Taxation of health benefits

The Presidential Panel on Federal Tax Reform heard testimony from two economists that “federal tax subsidies to employers and employees for health insurance, flexible spending accounts and new health savings accounts do not promote the expansion of basic health coverage and increase the number of uninsured residents.” (source California HealthLine)
The Panel, chaired by ret. US Sen John Breaux (LA) is working to assess the impact of the Federal tax deduction for health care benefits, which amounts to a $188 billion subsidy today and will reach $250 billion “in several years.”
The reasoning behind the testimony and hearings lies in the apparent disconnect between the subsidy and it’s impact on the uninsured. Simply put, higher income individuals benefit from the subsidy, while lower-income people are more often uninsured as their employers do not offer the benefit, they are marginally employed, or cannot afford their employer-sponsored coverage.
To address this disconnect, one of the economists testifying recommended “limited subsidies for health insurance in combination with refundable tax credits to help low-income and uninsured residents purchase coverage.”
Why is this important to you?
The President has promised to halve the Federal deficit over the next four years, and huge subsidies for health insurance are likely to be a leading target. The perception in Washington is that the subsidy works to minimize individuals’ concern about and focus on managing their health care; think “ownership society”.
If Bush is truly committed to deficit reduction and the ownership society, health insurance tax benefits are a likely target.


Medicaid Round Four

The Senate and House have very different ideas of what to do with Medicaid in coming years; this difference of opinion may deadlock the two bodies on overall budget negotiations.
Briefly, the Senate passed a budget with no cuts in Medicaid funding; the House version has $20 billion in budget reductions. The latest news indicates the Senate may be willing to compromise, but conservatives in the House appear to be less interested in restoring the funding the Bush Administration has axed from Medicaid.
As reported in California HealthLine;


Medicare pay for performance gets a push

Even though it’s just a small one, it is stilll significant. Rep Nancy Johnson (R) CT (my home state) is promoting a drastic change in the way Medicare pays physicians. Rep. Johnson is calling for a pay-for-performance scheme to replace Medicare’s fee schedule arrangement.
Details below, but in case you can’t read that far, think of this.
1. many state workers comp fee schedules are based on Medicare’s. What are the implications for state programs?
2. Group health reimbursement is often tied to Medicare as well…
3. Medicare is based on paying for services needed for and delivered to a population that is over 65. If the reimbursement arrangement changes, and it factors in some kind of “performance” metric, will it even be possible to adapt that to younger populations?
Now that your head hurts, here’s the details…
According to California HealthLine;
“Johnson said that, although physician performance measures and systems to collect data on performance are not perfected, lawmakers must move to address the issue because of scheduled reductions in Medicare physician reimbursements over the next several years. Elimination of the SGR (Sustainable Growth Rate) system “is the only possibility,” Johnson said, adding, “It’s unfortunate that we have to do this two years in advance of the technology.”
Johnson also indicated that lawmakers could enact “a one-year fix of physician payment while a more permanent system is being designed,” although she hopes to enact permanent revisions to the Medicare physician reimbursement system this year, CQ HealthBeat reports. She estimated that the replacement of a 1.5% reduction in Medicare physician reimbursements for fiscal year 2006 with a 1.5% increase would cost $11 billion over five years.”


Medicaid, Round three

It appears that Medicaid is safe, at least in the Senate, from Pres. Bush’s attempt to cut $14 billion over five years. Smith, Republican Sen. of Oregon, claimed to have enough votes to pass an amendment restoring the dollars, and creating a Commission to study Medicaid.
According to California HealthLine,
“Smith said at least six Republicans support the amendment. A vote is expected as early as Wednesday. According to the Post, the budget resolution’s current language prevents lawmakers from filibustering legislation to implement entitlement cuts, allowing it to be approved by a simple 51-vote majority (Washington Post, 3/16).
Smith said, “I’m afraid of the consequences for the disabled if we do Medicaid reform in a hurry,” adding, “I’m specifically … concerned about how Medicaid cuts are first made against mental health coverage” (Schuler, CQ Today, 3/15).
However, the House may be a different story. Representatives are not sanguine about the possibilities of reaching agreement on a budget compromise if the amendment passes the Senate. In fact, HealthLine goes on to state:
“The House Budget Committee on March 9 proposed a FY 2006 budget resolution that would require the House Energy and Commerce Committee, which has jurisdiction over Medicaid, to find $20 billion in savings over five years ”
This bout may be a long one.


State approaches to health care coverage

Families USA sponsored a conference last month entitled “Health Action”, which pulled together a variety of leading lights from politics, policy, government and the private sector to discuss individual states’ efforts to improve access to and coverage for health care.
Key findings include:
1. many states recognize that health care is “an unavoidable issue, and every sort of option


Ban on specialty hospitals may be extended

Two reports on so-called “specialty hospitals” were released yesterday in hearings on Capitol Hill. The Medicare Payment Advisory Commission’s (MedPAC) report calls for an extension of the ban on construction of new specialty hospitals. For those who have not been keeping up on this rather esoteric (but critically important) issue, there has been a Federal ban in place preventing the construction of these facilities, which are typically for-profit and partially owned by the physicians practicing at the facilities.
The rationale behind the ban was a concern that these facilities were “skimming” the profitable patients, leaving tertiary and primary hospitals the indigent, Medicaid, and less-healthy patients. According to California HealthLine, the report addressed this concern directly, noting:
“The MedPAC report, presented to the Senate Finance Committee on Tuesday, states that physician-owned specialty facilities could “corrupt clinical decisions and lead to inappropriate care.” The report also said that, relative to full-service hospitals, specialty hospitals generally treat healthier patients, focus on higher-cost procedures, treat fewer Medicaid beneficiaries and do not have lower costs.
The report recommends that Congress recalculate Medicare prospective payments to acute care hospitals to more accurately reflect the cost of care and prevent financial incentives for hospitals to select healthier patients (CQ HealthBeat, 3/8).
MedPAC’s findings were not entirely echoed by a CMS report presented at the same hearing. (Source California HealthLine)
“CMS “unexpectedly released” its preliminary report on specialty hospitals. Thomas Gustafson, deputy director of the CMS Center for Medicare Management, said the CMS study shows “measures of quality at [physician-owned] cardiac hospitals were generally at least as good and in some cases better than the local community hospitals.”
In addition, “[c]omplication and mortality rates were lower at cardiac specialty hospitals even when adjusted” for patient-sickness levels, he testified. CMS conducted its study by examining six markets, which represent 11 of the 59 cardiac, surgery and orthopedic specialty hospitals approved in 2003 as Medicare providers.
The CMS report also found that doctors who have invested in specialty facilities do not refer patients exclusively to the specialty hospitals but they do refer a greater share of patients to specialty facilities than to full-service hospitals. ”
Out here in the real world, there is evidence that specialty facilities do skim the patient pool. A full-service, multi-hospital health care system (client of Health Strategy Associates) has been losing patients to a physician-owned ambulatory surgery center for over a year. Anecdotal information strongly indicates that the patients seen at the doc-owned ASC are more likely to be privately insured or covered by workers’ comp (a profitable payer in this state).


The Federal budget, the deficit, and provider reimbursement

Fed Chairman Alan Greenspan’s recent gloomy pronouncements about the potential impact of the federal deficit have focused even more attention on entitlement programs. Interestingly, Greenspan specifically mentioned governmental health programs, such as Medicaid and Medicare, noting that their contribution to the deficit may well outstrip that of Social Security.
Pres. Bush’s efforts to rein in Federal expenditures on Medicaid has focused on cutting drug reimbursements; eliminating some of the ways seniors have shifted assets to qualify for governmental funding of long term care; and closing “accounting loopholes. As of today, these recommendations have run into a stone wall, as Republican and Democratic governors alike have strongly resisted any Federal cuts to Medicaid funding. Their resistance, combined with less-than-overwhelming support from Congressional Republicans, make it unlikely that Mr. Bush will get all, or much, of what he desires.
If Bush is unable to cut Medicaid significantly, today’s $300 billion in annual costs will continue to escalate at near-double-digit rates. Combine that bad news with the Administration’s refusal to consider any changes to the new Medicare Prescription Drug program (slated to start next year), and it is clear that any progress in reducing governmental expenditures on health insurance programs will have to come from other sources.
So, who’s going to feel the pain?
In a word, providers.
Doctors are slated to receive an automatic 5% fee cut in 2006. Historically, Congress has eliminated or reduced these cuts in the past


Medicaid battle – White House v. State House, round 1

The White House is seeking a compromise with governors over Medicaid funding, and is rolling out the big guns in an effort to reach agreement this week. At issue is the Administration’s desire to reduce expenditures by some $60 billion while “closing accounting gimmick loopholes” that enable some states to get more than “their fair share” of federal dollars.
In this era of bitter partisanship, Pres. Bush has been able to accomplish what few others have; create agreement between members of both parties on a highly contentious issue.
“Gov. Bob Taft (R-Ohio) said, “I don’t think there are any divisions among governors” when it comes to losing federal funding, adding, “The real issue is it’s governors against the White House and Congress” (AP/Albany Times Union, 2/28). ”
In today’s New York Times, Taft said “Governors are very anxious about signing on to a $60 billion number if we don’t know how you will get there. We like ideas that save money for the federal government and the states through program efficiencies, but we do not support recommendations that would save the federal government money at the expense of the states.”
His comments were echoed by Romney, Republican governor of Massachusetts; “”Governors will argue en bloc that we want our Medicaid funding retained. We don’t want reductions.”
Without the support of Republican governors, and more than a few Democrats, the Adminstration’s version of Medicaid reform is going nowhere. We’ll be watching this for months to come…


Future health care costs

The article referenced in yesterday’s blog entry about health care cost trends is available at Health Affairs. Here’s the abstract…
“National health spending growth is anticipated to remain stable at just over 7.0 percent through 2006, the result of diverging public- and private-sector spending trends. The faster public-sector spending growth is exemplified by the introduction of the new Medicare drug benefit in 2006. While this benefit is anticipated to have only a minor impact on overall health spending, it will result in a significant shift in funding from private payers and Medicaid to Medicare. By 2014, total health spending is projected to constitute 18.7 percent of gross domestic product, from 15.3 percent in 2003.
The slowdown in national health spending growth is expected to continue into 2004, with growth edging downward to 7.5 percent from 7.7 percent in 2003 (Exhibits 1 and 2).1 Over the next ten years, growth is expected to slow to 6.7 percent between 2013 and 2014, well below the peak of 9.3 percent growth that occurred between 2001 and 2002. Despite the anticipated deceleration, these growth rates outpace the milder inflationary experience of the mid-1990s, when growth averaged 5.3 percent from 1993 through 1998. Over the 2003-14 period, national health spending is forecast to continue growing faster than gross domestic product (GDP). The consequence is a projected increase in health’s share of GDP from 15.3 percent in 2003 to 18.7 percent by 2014.”
And here’s the takeaways…
1. Prescription drug costs will be the largest single contributor to growth in public health care costs.
2. Private coverage for drugs will decrease among Medicare eligibles as the Medicare Prescription Drug coverage program goes into effect starting in 2006.
3. While overall medical inflation will remain 2-3 times the overall rate of inflation, private health care plans will very likely see signficantly highertrend rates . As public programs cut expenses, cost-shifting will undoubtedly follow.


Another sign that the apocalypse is on us

When an issue hits the front page above the fold in USAToday, you can be certain it is a crisis. Today’s paper features the looming crisis in health care, noting recent rapid rises in costs have outstripped wage increases.
The article does a good job of presenting the facts and is fairly objective, despite the somewhat alarmist headline. Notably, it does mention that governmental programs will account for just under 50% of total health care spending in 2014 (up from 45% in 2003). This is a scary number, and is the main driver behind the recent activity on Capitol Hill.
USAToday’s source was CMS’ annual report, which was the subject of numerous articles in other papers. According to California HealthLine,, in the report, the CMS analysts said that public health care expenditures in 2014 will represent “a record share that could have important implications for the budget as a whole” (AP/St. Petersburg Times, 2/24). According to CMS analysts, “barring enormous tax increases,” public health care spending in 2014 “would crowd out virtually all other spending except for the military and interest on the national debt,” the Raleigh News & Observer reports (O’Rourke, Raleigh News & Observer, 2/24
Paul Ginsburg, president of the Center for Studying Health System Change, said, “This is going to lead to continued erosion of health insurance coverage,” adding that rather than pay increased health insurance premiums, “low-income workers would just as soon have the money because they can’t afford to spend so much of their income on health care.”
Implications? Several…
In a talk at the Institute for The Future’s annual conference last year, I prognosticated (pessimisticaly) that it would be several years before the US was forced to do something about the uninsured. At the risk of now swinging too far to the “wildly optimistic” side, it appears that the stars may be forcing themselves into an alignment that favors some sort of national debate on the topic of health care costs, access, and coverage. That would be a very good thing.
More pragmatically, it is clear that the government cannot afford, or rather tax payers will not pay, the forecasted amounts. Inevitably this decision will lead to
–more uninsureds,
–slashed provider reimbursements,
–ever higher premiums,
–cost shifting to insureds from providers seeking to recoup lost revenue,
–higher medical costs for those fortunate enough to have private health insurance, and
much higher costs for others whose care is paid by third parties (workers’ comp, auto, liability, etc.)
Not a pretty picture.