The latest projections from the Congressional Budget Office have the Medicare Drug Program’s costs over the next ten years at $849 billion. This is a rather substantial increase over the initial projections of some $400 billion, which were for the ten years ending 2014. Nonetheless, this does represent an increase of over $100 billion from the last CBO estimate, published less than a month ago.
According to California HealthLine,
“CBO’s projection does not include anticipated savings, which could make the actual cost lower than the Bush administration’s cost estimate of $724 billion over 10 years (Fram, AP/Detroit News, 3/5).
Analysts attributed the net spending increase to a higher estimated cost of basic benefits and a change in the cost of low-income subsidies under the original bill. About $36 billion of the $54 billion net spending increase would occur before 2013 — the period covered under the original cost projections (CQ HealthBeat, 3/4).”
There have been some rumors about possibility flexibility on the part of the Administration on the program, but any “flexibility’ in terms of cutting benefits and therefore costs may well be offset by the financial support CMS may have to provide to private insurers willing to participate in the Medicare Drug card program.
These private insurers are justifiably worried about the possibility of adverse selection. The program is voluntary, so logically, only those recipients that would actually gain financially from the program would sign up. This isn’t insurance, it is a guaranteed money loser.
That being the case, one wonders how and why private companies would sign up to lose money. My sense is they are being offered stop-loss assurances from CMS; or if not explicit protection, some other form of risk avoidance.
News in brief.
The Congressional Budget Office projects potential savings from Pres. Bush’s Medicaid cuts will be some $11 billion less (over the next five years) than the White House’s claims.
The National Governors’ meeting ended without an agreement from the governors on Medicaid program cuts, changes, or alterations. Here’s the news from California HealthLine on where the effort stands…
“We’ll now work to build on [common ground] and hopefully come up with a proposal that will be bipartisan and that we can take to Congress for the purpose of being able to substantially improve Medicaid and have it reach its promise,” Leavitt said (Smith, Salt Lake Tribune, 3/2).
Interviews with “numerous governors” indicate that the “consensus described by Leavitt does not exist,” according to the Times (New York Times, 3/2). “We are still far apart,” New Mexico Gov. Bill Richardson (D) said.
Ohio Gov. Bob Taft (R) said, “With the respect to the budget itself, we’ve made clear we oppose [the administration’s cuts], and we’ll see how that issue works out here in the next few weeks.”
Wisconsin Gov. Jim Doyle (D) said the administration’s proposed changes are “not acceptable,” adding, “What they are saying to states is, ‘We’re going to cut you and give you more flexibility,’ and the flexibility is you can cut people off.”
Indiana Gov. Mitch Daniels (R), Bush’s former budget director, said, “There’s a lot of substantive agreement but honest tactical disagreement” (Washington Post, 3/2).
Don’t expect this to happen any time soon…
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
HSA has completed the second annual survey of prescription drug management in WC. Here are the (very brief) highlights…
–overall trend rate was 12% (2004 over 2003)
–WC Rx costs nationally estimated at $3.4 billion in 2004
–party “most responsible for prescription drug costs” – respondents overwhelmingly voted for the treating physician, a significant change over last year.
–Third Party Billers considered to be a problem by all but 2 respondents, and most payers want their PBMs to deal with the TPBs
–utilization considered to be much more significant issue than unit price
The full survey will be available this month.
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…
According to Reuters, AIG Chairman and CEO Maurice “Hank” Greenberg is under investigation by NY Attorney General Eliot Spitzer. The story, to be published in the March 7 issue of Fortune, identifies the problem as Greenberg’s possible promotion of the “income smoothing” products that were the cause of a previously-assessed $126 million fine paid by AIG.
The Reuters article states:
“Insurers have offered products akin to business loans to a broad swath of corporations, catching the eye of regulators who worry that these products smooth earnings and mask the true value of the borrowers. Rather than turning to a bank for a traditional loan or selling securities to raise cash, a company borrows money from its insurer. The loan is repaid in the form of increased premiums for traditional insurance.”
There are a variety of other products that also provide the same type of benefit to public companies. If there is any investigation (neither AIG nor the AG’s office would comment) my sense is the investigation is looking into not just the “inflated premium” products but other financial chicanery as well.
Until now, no public company had survived an indictment. It appeared that AIG had weathered the storm, but once the investigators start digging, there is no telling what they can come up with.
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.
It is highly likely that Arkansas will pass so-called “any willing provider” legislation in the very near future. For those of us who thought those days had thankfully passed, do not despair as it is unlikely this will spark a wave of similar ill-conceived moves in other jurisdictions.
The impetus for the new law was the inability of a member of Arkansas’ legislature to obtain care at his facility of choice for prostate cancer. Interesting how these things happen…
While the bill passed both the AR house and senate with overwhelming majorities, and will be signed into law by Gov. Mike Huckabee, it comes at a time when medical trend rates continue their stubborn ways, sitting at three times the overall rate of inflation. While a nice idea, practically speaking, “any willing provider” laws fly in the face of mounting evidence as to the importance and significant positive impact of the “right provider”. They also remove the “volume v. discounts” incentive used by managed care plans to convince providers to participate.
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.”
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
–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.
The Bush Administration’s efforts to address the rising costs of Medicaid came under attack again by state governors from both parties.
The Bush budget proposal includes cuts of $40 billion in the program, at a time when program costs have been increasing at an annual rate of 9% for each of the last four years. Governors are concerned not only with the proposed cuts, but also want to have more freedom to broaden coverage to other uninsured populations. At present, this requires a waiver, which can only be obtained after a somewhat cumbersome and time-consuming process involving the Centers for Medicare Services (CMS).
According to the Associated Press, there is an uncommon amount of bipartisanship evident in the governors’ pronouncements…
“One thing governors feel, Democrats and Republicans alike, is that we have a health care system that, if you’re on Medicaid, you have unlimited access to health care, at unlimited levels, at no cost,” said Arkansas Gov. Mike Huckabee, a Republican. “No wonder it’s running away.”
Republicans have been the most sweeping in their push toward market reforms, aiming to encourage patients to spend Medicaid dollars more wisely. Democrats, however, also are turning to concepts that require people on Medicaid to bear part of the costs, through copays or deductibles. Most try to spare additional costs, or cuts, from children and the poorest of the poor.”
Medicaid funds come from state and federal coffers, with the feds’ contribution tied to the state’s average income level (New York gets less, Mississippi gets more). Thus, any cuts in federal dollars either have to be made up with state funds, or programs cut. My bet is providers will see their reimbursement rates affected.
As Medicaid takes a hit, providers will likely seek alternative revenue sources.