scope of the VA scoring effort (i.e., should it reflect only
reform's impact on VA appropriations or should it include estimates of
Federal and non-Federal receipts that VA will receive)?
2.
Will VA plans be subject to premium/price restraints that may be applied to
private insurance plans?
3.
What are estimated maximum allowable national average annual percentage
increase is premiums/prices for 1995 through 2000?
4.
Please provide the following national average cost data for plans covering
individuals as currently assumed in the health care package for 1995
through 2000 (In each case we are requesting dollar amounts, not
percentages.)
a. annual average premium,
b. annual average employer contribution,
C. annual average employee contribution, and
d. annual average employee deductibles/co-payments
5.
What is the current poverty level for:
a. an individual, and
b. a family of four?
6.
What are the anticipated national average health alliance subsidies for an
individual and a family of four for 1995 through 2000 at the following
annual income levels:
a. 25% of poverty level,
b. 50% of poverty level,
c. 75% of poverty level,
d. 100% of poverty level,
e. 125% of poverty level, and
f. 150% of poverty level?
7.
What is the projected national average health alliance subsidy for 1995
through 2000 for:
a. an unemployed individual, and
b. an unemployed family of four?
Page 1 of 2
8.
What are the projected national average Medicare part A and B
reimbursements for male beneficiaries receiving care for 1995 through
2000? Please break out the part B average further to show the average
costs of:
a. office visits (i.e., outpatient care), and
b. hospital care.
9.
What are the projected national average Medicare beneficiary copayments
for parts A and B for male beneficiaries receiving care for 1995 through
2000? Please break out the part B average further to show the average
costs of:
a. office visits (i.e., outpatient care), and
b. hospital care.
10.
What is the anticipated timeline for implementing national health reform in
the VA, DOD, PHS and other public health organizations?
11. With regard to the VA revolving fund that would be established with national
health reform:
a.
What would these loans fund (e.g., new facilities, expand current
facilities, hire additional staff, high-tech equipment)?
b.
Will there be a limitation on the dollar amount an individual hospital
can borrow from the fund?
c.
What will be the repayment conditions for hospitals that borrow from
the fund?
d.
What happens if a hospital is incapable of repaying the loan it receives
from the fund?
e.
Who will manage the revolving fund?
f.
The fund is for the "start-up costs of VA health plans". The fund
would continue "without fiscal year limitation". Does "without fiscal
year limitation" apply to new loans made, or does it refer to the loan
repayment schedule? If it refers to new loans made, why would start-
up requirements continue for more than 5 years?
If there are any questions concerning the information requested please contact
Todd Grams or Alex Keenan at 395-4500.
Page 2 of 2
PRIORITY 2
September 24, 1993
SUBJECT: Federal Employees Health Benefits Program:
Costing Assumptions
1.
Medigap: Addressing Medigap the policy reads: "annuitants
with Medicare obtain coverage through an OPM-administered
Medigap plan." Will OPM develop and price the Medigap plan
or are there central estimates to use in pricing the cost to
the Government of Medigap for Federal retirees?
2. Early Retirees: Please clarify the policy for Federal early
retirees?
3.
Annuitants: Addressing coverage of annuitants with or
without Medicare, the policy reads: "In both cases, OPM
pays a premium contribution sufficient to prevent an
increase in annuitants' costs over current fees."
a) Is the policy that the annuitants' share of the premium
contribution or the dollar amount of the premium
contribution remains constant?.
b) If the answer is dollar amount, do we use nominal or
constant dollars, and how long would that deal remain in
effect?
4.
Civilian Downsizing: Should our estimates assume a 252,000
reduction in Federal civilian personnel as called for in the
President's Executive Order of September 11, 1993 (while a
majority would fall into the retiree/early retiree
categories, a portion would be employees who simply leave
Government service)
5.
Option to continue coverage: Currently, under certain
circumstances employees that would otherwise lose FEHB
coverage (including employees that separate from Government
service) may elect temporary continuation of coverage at
102% of premium price. Under reform, will Federal employees
retain this option or will they be required to move
immediately to the alliances?
6.
Transition: Are assumptions available about the expected
time frame for phasing-in the states?
Christine Lidbury
OMB: 395-4641 (desk)
395-5017 (secretary)
home: (202) 332-5408
PRIORITY 2
O DOD indicates that it has final approval to receive Medicare
payments for care provided by DOD to Medicare eligibles. If true,
will:
-- the reimbursement be on a fee-for-service basis or
only on a capitated basis?
-- DOD have to comply with Medicare rules and
regulations including beneficiary co-payments,
beneficiary premium payments (for Part B
services), and cost-accounting standards?
O Is it the President's intention to sustain benefits
significantly higher than the national benefit (and unrelated to
DoD's readiness requirements) for new DOD beneficiaries or is the
national benefit sufficiently generous for post national reform
entrants into the DOD work force?
O DOD will be providing medical services and paying for the care
of active duty military personnel. In the case where there is a
working spouse of a military member:
- What will be DoD's payment responsibility when the
spouse (or the spouse and dependents) choose a non-
military health plan?
- What will the private employers responsibility for
payment to DOD when the spouse (and family) choose a
DOD plan?
O If the DOD health plan functions as a corporate alliance, will
DOD have to pay the 1% surcharge to regional health alliances
that has been discussed?
O Will DoD have to pay for care for a period of time after
personnel separate from the military? If so, what will have to
be paid for how long?
O What exactly does the proposed health care legislation
authorize?
O Will DOD be treated as any other employer with respect to
retirees over age 55 (i.e. will DOD be relieved of the obligation
to pay for health care for non-working retirees over age 55)?
J. Fish Ext. 3776
September 20, 1993
Questions on Pricing for Medicare Payment to DoD and VA
We believe that the issue of Medicare payment to DoD and VA facilities warrants
further attention. We have raised some of the questions involved below, albeit in a
somewhat disorganized fashion. Additional questions and comments will follow.
Will DoD and VA health plans be required to meet the same standards as
other Medicare providers, e.g., cost reporting, JCAHO standards, peer review,
mortality and morbidity data collection, etc.? (3)
What does it mean to say that Medicare will only pay for services to higher-
income veterans eligible for Medicare? Medicare does not currently income-
relate any part of the program and the rationale for implementing this policy
on this particular population is unclear. (1, 2)
How will Medicare payment to DoD and VA facilities be calculated and
adjusted? VA and DoD pay on a national scale, whereas other facilities will
naturally reflect geographic wage differences. (1, 2)
How much care do DoD and VA currently provide beneficiaries who are also
eligible for Medicare? What are the five-year outlay projections, broken
down by veterans and military retirees? (1, 2)
If a Medicare-eligible individual does not enroll in DoD/VA health plans, but
receives care at a VA facility (for a service-connected injury) or at a DoD
facility (on a space available basis), is Medicare liable for payment? (1, 2)
What, if any, are the assumptions about adjustments in DoD and VA
appropriations to reflect Medicare payments? How will DoD and VA
appropriations be adjusted if Medicare is to make payments for such care? (1,
2)
What are the assumptions about beneficiary cost-sharing in these settings?
What are the corresponding assumptions concerning utilization? Will DoD
and/or VA be required to offer high or low cost-sharing plans? What are the
assumptions on subsidies for cost-sharing? (1, 2, 3)
Will DoD and/or VA be allowed to offer supplemental, "wrap-around"
coverage of cost-sharing liabilities? High cost-sharing plans are
required to offer wrap-around policies. (1, 2, 3)
-
What are the assumptions about DoD and/or VA acting as secondary
payors to Medicare? (1, 2, 3)
How will Medigap and other possible third-parties be treated for cost-
September 20, 1993
sharing coverage? (1, 2)
--
Is Medicaid the payor of last resort for any veterans or their family
members? (1, 2, 3)
What benefit packages will these dually-eligible individuals receive? Will
the DoD and VA plans be required to offer the standard benefit package? Or
will the Medicare benefit package be required to be offered those individuals
otherwise eligible for Medicare? (1, 2, 3)
Will Medicare Secondary Payor rules also apply to VA and DoD? Will DoD
and VA be required to collect from other parties under TPL guidelines, as well
as Medigap and retiree health policies? (1, 2, 3)
To: DK
FM: Bill C.
CCIBC 001 BC
9-24-93 D.K.
QUESTIONS REGARDING INSTITUTIONALIZED POPULATIONS
We will need to establish baseline estimates on persons and per capita costs
pertaining to any flows between non-institutionalized and institutionalized
populations, with focus on the following issues:
1. We assume no first order shifts between Medicaid and institutional populations.
However, we need clarification as to:
whether some/all of the voluntarily institutionalized will get 60 days
psychiatric care,
whether this would apply only to those newly entering institutions,
(again voluntarily).
2. While some involuntarily institutionalized populations have been specifically
ruled out of any added coverage costs (eg., prison populations), other populations
may need to be dealt with more specifically, e.g.:
the reform school population,
the involuntarily institutionalized in mental institutions.
Tab B
Schedule
Friday, 9/24
--
OMB delivers list of policy, economic,
and technical questions. OMB receives
final premium and subsidy estimates from
the modellers.
Monday, 9/27
--- OMB receives policy clarifications and
economic and technical assumption
decisions.
Tuesday, 10/12
--
OMB delivers estimates of health reform
plan's effects on outlays and the
deficit. (Note: This assumes Treasury
supplies new revenue estimates by
10/12.)
Thursday, 10/14
--
OMB delivers estimates of the BEA
implications of health reform.
SECURITY
EXECUTIVE OFFICE OF THE PRESIDENT
OFFICE OF MANAGEMENT AND BUDGET
WASHINGTON, D.C. 20503
November 3, 1993
TO:
DISTRIBUTION [see below]
FROM: Nancy-Ann Min Nam
RE:
Director's Testimony before Senate Finance Committee
I have attached a draft of the joint testimony that the
Director and the Deputy Director will be giving before the Senate
Finance Committee tomorrow. Also attached are the charts that we
propose to use. I would appreciate receiving any comments or
suggestions as soon as possible, as we need to get this to
Finance Committee staff by late afternoon today.
DISTRIBUTION:
Ira Magaziner
Melanne Verveer
Jack Lew
Marla Romash
David Cutler
Chris Jennings
DRAFT
TESTIMONY OF LEON E. PANETTA AND ALICE M. RIVLIN
DIRECTOR AND DEPUTY DIRECTOR,
OFFICE OF MANAGEMENT AND BUDGET
COMMITTEE ON FINANCE
UNITED STATES SENATE
NOVEMBER 4, 1993
Mr. Chairman, it is a pleasure to be here today to discuss
the Clinton Administration's health care reform plan. No one
needs to remind this Committee that our health care system is in
crisis. While the quality of health care in the United States is
the best in the world for those who can afford it, the total cost
of care is unnecessarily high and rising at frighteningly rapid
rates. Moreover, millions of Americans are without adequate
health care coverage and millions more live in fear that they
will lose their health insurance.
The challenge before the Congress is to develop a plan that
preserves what is best in our current system while controlling
costs and providing universal access to high quality health care.
The plan presented to you by the President and the First Lady
does that. It controls costs and guarantees health security:
For the first time, every American will have health insurance
coverage with a comprehensive package of benefits that can never
be taken away.
We would like to focus first this morning on the vital part
the Administration's health reform plan plays in our overall
strategy to improve the future vitality of the American economy.
2
Then we would like to turn to the impact of the plan on the
Federal budget -- what new costs would be incurred and how we
propose to pay for them.
HEALTH REFORM IS AN ECONOMIC IMPERATIVE
If we are to have the productive, high wage economy that we
all want, we must reform the health care system. Indeed, it may
be the single most important change that is needed to make the
economic future better for our children and grandchildren. The
current health financing system threatens America's economic
future in three ways: (1) health costs are unnecessarily high and
rising too rapidly--draining resources from more productive uses
to supporting an inefficiently organized health care system; (2)
the rising costs of government health programs add to the Federal
deficit; and (3) health care insecurity locks people into
existing jobs or onto welfare rather than allowing them to move
into more productive employment. These problems interact to
weaken our economy as a whole, by draining resources from more
productive uses and by increasing consumer anxiety about the
always uncertain future. In 1992, we spent $3100 per person on
health care compared with only $1700 per person on education, and
$1200 per person on defense. We spend more on health care per
person than on education and defense combined. Exploding health
costs threaten funding for these and other public priorities.
3
The United States spends more of its Gross Domestic Product
(GDP) on health care than any other country in the world. The
numbers bear repeating: Today, 14% percent of our GDP goes for
health care, and by the end of the decade, we could be spending
an almost unthinkable 19% of GDP on health care. No other
country spends more than 10% of its output on health care.
During the last decade, our real per capita health care costs
grew at a rate of 4.4% per year, while our real per capita GDP
grew at only 1.6% a year. Only Canada's rate of health care cost
growth, at 4.3%, was close to ours.
By any measure, it must
be said that our consumption is way out of proportion to our
income.
And health care spending is "crowding out" other government
spending and contributing to the deficit. The Federal government
devotes 17% of its budget to health care right now. In FY 1993,
Medicare spent an estimated $131 billion, and the Federal share
of Medicaid was about $75 billion. If current projected trends
continue, Medicare and Medicaid spending will rise from 14% of
the Federal budget to 27% by the year 2000. This means that
almost 2/3 of real Federal spending growth net of interest
payments between FY 1993 and FY 1996 will be for health care.
Inflation in health care costs is robbing government budgets
of scarce resources needed for critical investment in our future
4
-- education, job training, infrastructure, and technology
development. Make no mistake about it: getting Federal health
spending under control is essential to long-run deficit
reduction.
Despite all this spending, 37 million Americans are
uninsured, and all Americans are vulnerable to losing their
insurance upon developing a serious illness or medical problem.
Pre-existing condition restrictions lead to "job lock": it is
estimated that 30% of workers restrict their search for better
jobs for fear of losing their health insurance coverage.
WHAT TO DO -- REFORM THE MARKET
Economists have written volumes on why health costs are
rising, and there are debates about how much each of the relevant
factors has contributed to the cost spiral. There is no
argument, however, that we need to change the incentives in the
marketplace today.
There is broad consensus that the health insurance market,
especially the small group insurance market, performs poorly
today. The absence of universal coverage and community rating
makes it more profitable to select healthy enrollees than to
5
organize the delivery of cost-effective health care. The current
outcomes of this market are:
Very expensive insurance for the covered -- we pay more
per capita for health care than any other nation, and
by quite a margin;
All Americans feel vulnerable, for many of us are one
serious illness away from being uninsured;
No insurance at all for 37 million Americans, most of
whom are working or in families with workers; and
Higher health service prices for the insured, as we pay
hidden taxes to cover the real costs of providing care
to the uninsured and the underinsured.
The other market that is performing poorly today is the
market for health services. The incentives for providers in
traditional fee-for-service medicine and for patients with
comprehensive indemnity coverage simply guarantee that too much
care will be delivered in virtually every setting.
Insured patients have no incentive to learn or care about
how little medical value per dollar is delivered on the margin.
Fee-for-service providers have every incentive to provide low
6
marginal value care, because they are reimbursed for performing
procedures.
Managed care providers, in most markets where fee-for-
service still dominates, have strong incentives to gear their
prices to those prevailing in fee-for-service plans. This
generalized higher volume and intensity of services drives up
prices and insurance premiums even further.
Faced with markets performing poorly because the incentives
are so wrong, reformers have two basic choices:
One option would be for the government to take over the
functions of the health insurance industry. It could
set the prices for providers, and draw up rules for
allocating care. We rejected this alternative.
Another option -- the one embodied in the Clinton plan
-- is to restructure the incentives within our existing
system to permit market forces to work better than they
have up until now.
CREATING NEW INCENTIVES
7
Managed competition, as envisioned by the Clinton
Administration, has three central elements that address the
market failures we have discussed:
It will increase price sensitivity;
It will eliminate risk selection; and
It will produce information designed to help consumers
make informed choices about their health care.
Price sensitivity will be encouraged in two ways:
Employees will have a choice of health plans that
provide at least the the comprehensive benefit package
at a variety of prices;
Health plans will have to compete on the basis of
price, forcing them to use selective contracting and
other utilization review techniques to keep costs down.
Risk selection will be eliminated by the introduction of:
A standard benefits package, to homogenize the product
and make shopping among health plans easier for
consumers;
8
Community rating with risk adjusters to remove the
incentive to select healthier enrollees; and by
Ending pre-existing conditions restrictions, medical
underwriting, and other techniques that deny many
Americans coverage.
Meaningful and interpretable medical outcomes reporting at
the plan level will be required in all alliances. This will
provide Americans with the information they need to assess the
relative quality of competing plans. In addition, it will
provide insurers and providers with incentives to be efficient
while satisfying their customers and patients.
These insurance market reforms will force insurers to
organize cost-effective delivery networks which preserve choice
for consumers while delivering medical value for the dollar. In
this sense, our targets for the growth of insurance premiums
should be viewed essentially as backstop devices to provide some
breathing space while the various actors in the health care
system learn to make managed competition work.
There is reason to think that introducing these new market
incentives will lower the rate of growth of health care costs.
The most effective means of cost control known to economists is
9
to let producers compete and consumers choose. There is evidence
that when consumers have a stake in the outcome, they will choose
the more efficient plan.
Other means of controlling costs may work in the short run,
but are likely to be ineffective in the long run. Experience
with price controls from other areas is sobering. The best
chance of bringing health care costs under control is through
market reforms such as the President has proposed.
ECONOMIC ADVANTAGES OF HEALTH SECURITY
Universal health insurance coverage will have economic
advantages beyond providing a needed benefit to the uninsured.
No longer will Americans have to be afraid to change jobs because
they risk losing their health insurance. By ending "job lock",
health security will increase economic flexibility and improve
productivity.
No longer will Americans have to be afraid to leave welfare
because they would lose Medicaid benefits. A welfare mom who
gets a job will not have to turn it down to protect her children
from uninsured illness. The end to "welfare lock" will also
promote the health of our economy.
10
By basing universal coverage on the current system of
employer funded health insurance, the President's plan minimizes
disruption. Premium discounts funded by Government will ease the
burden on small employers and low-wage workers.
Uncompensated care will not be a burden on responsible
citizens and health care providers. Preventive care will help to
improve the lives and productivity of Americans.
HEALTH REFORM AND THE FEDERAL BUDGET
The President's Economic Plan, which the Congress approved
in August, will bring about a significant reduction in the
Federal budget deficit -- $500 billion over the period from FY
1994 to FY 1998. But we have not conquered our deficit problem.
Health reform is absolutely essential to further deficit
reduction. [Chart 1]
The President's health reform plan will begin to get
Federal health expenditures under control. It will take time.
The bulk of the savings in the President's plan occur around the
end of 1997, once the alliances are fully up and running.
In the interim some Federal expenditures will rise. After
all, extending coverage to the uninsured will have some cost, as
11
will the new drug benefits for Medicare recipients and the public
health access initiatives we propose. The President's plan
offers a responsible means of financing the new health benefits
it provides.
FINANCING HEALTH REFORM
Now I would like to turn to the specific effects of health
reform on the Federal budget: what we propose to spend on the
new system, and how we propose to finance it. [Chart 2]. Let me
make clear at the outset that xx% of total health insurance
spending comes from the same place it comes from now: the
private sector -- businesses and households paying insurance
premiums. The President's Health Security Act builds upon
existing employer-sponsored insurance arrangements to create a
new foundation of coverage for all Americans.
The Health Security Act proposes new Federal outlays in the
following areas:
Expanded public health service activities and
administrative costs of the new system -- $30 billion.
Approximately $18 billion of these funds will be
devoted to new public health programs to ensure that
underserved populations have access to the new system,
12
and to enhance funding for the WIC program, which
provides nutrition services to impoverished children.
We estimate that $9.6 billion will be needed for
Federal administrative costs of the new system,
including activities such as development of data
systems, monitoring quality, and issuing health
security cards. In addition, we will increase support
to academic health centers to support medical education
and training by $3.2 billion.
Long-term Care -- $65 billion.
There are three major components of our long-term care
initiative: (1) a new home and community-based service
program for the disabled; (2) liberalized spend-down
rules for the Medicaid-eligible institutionalized; and
(3) tax incentives for the purchase of long-term care
insurance.
Medicare drug benefit -- $66 billion.
As you know, many elderly Americans are constantly
worried about paying for necessary prescription drugs,
prescriptions that can improve the quality of their
lives, prevent more serious illnesses and help avoid
hospitalization. Our plan introduces a prescription
drug benefit with cost sharing identical to that in
the standard benefit package for all Americans under
13
65: $250 deductible and 20% coinsurance with a $1000
limit on out-of-pocket spending for the year. This
means that our elders will no longer have to worry
about foregoing necessary prescriptions in order to buy
food or pay the rent.
100% Tax Deduction for Self-Employed Health Insurance
-- $9.7 billion.
Historically, self-employed individuals have been
penalized by being able to deduct only 25% of
insurance premiums, while their counterparts in
business and industry have been able to deduct the
full amount. Our proposal will "level the playing
field," and extend full deductibility to the self-
employed for the first time when the plan is fully
phased-in. This has been an issue with bi-partisan
support for some time now; we must finally pass and
implement this change. Until the full phase-in, the
self-employed will be able to maintain the current
25% deduction for premiums. The total cost of this
benefit is $9.7 billion over five years.
New subsidies or Federally sponsored price discounts
within the Alliances -- $116 billion [Chart 3].
14
To enable all Americans to take responsibility for
their health insurance, we offer premium discounts to
the following households:
those with family income less than 150% of
poverty;
those with unearned income less than 250% of
poverty if they don't have a full time worker;
those with early retirees;
those with relatively low income self-employed
individuals.
Households and retirees receive $195 billion in
discounts during 1995-2000.
To share the cost of insuring workers equitably across
different firms, we offer the following firm level
guarantees:
no firm will pay more than 7.9% of payroll, and
many will pay less;
15
firms with fewer than 75 employees with low
average wages will pay less than 7.9% of
payroll, in fact as little as 3.5%, depending on
their exact size and average wage.
Total employer subsidies equal $100 billion over the
six year period.
Finally, we provide out-of-pocket discounts for
individuals who earn less than 150% of poverty and do
not have access to HMOs.
These out-of-pocket subsidies are estimated to total $9
billion dollars between 1995 and 2000.
In addition, we added 15% (about $44 billion) to the
consensus point estimate of the subsidy cost, to cover
potential behavioral changes that are difficult to
model. Simulations of those potential behavioral
changes suggest that our cushion is more than adequate
to cover those extra subsidy costs.
The total estimated cost of the discounts for people
served by the Alliances is then $349 billion over
1995-2000.
16
These Federal discounts will be offset by $75 billion
in States' maintenance-of-effort payments that can be
paid for out of their Medicaid savings.
The remainder -- $274 billion -- is the net Federal
contribution. This is the amount that is capped in
the legislation.
I want to emphasize that this capped entitlement for
the discounts is not a net addition to the deficit.
The net cost of the discounts to the Federal
Government is estimated to be $161 billion. There
are significant reductions in Medicare and Medicaid
because of health reform beyond those savings already
identified above. Private insurance will be
available to working Medicare enrollees and to former
Medicaid recipients who are not participants in the
SSI or AFDC programs. The reduced Federal
expenditures as these individuals gain private
insurance is estimated to be $113 billion.
Sources of funds:
17
We propose to pay for these new Federal outlays in the
following ways [Chart 2]:
Reductions in the rate of growth in the Medicare
program -- $123.4 billion.
Medicare has been growing at a rate of almost 11% per
year. We believe that once all Americans have health
coverage, and we are controlling the rate of growth of
premiums, we can begin to slow the growth in the
Medicare program. We have identified a set of
approximately 25 policy changes that will achieve
$123.4 billion in savings. These policy changes
include "reconciliation-type" reductions that affect
the payment rates to providers, as well as new
proposals to control utilization of certain aspects of
the Medicare program. We have also included a proposal
to income-relate the Part B premium for high-income
Medicare beneficiaries -- singles with income of
$100,000+ and couples with incomes of $125,000+. [Chart
4] As you can see, what sound like enormous savings
from the Medicare program are in reality just small
slices from enormous baseline growth. By FY 2000 the
rate of growth in the Medicare program will have slowed
from its current annual rate of 11% per year to around
8.4% even while adding new coverage for prescription
drugs.
18
Medicaid savings -- $65.3 billion.
The Medicaid savings counted here result from two
sources. The Health Security Act will provide all
Americans with health coverage and, therefore, it will
nearly eliminate hospital uncompensated care. This
will allow a replacement of Medicaid disproportionate
share payments with a much smaller special reserve of
funding to be directed toward hospitals that treat low-
income populations, including undocumented persons. In
addition, the growth in alliance premiums paid by
Medicaid on behalf of cash recipients will be
constrained to grow at the same rate as private sector
premiums. This is feasible because Medicaid recipients
will be getting their care delivered through
increasingly efficient alliance health plans. [Chart 5]
Tobacco tax and corporate assessment -- $89 billion.
These revenues will come from a combination of the
increased tobacco tax, which the Treasury Department
estimates will raise $65 billion in revenues, and a 17%
of payroll assessment on the large corporations that
will benefit from reduced cost-shifting, and thus lower
health care costs, in the new system. Treasury
estimates that this assessment will raise $24 billion.
Federal Program Savings -- $39.6 billion. [Chart 2]
19
As the Federal health programs -- VA, DoD, FEHB, and
Public Health Service -- are integrated into the
reformed health system, we expect there will be savings
from lower expected premiums and new revenues. For
example, the VA and DOD health programs will receive
new revenue from allowing them to receive Medicare
reimbursement for Medicare-eligible recipients who
choose to receive their care in VA or DOD facilities.
I should emphasize that these savings estimates are not
from reductions in services provided; in fact, we
believe that the services provided to these
beneficiaries will be improved.
Other Revenue Effects -- $68 billion. Health reform
will raise taxable incomes and thereby lead to new
sources of tax revenue. Changes in the tax treatment
of health insurance will also lead to increased
revenue, as Secretary Bentsen explained on Wednesday.
Finally, modest savings in debt service, about $4
billion, will be realized as the deficit is reduced.
How the Numbers Were Derived
There are three broad types of estimates underlying the summary
budget data:
20
Estimates of net effects on existing programs or
additions to existing programs;
Estimates of new revenues and/or effects on existing
revenue streams;
Estimates of subsidies, or premium and out of pocket
discounts.
Standard OMB methods were used to determine the first type
of estimates: OMB budget examiners worked in conjunction with
HCFA and SSA actuaries as well as agency program personnel, to
"scrub" the estimates and account for all interactive effects
among programs.
The Treasury Department estimated all revenue effects and
the tax-related provisions of the Medicare savings package, as
they would for any other Administration proposal.
A unique interagency process produced the subsidy estimates.
Economists and actuaries from many different departments and
agencies including the Health Care Financing Administration, the
Agency for Health Care Policy and Research, the Departments of
Treasury and Labor as well as OMB and the Council of Economic
Advisors worked to develop a consensus on analytical methods.
Experts from private think tanks and consulting firms were also
21
involved. A team of private actuaries and health economists was
brought in to evaluate and make suggestions about our estimation
methods and data sources.
Estimating a complete health care system overhaul is
obviously an immensely complex task. Reasonable people can
differ about some of the many assumptions that must be made. Our
team tried to consistently err on the side of conservatism.
For example, as I discussed earlier when I was outlining the
new Federal outlays, we added 15% to the consensus point estimate
of the subsidy cost, about $44 billion, to cover potential
behavioral changes that are difficult to model. Simulations of
those potential behavioral changes suggested that our cushion is
more than adequate to cover those extra subsidy costs.
HOW ARE THE DEFICIT SAVINGS PROTECTED?
The total new costs of the Health Security Act to the
Federal government are estimated at $331 billion, and we will
have $390 billion in revenues to finance these new costs. We
estimate that there will be approximately $58 billion in deficit
reduction. These savings are real because of the protections we
have built into the program.
22
We rejected the notion of an open-ended entitlement program.
We believe that our estimates of the Federal funds that will be
needed for the subsidies are conservative and reasonable,
particularly in view of the 15% cushion and the mechanism
allowing excess funds to be carried forward and applied to the
next year's cap. It is unlikely that the caps will ever be in
danger of being breached. In the event that this were to occur,
because of a severe downturn in the economy or some other massive
economic dislocation, it would mean we had a problem that the
President and Congress would have to act to solve. That is how
it should be.
We made realistic assumptions about the speed at which
states would come into the new system. We looked long and hard
at the most realistic phase in of the new system, and settled on
a plan that assumes that states representing 15% of the
population will be in alliances by the beginning of FY 1995;
another 25% (for a total of 40%) will be in alliances by the
beginning of FY 1996; and the remaining 60% will be phased into
the new system by no later than October 1, 1998. We believe that
these assumptions are not only realistic; they give the system a
reasonable amount of time to get established and to provide for
some valuable learning experiences.
We have set targets for the rate of premium growth in the
alliances. These targets are the key to projected savings. If
23
the caps work as we expect they will, then future savings will
grow progressively, as the rising trend in health costs is
broken.
THE BOTTOM LINE -- CONCLUSION
In enacting the President's economic plan, the Congress took
a major step toward truly bringing the deficit under control. We
have come a long way. [Chart 1] Health reform is the necessary
next step in long term deficit reduction. If we fail to step up
to the plate and get health care costs under control we will
forfeit some of the progress we have all worked so hard to
achieve.
1
ALTERNATIVE DEFICITS 1993 - 2000
$ BILLIONS
500
WHERE WE WERE
400
300
MID-SESSION REVIEW
200
100
MID-SESSION REVIEW WITH
HEALTH CARE PLAN
0
1993
1994
1995
1996
1997
1998
1999
2000
11/01/93
2
FINANCING HEALTH CARE REFORM
TOTALS: 1995 - 2000
$ BILLIONS
500
TOTAL REVENUE: $389
DEBT SERVICE
DEFICIT REDUCTION
$4
400
$58
OTHER REVENUE
WEFFECTS:
$67
TOTAL COST: $331
CUSHION
FEDERAL PROGRAMS
300
$45
SAVINGS : $40
PLOYED
PREMIUM DISCOUNTS
TOBACCO TAX AND
DEDUCTION
$116
CORPORATE
ASSESSMENT
$89
200
MEDICAID SAVINGS
$65
MEDICARE DRUG
BENEFIT
MEDICARE SAVINGS
$66
100
$124
LONG-TERM CARE
PUBLIC HEALTH /
$65
ADMINISTRATION
$30
0
SOURCES OF FUNDS
USE OF FUNDS
11/01/93
FEDERAL SPENDING FOR MEDICAID
$ BILLIONS
200
BASELINE
150
100
REFORM
50
0
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000
11/01/93
+
MEDICARE SPENDING UNDER HEALTH
CARE REFORM
$ BILLIONS
300
BASELINE
250
200
REFORM
150
100
50
0
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000
11/01/93
3
COST OF PREMIUM DISCOUNTS
TOTALS: 1995 - 2000
$ BILLIONS
400
$349
OUT OF POCKET
CUSHION
$9
$45
300
BUSINESSES
$100
RLY RETIREE
$188
$11
$161
200
MEDICARE
FAMILIES
$28
$184
MEDICAID
CUSHION
$160
$45
NET
100
$116
O
GROSS
OFFSETS
NET
11/01/03
CENTER ON BUDGET
AND POLICY PRIORITIES
HOW WOULD THE STENHOLM ENTITLEMENT CAP
AFFECT HEALTH CARE REFORM?
Representative Charles Stenholm has crafted a proposal that would establish
annual caps on all entitlement and mandatory spending programs, including Social
Security, for each fiscal year through 2000. Given the spiraling growth in health care
costs, the single most important step that can be taken to control growing entitlement
costs is comprehensive health care reform with stringent cost containment measures.
The Stenholm entitlement cap proposal would, however, have the unfortunate
consequence of making comprehensive health care reform more difficult to put in
place.
Proposal Would Require Large Health Care Cuts In Next Five Years
The Stenholm proposal would set entitlement caps for the next five years at
levels far below what entitlements are projected to cost under current law. Rep.
Stenholm estimates that for the five years from fiscal year 1996 to fiscal year 2000, the
caps would be set about $100 billion below current cost projections, an estimate that
may be too conservative. As a result, at least $100 billion in entitlement cuts would
be required. Virtually all of the $100 billion gap between current entitlement cost
projections and the Stenholm caps stems from the fact that the proposed caps would
limit entitlement expenditures to a rate of growth far below the projected rates of
growth in Medicare and Medicaid. (The growth rates in Medicare and Medicaid are
similar to the projected rate of growth in private sector health care costs.)
There is little question that the long-term rate of growth in health care costs
needs to be slowed substantially. But the Stenholm proposal would create a
profound dilemma for health care reform efforts to constrain long-term health care
cost growth. If comprehensive health care reform legislation is enacted that is deficit-
neutral over the next five years and generates significant savings after that,
entitlement costs would remain far above the Stenholm caps for the coming five
years. Deep entitlement cuts in the years just ahead would still be required.
Congress would not have many options for achieving entitlement reductions of
that magnitude. Medicare, Medicaid and Social Security account for more than three-
fifths of all entitlement spending. Large, immediate Social Security benefit cuts are
highly improbable, especially since the Social Security Trust Fund will run a
substantial surplus over this five-year period. To obtain the savings needed to meet
the Stenholm caps, Congress would have little alternative but to seek to extract large
savings from health care programs.
777 North Capitol Street, NE, Suite 705, Washington, DC 20002 Tel: 202-408-1080 Fax: 202-408-1056
Robert Greenstein, Executive Director
Such a course of action would have one striking consequence - it would
almost certainly mean that if a health care reform package is enacted this year, it would
have to be reopened soon after and redone. Either large cuts would have to be made in
Medicare and Medicaid, on top of those used to finance health care reform
legislation, or basic health care reform measures to extend coverage to most or all of
the uninsured would have to be abandoned or scaled back.
Either course of action would have major repercussions. Instituting cuts of
this magnitude in Medicare and Medicaid, outside of the context of comprehensive
health care reform and on top of the cuts used to help finance a health care reform
bill, would likely mean shifting tens of billions of dollars in health care costs from the
federal government to other payers, principally employers and state and local
governments. That would risk damaging business growth and diminishing U.S.
competitiveness, while saddling state and local governments with costly unfunded
mandates that could weaken their finances. Such actions could cause particularly
acute problems in states and localities with large numbers of elderly and poor people.
Abandoning or substantially scaling back the extension of coverage to many or
all of the uninsured also would create unwelcome side-effects. Besides leaving many
families uninsured, such an approach would weaken cost containment efforts because
Doesn't the Stenholm Proposal Adjust for Health Care Reform?
Proponents of the Stenholm plan are likely to argue their proposal does not stand
in the way of health care reform and that, in fact, it contains an adjustment specifically to
accommodate whatever health care reform bill Congress passes. This argument misses the
mark. The Stenholm proposal does contain a provision to adjust the caps after enactment
of health care reform legislation. But this is a minor provision with no significant bearing
on the issues discussed here.
The Stenholm proposal includes a provision that would adjust the entitlement caps
for each of the next five years up or down to reflect the amount that a deficit-neutral
health care reform law is projected to increase or decrease entitlement spending in each of
these years. For example, if a deficit-neutral health care reform law is projected to
increase entitlement spending above current cost projections by $3 billion in fiscal year
1997, the fiscal year 1997 entitlement cap would be raised $3 billion.
While modestly useful, all this provision does is to keep the huge gap between the
caps the Stenholm proposal would set and current projections of entitlement costs for the
next five years from growing even larger. The provision does nothing to help close this
gap. Steep cuts, which presumably would be made primarily in the health care
entitlement programs, would still be needed. This means a deficit-neutral health care bill
enacted this year would have to be reopened and potentially unraveled to produce tens of
billions of dollars in additional health care entitlement cuts in fiscal years 1996 through
2000.
2
it would leave large uncompensated care costs in the health care system, with the
result that substantial cost-shifting would continue.
Comprehensive health care reform that attains or comes close to attaining
universal coverage and institutes tough, effective cost containment measures holds
the most promise for getting spiraling government health care costs under control for
the long term. But comprehensive health care reform is not likely to yield large-scale
deficit reduction between now and fiscal year 2000 because substantial Medicare and
Medicaid savings will be needed during this period to finance the costs of moving
toward universal coverage. Once those coverage costs have been absorbed,
comprehensive health care reform has the potential to lower substantially the rate of
growth in both government and private sector health care expenditures, with savings
rising as the years pass and ultimately reaching quite impressive levels. If reform
legislation of this nature is enacted, it could yield large entitlement savings in future
decades.
Medicare and Medicaid savings used to help finance comprehensive health
care reform cannot, however, also be used for near-term deficit reduction. The same
savings can't be used twice.
As a result, policymakers must choose. They can use such savings to help pay
for comprehensive health care reform that holds promise of producing significant
long-term pay-offs in reducing the deficit or they can use these savings to meet the
rigid strictures of an entitlement cap in the years just ahead. Ironically, an
entitlement cap such as that proposed by Representative Stenholm would have the
probable effect of jeopardizing health care reforms essential to reining in deficits over
the long term.
July 12, 1994
3