By John Reichard, CQ HealthBeat Editor

August 16, 2012 -- By the time this election season is over, even small children may know how much "Obamacare" cuts Medicare. The figure, $716 billion over 10 years, is the subject of already-intense debate over what the health care law will do to, or for, Medicare. And it shows no signs of letting up before November.

It's a policy fight that reflects three distinctly different visions of how the $716 billion should be used and what it means for the health care that the elderly will receive. How that fight plays out may shape not only the outcome of many election races but also what happens next year in Congress to Medicare and the health care law.

But first, where did the figure come from? Is it accurate? And why is it so much larger than previous estimates?

It's a surprise to many. That's because of how often $500 billion has been cited as the Congressional Budget Office's estimate of Medicare cuts in the health care law (PL 111-148, PL 111-152).

Little noticed initially, $716 billion first surfaced on page 13 of the Congressional Budget Office's recent 22-page letter that analyzed the effects of legislation (HR 6079) repealing the health care overhaul. "Spending for Medicare would increase by an estimated $716 billion over [the] 2013-2022 period," said the July 24 letter to House Speaker John A. Boehner, R-Ohio.

What might have seemed like a mistake at first was not. Sen. Orrin G. Hatch, R-Utah, issued a statement late that day calling attention to the bigger number. An Obama administration official did not dispute the figure, saying it was higher because it spanned a different 10-year period from the original Congressional Budget Office (CBO) estimate. The official also noted that House Republicans voted to cut Medicare by the same amount in approving the budget plan written by Budget Committee Chairman Paul D. Ryan, R-Wis.

The original March 20, 2010, CBO score of the cost of the health care law actually put the level of Medicare cuts at about $450 billion, which people have rounded up to $500 billion ($500 billion is actually about the level of reimbursement cuts in the health care law if Medicaid cuts are added to Medicare cuts). The time frame: the 10 years from 2010 through 2019. The updated estimate covers 2013 through 2022. "The second estimate covers nearly 10 years of the bill's full implementation, versus six to seven years in the first estimate," notes a new analysis by William Galston and Korin Davis of the Brookings Institution.

In other words, the Medicare cuts didn't really kick in for the first few years of the initial estimate. So the hit on Medicare was really larger than analysts first said.

The Obama Vision

Advertising by the Romney-Ryan campaign suggests the $716 billion will badly weaken the services that beneficiaries get under Medicare. But the Obama view is that the cuts are taken from sectors that either were previously overpaid by the government, such as private health plans and big pharmaceutical manufacturers, or that would recoup the money in the form of larger numbers of insured patients. Examples of such providers include hospitals, skilled-nursing facilities and home health agencies. Those health groups will get the money back because the reductions help cover the costs of subsidies for the uninsured to purchase insurance coverage, so their medical costs would be covered.

About one-third of the Medicare cuts are taken from hospitals. The health care law reduces yearly "market basket" payment increases to hospitals by a "productivity adjustment" reflecting gains in efficiency in the overall economy. That generated about $150 billion of the $450 billion in Medicare cuts in the original CBO estimate. Cutting payments to the private health plans that make up the Medicare Advantage program made up close to another third, or $136 billion. Those reductions occur as a result of lower payments to the health plans so that those plans would be paid at the same level as providers in the traditional fee-for-service Medicare program. "Productivity adjustments" in yearly market-basket payment updates to home health agencies and skilled-nursing facilities, along with other reductions, make up about the other third of the cuts.

The White House could point to outside analysts to justify the cuts to private health plans, skilled-nursing facilities and home health agencies. The independent Medicare Payment Advisory Commission had urged reduced increases for the nursing facilities and home health agencies, saying they were overpaid. And it long had urged that payments to Medicare Advantage plans be equal to fee-for-service.
The new $716 billion estimate does not break out sector-specific estimates of the size of Medicare cuts, but presumably they are roughly proportional to those in the original estimate.

The bottom line: The Obama team argued that the Medicare reductions weren't harming Medicare patients. At the same time, they could argue that the reductions helped to cover the costs of drug coverage in the donut hole, as well as enhanced preventive care benefits, such as mammograms and colonoscopies, without co-payments. And because the cuts meant less money coming out of the Medicare Part A hospital insurance trust fund, the reductions added several years of solvency to that financing mechanism.

The Ryan Vision

Before joining presumed presidential nominee Mitt Romney on the Republican ticket, Ryan championed a budget plan based on repealing the coverage provisions of the health care law but keeping its Medicare cuts. That helped to reduce deficit spending and fund other Ryan priorities, such as bigger tax cuts. It also pushed back the insolvency date of the hospital trust fund, as the health care law does, freeing Congress, at least for a while, from having to increase taxes or cut payments to keep the fund in the black.

Ryan presumed that Medicare could take the hit, as did his fellow House Republicans who voted for his budget plan that included the Medicare cuts. Ryan has argued that by avoiding increases in the federal debt, the Medicare cuts strengthen the federal balance sheet and put it in a better position to cope with Medicare financing challenges in future decades. That's far better than using the cuts, as the health care law does, to fund a huge new program to subsidize the purchase of insurance by the uninsured, Ryan argues.

The Romney Vision

Romney, however, has another view. He wants to repeal the health care law, which in effect means keeping the $716 billion in Medicare. That stance allows him to argue that Obamacare delivers a big hit to Medicare that he would not. And it helps him blunt Democratic attacks that the plan he and Ryan favor to convert the Medicare entitlement to a premium support system would badly harm health care for the elderly. The pair can counter that they would not take almost a trillion dollars over 10 years out of the program like the president would.
What is the evidence as to whether the Obama cuts would harm Medicare?

Richard Foster, head of the Office of the Actuary for the Centers for Medicare and Medicaid Services, has predicted that the productivity adjustments reducing payment increases could, over time, lead a significant number of hospitals and skilled-nursing facilities to drop out of Medicare.

Foster has also noted another distinct possibility: that rather than see providers drop out, lawmakers will intervene with new payment increases. That means the health care law would cost more than CBO has projected, which in turn suggests it would no longer be budget-neutral.

Medicare Advantage plans warn that cuts will mean an end to the added benefits they've been able to offer beneficiaries, and that enrollment in the plans will drop and beneficiary out-of-pocket charges will rise.

There are also suggestions that hospitals may cut back on hiring staff because of the health care law cuts, watering down the quality of their care. The Brookings analysts observe that "it's technically correct to say that the Affordable Care Act does not cut benefits. The question is whether reductions in payments to health care providers will impair either access to health care services or the quality of those services. While there are some indications that providers are beginning to pull back from the program and that waiting periods for care may be increasing in some jurisdictions, it is too early to know for sure."

On the other hand, the health care law includes a number of provisions designed to boost the quality of treatment in Medicare. Medicare payments are beginning to financially reward hospitals that score well on clinical performance measures. And the law tests a variety of new forms of health care delivery designed to boost both efficiency and quality.

Defenders of the law also note that Medicare Advantage enrollment continues to grow, contrary to predictions by critics of the law. And they also argue that canceling the cuts would hasten the insolvency of the Medicare hospital trust fund, forcing the Romney team to come up with a new package of Medicare cuts even as they say they oppose such reductions.

Outlook

How will the debate play out? In a sense, Ryan's vision no longer matters. He says he now supports the position of the man at the top of the ticket. But with deficit reduction a big priority for next year, the idea of cutting Medicare and of using the health care law cuts to reduce deficit spending is hardly off the table.

Because of the complexity of the debate, Democrats and Republicans will have a hard time bringing voters around to their point of view. That suggests that where voters now stand on the health care law and cutting Medicare may not change dramatically. But whoever wins the election will likely argue that their victory is proof that the voters prefer their particular vision.

By John Reichard, CQ HealthBeat Editor

August 14, 2012 -- State officials will have to plunge deep into the weeds to find the path to create their own insurance exchanges and to expand Medicaid under the health care law. Last week, the two federal health officials best suited to guiding them appeared publicly and answered numerous questions about how to proceed.

Michael Hash, who heads Health and Human Services' exchange effort, provided a new layer of detail about the federal effort to ensure access to the new marketplaces. Cindy Mann, who runs the Medicaid expansion at the Centers for Medicare and Medicaid Services (CMS), outlined factors states should consider in deciding whether and when to expand the health program for the poor.

The officials spoke at the first of four regional meetings this month where state and other officials are invited to ask questions about implementing coverage provisions of the health law (PL 111-148, PL 111-152). The meeting was held at the U.S. Department of Health and Human Services (HHS) headquarters in Washington and was also streamed live on the Web. Meetings were held earlier this month in Chicago and Denver and the final one is scheduled for Wednesday in Atlanta.

The gatherings are being held amid some uncertainty about whether states will be able to fully implement programs to expand coverage under the health law in 2014. If states can't establish their own exchanges, the law provides for the federal government to step in and open the marketplaces. Obama administration officials express confidence that they have the resources to do so, but questions linger about whether that's true if many states leave it to the feds. "They need a lot of cooperation from the states in order to succeed," Joel Ario told Reuters this week. Ario headed the federal exchange effort early in the Obama administration's implementation of the health overhaul.

A number of the questions from the audience expressed uncertainty about the costs of implementing the health law and the stability of the financing it will provide.

HHS Secretary Kathleen Sebelius sought to inspire attendees at last week's event. She said the United States is moving closer to the day when for the first time all Americans will have access to affordable coverage. "But to go the distance we need to work together," she said.

Hash depicted federal efforts relating to exchanges as not seeking to dominate, but to help states in various ways until they are ready to stand on their own.

He said, for example, that the emerging "federal data services hub" that states can access to determine whether exchange customers are eligible for tax credits to buy coverage stands ready to issue those payments directly to insurers so that states don't have to perform that function on their own.

Also, if a state so chooses, it can have the feds run three types of programs under the health law to stabilize premiums in exchanges: reinsurance, risk corridors, and risk adjustment.

The three programs aim to assure insurers they can enter the new and unfamiliar markets that exchanges will create without taking a big financial hit.

Reinsurance protects the insurers against unusually costly cases. Risk corridors involve shifting money to insurers hit with early financial losses in exchanges. Risk adjustment shifts payments from insurers with an unusually large number of good insurance risks to insurers who enroll an unusually large number of people who turn out to be poor risks.

Reinsurance and risk corridors are temporary programs operating only in 2014, 2015, and 2016. Risk adjustment is permanent. CMS will put out for public comment the risk adjustment methodology it plans to use though states can use their own method subject to approval by the federal agency.

Hash noted that even states that decide to operate their own exchanges can have the feds run their risk adjustment program.

On the other hand, if a state decides to let the federal government offer its residents coverage through a federally facilitated exchange, that state can still run its own reinsurance program if it wants. It also can make its own determinations about eligibility for the expanded Medicaid programs states can establish under the health law.

Final application ready

Hash also announced that the CMS Center for Consumer Information and Insurance Oversight (CCIIO) on Tuesday posted the final version of the application states must file by November 16 to run an exchange, called the "blueprint" application. Hash is the interim director of CCIIO.

Hash emphasized that the federally facilitated exchange will try to avoid duplication with state insurance regulations. Before opening a federal exchange in a state, CMS will obtain public comment on what it is planning to do in that state. CMS is enlisting the National Association of Insurance Commissioners (NAIC) in that effort, he said. Getting public input is a "critical part of our plan in standing up a federally facilitated exchange."

Hash said CMS "very shortly" will announce a new round of grants to states to establish exchanges and will soon invite states to apply for more such grants.

Hash said that the "SHOP" exchanges required under the health law for small businesses are a priority for CMS. The agency is "very seriously engaged" in making sure this part of the market operates more effectively, he said. He added that in 2014 and 2015 ,small businesses will be able to get tax credits through SHOP exchanges covering up to 50 percent of their coverage costs.

Mann, who runs the CMS Center for Medicaid and State Operations, noted that states will decide "over the next period of time" whether or not to expand their Medicaid programs under the health law. There's no deadline for deciding, though if they want to expand in 2014 they have to move quickly, she said.

Mann noted that full federal funding for people who for the first time qualify for Medicaid under the expansion is available in 2014, 2015, and 2016. While states can choose to expand Medicaid at some later point, the 100 percent funding is only available in those calendar years. If a state expands its Medicaid program after 2014, that 100 percent funding won't be available for the three years after that. Funding drops to 90 percent in 2019 but remains at that level permanently.

Some states are balking at the added costs of expanding their Medicaid programs. After 2019 they must pick up 10 percent of the costs of the expanded population. Also, efforts to enroll people in the expanded program are expected to lead to greater enrollment of people eligible for the current Medicaid program but not signed up. The federal government will pay a much lower matching rate for those people than for those only eligible under the expansion.

Mann said those added costs should be balanced against the money the expansion saves. That includes lower uncompensated care costs in the state as more residents are covered; savings from other state or locally funded coverage programs that are no longer needed; and savings from state or locally funded direct service programs that may no longer be needed. She said that according to the Urban Institute, these savings from expanding Medicaid under the health law would total between $92 billion and $129 billion in 2014-2015.

States that choose not to expand will still have to streamline their Medicaid enrollment processes under the health law, she noted. Whether or not they expand, they must switch their eligibility systems so that they are based on "modified adjusted gross income," or MAGI, which she said "vastly simplifies" eligibility determinations. Mann also said the population that gains Medicaid coverage under the health law is relatively cheap to cover compared to other Medicaid enrollees. For example, one quarter of the group is in the 19 to 24 age group, she said.

Mann emphasized that her department is working on a streamlined application form for eligibility for coverage in Medicaid and the Children's Health Insurance Program.

She also noted that expanding Medicaid would be a way to bring health care to uninsured veterans. About half of the nation's 1.3 million uninsured vets would qualify for the Medicaid expansion, she said.

Mann said in response to a question that CMS will be "happy" to work with individual states to identify savings they can expect from expanding Medicaid. Asked what prevents lawmakers from lowering the 90 percent federal match rate after 2020, she said Congress has a history of adding to rather than subtracting from the federal match rate. But she added that states have the option of withdrawing from the expansion if they are not happy with its financial terms.

Hash was asked how the federally facilitated exchange would be funded after 2014. It would be "federal funding of some description we have not yet identified," he said. Officials will "explore options" but Hash said he is "fully confident" the federally facilitated exchange will be able to continue to operate.

• Exchange application (pdf)

By John Reichard, CQ HealthBeat Editor

August 13, 2012 -- The consumer representatives to the National Association of Insurance Commissioners (NAIC) released a 51-page report last week loaded with technical recommendations for how state and federal officials should write regulations to implement key consumer protections under the health care law.

"We want to make sure that, as they implement these reforms, they're putting consumers front and center," said Beth Abbott of Health Access California, one of the reps.

At issue are health law protections governing the regulation of insurance. For example, the law guarantees the issuance of insurance to all applicants and the renewal of policies once they are issued. It bars companies from denying insurance based on pre-existing medical conditions. It sets minimum benefits health plans must offer, called "essential health benefits."

The way regulators write the regulations putting these protections in place in 2014 will determine whether they work for consumers or tilt toward the interests of insurers, consumers advocates say.

"Before people can fully benefit, federal and state regulators need to set clear rules for insurance company behavior, and provide robust oversight," said another representative, Sabrina Corlette, a professor at Georgetown University's Health Policy Institute.

Stop Loss

The report addresses implementation issues "that have been largely ignored so far, such as the potential that the sale of stop-loss insurance to small groups or of unregulated indemnity insurance plans" could undermine" consumer protections in the health law (PL 111-148, PL 111-152), said Timothy Jost, a law professor at Washington and Lee University.

Stop-loss coverage allows companies to self-insure, which exempts their coverage from some of the requirements of the overhaul. Health law boosters fear self-insurance will spread widely to small employers if stop-loss coverage is too easy to get. The coverage means that employers don't have to pay claims above a given amount, called an attachment point. Instead, the stop-loss insurer picks up those costs. If that set amount is a relatively low dollar figure, self-insurance can become a relatively accessible escape hatch from health law requirements.

The report notes that because the health law "did not extend some of its consumer protections to self-insured plans, these plans can continue to offer coverage at favorable rates to healthy groups while refusing to provide coverage or charging very high rates to unhealthy groups." With fewer healthy risks in the insurance pool, policies sold that comply with health law protections will be more costly, the report suggests.

It adds that "in addition, because stop-loss coverage is not guaranteed renewable under federal law, many small groups could find themselves dropped by their insurer as their employees get older and the health status of the group declines."

In regs relating to pre-existing medical conditions, insurers should be barred from discriminating against individuals based on factors that "may be proxies for health status, such as credit information and family history," the report says.

Essential benefit requirements should mandate that insurers "offer more than one prescription drug per category or class," the report says. Lawmakers and state regulators should release information on "benchmark plans" they plan to use to minimum benefits in a state in time for the public to comment. And those comments should be considered in choosing a benchmark plan.

By John Reichard, CQ HealthBeat Editor

August 17, 2012 -- Gary Cohen is returning to the Centers for Medicare and Medicare Services (CMS) to run a top health care law implementation post at the agency, the Center for Consumer Information and Insurance Oversight (CIIO).

Cohen has been serving as chief counsel to the California Health Benefit Exchange Board, one of the more advanced state attempts at creating the new insurance exchange marketplaces that will open in late 2013 under the health care law (PL 111-148, PL 111-152).

Michael Hash, who has been serving as interim director after Steve Larsen left the job in June, will return to his post as director of the Office of Health Reform at the U.S. Department of Health and Human Services (HHS).

"We can't thank him enough for his leadership and insight over the past few month," said acting CMS Administrator Marilyn Tavenner in an email to CMS staff obtained by HealthBeat.

Before leaving to take the California job, Cohen, a Stanford Law graduate, was head of CCIIO's oversight group, which oversaw the medical loss ratio (MLR) rules and rate review functions. The naming of Cohen gives the Obama administration a seasoned hand in a key post at a crucial stage of the health care overhaul implementation efforts.

Cohen originally joined CCIIO shortly after its formation, serving first as deputy of the oversight group and then as director. He ran the shop during a period of intense activity implementing MLR and rate review regulations and only left for the California post a few months ago.

Cohen also has experience as a state regulator and on Capitol Hill. He served as deputy California insurance commissioner and was chief of staff to Rep. John Garamendi, D-Calif.

Larsen's departure as head of CCIIO created a big hole on the CMS leadership team at a time when the formation of insurance exchanges entered a key phase. Since the health care overhaul became law, the exchange implementation effort has seen several management changes. Joel Ario ran the early part of the project. Larsen then stepped in, but he departed CMS to join UnitedHealth Group.

Cohen also will serve as deputy administrator.

Larsen also had that title when he ran CCIIO. Several other top CMS officials have the deputy title, too: Cindy Mann, who directs the Center for Medicaid and CHIP Services; Jon Blum, who heads the Center for Medicare; Peter Budetti, who runs the Center for Program Integrity; and Anthony Rodgers, who directs the Center for Strategic Planning.

Tavenner said two other officials would serve on the CCIIO management team along with Cohen. "I have asked Tim Hill to continue in his deputy director role for CCIIO with a focus on policy and regulation development," she said. Tavenner added that Jim Kerr, administrator of the Consortium of Health Plan Operations at CMS, will join CCIIO as deputy director for operations. As head of the consortium, Kerr oversees 750 CMS contracts with Medicare Advantage and prescription drug plans.

"I know that the executive leadership team of Gary, Tim, and Jim will ensure we successfully meet the goal of providing insurance to all Americans," Tavenner said.

During Kerr's stint at CCIIO, Nancy O'Connor, the CMS regional administrator in Philadelphia, will step in as deputy consortium administrator.

By Dena Bunis, CQ HealthBeat Managing Editor

August 16, 2012 -- In a rare moment of near-agreement on health care policy this election season, a majority of Republicans and Democrats oppose cutting Medicare benefits or transforming the program into a defined-contribution model, according to one of two polls recently released by the Kaiser Family Foundation.

According to a joint Washington Post/Kaiser survey, which was conducted mostly before presumed GOP presidential candidate Mitt Romney named Rep. Paul D. Ryan, R-Wis., as his vice presidential pick, found that 55 percent of Republicans want to maintain Medicare as it is currently structured and not change it to a system under which seniors get a fixed amount of money with which to buy health insurance. That sentiment was expressed by 68 percent of Democrats and 53 percent of independents. Restructuring Medicare into a premium support program was the centerpiece of Ryan's plan for the health program for seniors and the disabled. Romney has embraced Ryan's plan, although he differs with the House Budget chairman when it comes to what would happen to the $716 billion that the 2010 health care law (PL 111-148, PL 111-152) would cut from Medicare.

And when it comes to which health concerns matter most to voters, the health care law's dominance is fading, compared to the public's worries about Medicare and the costs of health care and insurance. According to Kaiser's monthly tracking poll, 73 percent of respondents said that Medicare will be either extremely or very important as they consider who to vote for president. The same percentage said the cost of medical care and insurance will be extremely or very important to their presidential selection. The health care law ranked lower—although still important—on the list of health concerns, with 59 percent rating it as very or extremely important.

When it comes to the party breakdown of health issue importance, among Republicans the cost of health care and insurance and Medicare were tied at 73 percent as being very or extremely important. Among Democrats, 80 percent put Medicare at the top of the list, with health costs/insurance coming in second at 78 percent. Among independents, 74 percent put Medicare as most important, with 73 percent selecting health costs/insurance.

The tracking poll also shows that the Romney ticket has some work to do to educate the electorate about the GOP plans for health care. While 72 percent said they have a basic understanding of the direction of President Obama's health care policy, 45 percent said they have a basic idea of what Romney would do on health care, while 51 percent said they do not.

Kaiser officials point out that while the state of the economy remains the top priority for American voters, health care may figure as a more important issue than the numbers suggest. "That's because the cost of health care shows up high on the list of national economic issues worrying the public, second only to the job situation: 44 percent name the cost of care as one of their top two economic concerns, compared to 59 percent that talk about jobs, and 37 percent that mention the budget deficit," Kaiser says in its statement of findings, referring to its joint survey with The Washington Post.

For the monthly tracking poll, 1208 adults were surveyed during Aug. 7-12, 2012. The margin of error for all respondents is plus or minus 3 percentage points. The Washington Post-Kaiser Family Foundation poll was conducted July 25-Aug. 5, 2012, among 3,130 adults, The results from the full survey have a margin of sampling error of plus or minus 2 percentage points; error margins are 3.5 points for the samples of 1,027 Democrats and 1,054 independents and 4 points for the sample of 846 Republicans.

By John Reichard, CQ HealthBeat Editor

August 17, 2012 -- Indiana officials are expressing disappointment with the Obama administration's handling of a Bush era Medicaid expansion plan that covers thousands of previously uninsured residents in the state while charging them premiums in an effort to promote personal responsibility.

A July 31 letter from Cindy Mann, the director for the Center for Medicaid and CHIP Services, denies the state's request for a multi-year extension of the plan, which in technical jargon is known as a Medicaid waiver and was approved by the George W. Bush administration in 2007.

Indiana's Republican Gov. Mitch Daniels has touted the plan as a more affordable model for national coverage expansion.

Mann's letter agreed to extend the waiver, which expires at the end of 2012, through the end of 2013, but not into 2014 and beyond when the health care law expands Medicaid in a way that provides more comprehensive coverage than does the waiver plan.

"After two years of waiting for a response, the state has learned it may be forced to close enrollment for the 42,000-plus people in the Healthy Indiana Plan [HIP] beginning next year," the Indiana Family and Social Services Administration said in a written statement responding to Mann's letter.

"Indiana still does not have an answer about the long-term future of HIP," said Michael Gargano, who serves as secretary of the state office. "We will be forced to make a difficult decision about continuing HIP enrollment for a program that likely won't exist after 2013." Indiana officials have asked the Obama administration about using the plan as the basis of expanding Medicaid under the health care law but said they have received no response.

Kip Piper, a Medicaid consultant, said in an interview that Mann's letter "is a combination of an olive branch, a kick in the butt and an armistice proposal." Piper said the administration wants to avoid saying no to an existing coverage expansion program before the fall election. By extending the waiver for a year it hopes to avoid that.

But Indiana officials now have a big bargaining chip to keep the program going long term, Piper adds, because the Supreme Court made the health care law's Medicaid expansion optional for states. The Obama administration, by approving the waiver, could keep coverage going for up to 200 percent of the poverty level in Indiana. In some respects that's more generous than the health care law's Medicaid expansion, which only goes up to 138 percent of the poverty line. On the other hand, Healthy Indiana entails higher out-of-pocket charges than is the norm in Medicaid. By approving a multi-year waiver, the Obama administration would be setting a precedent that other states might also want to follow.

Mann wants to keep Indiana officials talking while preserving the status quo—for a time.

"The one-year extension will allow Indiana to provide continued coverage under its [waiver] while allowing time for the state and CMS to continue our discussions as Indiana considers its options for 2014," she wrote.