By Miriam Straus, CQ Staff

January 30, 2008 --Universal health insurance will not be achieved without individual mandates, according to an Urban Institute analysis published Wednesday.

Many people would choose not to obtain insurance under a voluntary system, the report authors contend, adding that voluntary health coverage appeals more to people with higher health costs and would result in higher premiums and instability in insurance pools. As long as large numbers of people remain uninsured, the government must continue to pay for their care and cannot redirect the money to other health care changes, the authors said.

"Even if subsidies, benefits and administrative simplifications are sufficient to reach two-thirds of the uninsured [a reach beyond what any study to date has shown for a voluntary system], this would still leave 15.5 million people uninsured," the authors wrote. They note that this would be significantly lower than the current estimate of 47 million uninsured Americans. Their analysis predicts, however, that "as health care costs and insurance premiums increase, these numbers could easily erode unless further government dollars were injected into the system."

Michael Tanner, director of Health and Welfare Studies at the Cato Institute, said requiring people to purchase health insurance "is pulling the cart before the horse."

"The first thing you need to look at is what is driving costs," Tanner said. Regulations, such as the current prohibition against purchasing insurance across state lines, are a major factor in the cost of insurance, he said.

In addition, we have a "fourth party payment system," Tanner said. Employers who provide health insurance are shielding workers from the true costs of insurance, he said. "Those who are left outside of the employment system get stuck with the added costs." Consumer choice and competition are the keys to overhauling health care, he said.

Health insurance has been a key issue in the 2008 presidential race. Democratic presidential candidate Sen. Hillary Rodham Clinton, D-N.Y., has called for an individual mandate that would require all people to have health insurance. Her Democratic rival, Sen. Barack Obama of Illinois, would require that children have health coverage and that dependents be covered under their parents' insurance up to age 25, but his proposal would not require all adults to obtain insurance.

Republican presidential candidate Sen. John McCain of Arizona has highlighted his opposition to individual health insurance mandates. A recent McCain campaign ad attacks rival candidate and former Massachusetts Gov. Mitt Romney for signing a state law that requires all adults to purchase health insurance or face fines. McCain called Romney's plan "a big government solution that costs taxpayers."

Romney hasn't called for an individual mandate in his presidential campaign.

By Mary Agnes Carey, CQ HealthBeat Associate Editor

January 31, 2008 -- Lawmakers and lobbyists are dismissing the possibility that Congress will go along with massive cuts the Bush administration is planning to propose in the Medicare and Medicaid programs when it unveils its fiscal 2009 budget proposal Feb. 4. A senior administration official said Thursday afternoon that the cuts would total some $200 billion over five years, $178 billion in the Medicare program.

Medicare is "still growing at a rate higher than inflation," the official said. The budget plan "slows Medicare's rate of growth from 7.2 percent to 5 percent." The official added that the plan would reduce by nearly one-third the "unfunded obligation" in Medicare over 75 years. Medicare is funded through premium payments and automatic payroll deductions, but also by yearly outlays from general revenues.

President Bush said in his State of the Union address Monday night that the nation must begin confronting the rising cost of entitlement programs. "Everyone in this chamber knows that spending on entitlement programs—like Social Security, Medicare and Medicaid—is growing faster than we can afford," he said.

But even before the news broke Thursday that the proposed cuts would approach $200 billion, lawmakers and lobbyists who reacted to an earlier report that the cuts would total some $100 billion were emphatically predicting that the reductions would go nowhere.

"This budget will be dead on arrival," declared Rep. Pete Stark, D-Calif., Chairman of the House Ways and Means Health Subcommittee. Frederick H. Graefe, a Washington hospital lobbyist, insisted that the plan is "dead before arrival!," he insisted. "You can quote me on that—please!"

Stark, reacting to a published report that said the cuts would total $105 billion, said the Bush budget "would endanger the health care of America's seniors, people with disabilities, and low-income children." The proposed cuts "show his single-minded focus on starving popular and effective programs, while protecting fat cat insurance companies that are overpaid with taxpayer dollars."

Senate Finance Committee Chairman Max Baucus, D-Mont., was milder in tone but similarly insistent that such cuts would not occur. Democrats "will oppose those cuts," he said. "You have to be frugal, clearly, but those are Draconian," Baucus said of the $105 billion figure. Republican Senator Gordon H. Smith of Oregon agreed that the cuts would be a non-starter.

Asked how Democrats would respond to the challenge of rising entitlement costs, Baucus said "It's critical to address not only the symptoms but the causes of entitlement growth. And the most difficult problem right now is Medicare." The important question to ask, he said, is "What's the cause of health care increases?"

Baucus has shown particular interest in recent weeks in the testimony by Congressional Budget Office Director Peter R. Orszag emphasizing that health costs throughout the economy, not just in federal programs, must be addressed by policy-makers, in part by conducting extensive research comparing the costs and treatment results of various medical procedures and products.

Hospitals would bear the brunt of Medicare cuts, according to a Thursday New York Times report that assumed $105 billion in total cuts. Hospitals would take $83 billion of the $91 billion in Medicare cuts in 2009–2013. Of the $83 billion, $15 billion would come from an across the board reduction in annual updates for inpatient care; $25 billion from payments to "disproportionate share" hospitals (DSH) that treat larger numbers of poor patients; $20 billion from payments to cover the building and equipment costs of hospitals; and $23 billion from certain special payments designated to compensate teaching hospitals for their expenses.

Payment rates would be frozen for nursing homes in 2009, and rates for home health agencies would be frozen at 2008 levels in 2009 through 2013.

It wasn't immediately clear how much harder hospitals would be hit by Medicare cuts totaling $178 billion.

Hospital lobbyists were already sharply critical of the impact of the smaller, but still large cuts. The budget axe should fall elsewhere, suggested Steve Speil, vice president for policy at the Federation of American Hospitals, a lobby for for-profit facilities. "From what we hear the Medicare budget would subsidize health plan profits and slash hospital payments," he said. "Someone should ask seniors what they think about this."

It's widely assumed the administration won't propose cuts to private health plans in Medicare's Medicare Advantage program. Those plans say that cuts to their payments would lessen health care options for Medicare beneficiaries and trim benefits, or add to out-of-pocket costs, for enrollees in the plans.

Speil said the proposal for cuts to hospitals is occurring at a time when hospitals are already losing money on Medicare patients, and have been for a while. An analysis by the Medicare Payment Advisory Commission (MedPAC), the chief advisory body to Congress on Medicare payment levels, shows "falling, negative margins" in each consecutive year over the 2003-2008 period, he said.

"What is particularly distressing are the cuts to DSH payments that are used to treat the indigent and uninsured," Speil said.

"The magnitude of the cuts reported are of great concern, especially for the patients who rely on hospitals every day," said Alicia Mitchell, a spokeswoman for the American Hospital Association. "These reported cuts fly in the face of what MedPAC has recommended to Congress." MedPAC has recommended a full inflation update of about 3 percent for hospital inpatient and outpatient payments in fiscal 2009.

Cuts to Medicaid over five years would reportedly total some $17 billion over five years under the administration plan. But the total could actually be much higher because of regulatory and other administration actions by the Bush administration, lobbyists said.

The focus on Medicaid in Congress in recent days has been on whether to temporarily increase the share the federal government pays of Medicaid costs—on a possible increase in the "federal medical assistance percentage" (FMAP) that makes up the federal share of federal–state funding of the program. But lawmakers apparently will not include such increases in the economic stimulus package they are debating.

Although there has been some talk of a second stimulus package later this year, Baucus said on Thursday he didn't know whether FMAP increases would be a part of that package. "I don't know, most of the talk on the second stimulus package is more in the nature of infrastructure and energy" provisions, he said.

By Reed Cooley, CQ Staff

February 1, 2008 -- Hospitals participating in a Medicare pay-for-performance demonstration project are improving quality while reducing costs and patient mortality, officials said Thursday.

The demonstration project, a joint venture between the Centers for Medicare and Medicaid Services (CMS) and the hospital consortium Premier Inc., found if all hospitals achieved the three-year cost and mortality improvements that project participants did, an estimated 70,000 lives per year could be saved and hospital costs could be cut by more than $4.5 billion annually.

On average, the median hospital cost per patient declined by $1,000 during the first three years of the project, while the median mortality rate decreased by 1.87 percent. The 250 participating hospitals reported data on 30 evidence-based clinical quality measures. In February, CMS extended the Premier demo for an additional three years.

"The findings from this analysis provide evidence that improvements in quality do lead to reductions in costs," Stephanie Alexander, senior vice president and general manager of Premier Healthcare Informatics, said.

Achieving a higher quality of health care also will bring financial benefits to the hospitals involved. CMS promises to award $12 million in incentive payments to the 20 percent of hospitals that improved the most.

Blair Childs, senior vice president of public affairs at Premier, said the demonstration shows that "pay for performance clearly is an added ingredient that makes a big difference . . . When you create a system like this that really becomes an engine for improvement, you can start adding in more things that improve the quality as well as the efficiency. It all translates, ultimately, to cost."

By Caitlin Webber, CQ Staff

January 28, 2008 -- Mounting health care costs and growing numbers of uninsured Americans are untenable realities, and policymakers should shift the focus from the bottom line to treatment value and quality of health outcomes, said panelists at a forum Monday on health spending.

Katherine Baicker, professor at the Harvard School of Public Health and former member of President Bush's Council of Economic Advisers, said, "Emphasis on cost is misplaced, the emphasis should be on value. . .we should be getting more for what we spend" on health care.

Baicker also suggested that a systemwide overhaul may be required to correct geographic inequity in health care quality. She spoke as part of a panel discussion at an event sponsored by the Alliance for Health Reform, where panelists discussed a recent Commonwealth Fund report on cost savings associated with covering the uninsured. That report, titled "Bending the Curve," found that U.S. health care spending can be substantially reduced when universal insurance is combined with a strategic federal health policy overhaul.

Peter Orszag, director of the Congressional Budget Office, said that uneven treatment quality is worrisome, but argued that attention to cost savings is needed because "the rate at which health care costs grow will be the primary determinate" of the country's "fiscal future."

"Something has to change" Orszag warned, "to avoiding exploding debt scenarios." In addition, he said advocates should incorporate more "behavioral economics—why people act in health care the way they do" in policy recommendations.

The Commonwealth Fund report, released in December, praised policy strategies that aim to inform health decision-making, promote prevention, incentivize efficiency and change "price signals" in the health care market.

Experts estimated in the report that $1.5 trillion could be saved over ten years with comprehensive cost-cutting programs and national insurance. Cathy Schoen, the report's lead author, said the savings could offset the federal costs of universal insurance and urged swift action.

Schoen said "there is no single bullet" or piecemeal fixes that would result in significant health care savings. Rather, "there are potential dynamic approaches as we start to combine policy options. . .it will take a multifaceted approach," she said.

"There are tremendous human and economic stakes if we don't come together and start acting now," Schoen said.

Schoen also called for consensus and leadership. "We are all in this together. We can't think about our separate budgets or cost shifting games — we need to have a collaborative and focused effort."

By John Reichard, CQ HealthBeat Editor

January 30, 2008 -- It's his last year in office, and the health care proposals in his State of the Union address Monday night sounded recycled, but that doesn't mean President Bush is no longer relevant to the health care debate.

His veto pen assures—as does his continuing espousal of tax code changes that partly entail taxing richer health coverage benefits—that an approach to raising money to cover the uninsured that even has quietly found its way, in part, into the health overhaul plan of Democratic presidential candidate Sen. Hillary Rodham Clinton of New York.

"Members of Congress should know: If any bill raises taxes reaches my desk, I will veto it," Bush declared in his State of the Union address Monday night. But the proposal for health care-related tax code changes that Bush also made Monday night is tantamount to a tax hike for some Americans, assuming it is the same as a proposal he unveiled a year ago.

Rather than spark outrage, however, the proposal intrigues many Republicans and some Democrats, perhaps because it doesn't immediately sound like a tax hike and also because it could help raise many billions of dollars to help Americans buy health care coverage.

In effect, it would make health insurance premiums taxable above a certain level, an approach similar to one taken by Oregon Sen. Ron Wyden, a Democrat, and Utah Sen. Robert F. Bennett, a Republican, in a bipartisan bill (S 334) that has attracted a fervent following among some influential policy analysts and among a still small but growing number of senators (thirteen so far). And the health overhaul plan developed by Clinton also would partially fund coverage of the uninsured by making premiums taxable for "very generous" plans provided to individuals making over $250,000.

Bush would direct far more money to buy policies on the individual market, a shift away from employment-based insurance many Democrats decry. His approach to tax code changes would cover far fewer uninsured Americans than Democrats want.

But conservatives seem energized by the approach Bush has taken.
"Health care has been a sleeper issue in the Republican presidential primaries," observed conservative policy analyst Grace-Marie Turner in an op-ed piece in the Wall Street Journal on Tuesday. "But as we heard in President Bush's State of the Union address last night, the GOP does have ideas — big and transformative ideas designed to energize the free-market to target many of the problems that plague our health sector."

"We share a common goal: making health care more affordable and accessible for all Americans," Bush said in his speech. "The best way to achieve that goal is by expanding consumer choice, not government control. So I propose ending the bias in the tax code against those who do not get their health insurance through their employer. This one reform would put private coverage within reach for millions, and I call on the Congress to pass it this year.

"Congress must also expand health savings accounts, create association health plans for small businesses, promote health information technology and confront the epidemic of junk medical lawsuits," he said. But with the possible exception of health information technology, those items appear to be non-starters this year in Congress.

Now that he's leaving office, Bush also has an opportunity to more freely talk about major changes to the Medicare program to control entitlement spending. It's a debate that sooner or later will begin in real earnest with baby boomers reaching retirement age, and Bush may be able to help Republicans score some points with voters by highlighting it first, particularly if they handle it gingerly.

"Every member in this chamber knows that spending on entitlement programs—like Social Security, Medicare and Medicaid—is growing faster than we can afford," he said. "We all know the painful choices ahead if America stays on this path: massive tax increases, sudden and drastic cuts in benefits and crippling deficits. I've laid out proposals to reform these programs. Now I ask members of Congress to offer your proposals and come up with a bipartisan solution to save these vital programs for our children and grandchildren," he said.

On the issue of embryonic stem cells, few doubt that the door is closed this year to changes in the current policy that prevents federal funding of studies of embryonic stem cells obtained by destroying additional days-old embryos. Bush reminded Congress of the unwavering stand he's taken on the issue and of recent findings that may help speed research on regenerative medicine bottled up by his policies.

"In November, we witnessed a landmark achievement when scientists discovered a way to reprogram adult skin cells to act like embryonic stem cells. This breakthrough has the potential to move us beyond the divisive debates of the past by extending the frontiers of medicine without the destruction of human life," he said. "So we're expanding funding for this type of ethical medical research. And, as we explore promising avenues of research, we must also ensure that all life is treated with the dignity it deserves."

Bush also called on Congress to pass legislation "that bans unethical practices such as the buying, selling, patenting or cloning of human life." With a study released Jan. 17 by the California company Stemagen Corp. reporting that human embryos had been cloned using adult skin cells, fears over the prospect of cloning of human embryos leading to the birth of a fully formed cloned human being could rekindle the dormant debate in Congress over a ban on cloning.

Bush also highlighted another health care issue that he has championed which seems sure to see action in Congress this year: the reauthorization of the President's Emergency Plan for AIDS Relief, the five-year, $15 billion program to counter global AIDS and malaria that is set to expire after this year.

"America is leading the fight against disease," he said. "With your help, we're working to cut, by half, the number of malaria-related deaths in 15 African nations. And our emergency plan for AIDS relief is treating 1.4 million people," Bush said. "I call on you to double our initial commitment to fighting HIV/AIDS by approving an additional $30 billion over the next five years."

On veterans' health care, Bush urged lawmakers to enact changes recommended by former Senate Majority Leader Robert Dole and former Health and Human Services Secretary Donna Shalala to improve care for wounded veterans. But Democrats reacted skeptically to the changes proposed by Bush to aid military families.

"The difficulty . . . that we've had on this issue is that the budgets for Iraq have sucked out all the air," Susan A. Davis, D-Calif., chairwoman of the House Armed Services Military Personnel Subcommittee, said. "Families have not been nearly as high a priority as they should be. Maybe that'll change. I doubt it."

Bush said that VA funding had increased by more than 95 percent since he had taken office, but "he didn't tell them that his budget proposals have repeatedly cut funding for veterans, and that the only reason spending on veterans' programs has increased is because Congress raised the level of spending," Daniel K. Akaka, D-Hawaii, chairman of the Senate Veterans' Affairs Committee, said.

By Mary Agnes Carey, CQ HealthBeat Associate Editor

January 30, 2008 -- After failing last year to make major payment cuts to Medicare Advantage insurers, Senate Finance Committee Chairman Max Baucus, D-Mont., said Wednesday his panel would take a "close look" this year at Medicare private fee-for-service plans, the fastest-growing sector of Medicare Advantage.

"We will consider what we need to do to reform private fee-for-service plans," Baucus said during the Finance hearing. "We will consider whether we need to check their growth. And we will consider whether we can better design the law to ensure that these plans serve the needs of beneficiaries."

Lawmakers and health care analysts who say Medicare Advantage plans are overpaid have leveled their strongest criticisms at private fee-for-service plans because they say the care they provide is loosely managed and the plans are reimbursed at much higher rates. On average, Medicare Advantage plans are paid 113 percent of the rates paid in traditional Medicare, while private fee-for-service plans are paid 117 percent of those rates, according to the Medicare Payment Advisory Commission (MedPAC). The commission has recommended that all Medicare plans be paid the same as traditional fee-for-service providers.

"This product gives the private sector a bad name," said Sen. Ron Wyden, D-Ore.

Separately on Wednesday, a Kaiser Family Foundation report found that while on average Medicare Advantage plans provided extra benefits above what traditional Medicare covered in 2006, the value of extra benefits were lower for private fee-for-service plans than for other Medicare Advantage plans. The report found that beneficiaries enrolled in private fee-for-service plans received an average net value of $55.92 in extra benefits per month in 2006, compared to $71.22 in other Medicare Advantage plans, and that the sickest and highest-cost enrollees in private fee-for-service plans would have paid $1,000 more for basic Medicare services than those in other Medicare Advantage plans.

Karen Ignagni, president and CEO of America's Health Insurance Plans, noted that cost-sharing for beneficiaries in Medicare private fee-for-service plans was lower than for beneficiaries in traditional fee-for-service, and that enrollees in Medicare Advantage received additional benefits over fee-for-service beneficiaries. She added that beneficiaries want the option to choose different kinds of coverage that offer different networks and services.

Witnesses at Wednesday's Finance hearing gave committee members plenty of ammunition to cut payments to Medicare private fee-for-service plans, saying that they cover fewer medical services and pay hospitals, physicians and other providers at lower rates. Private fee-for-service plans are also not subject to the same federal regulations as other Medicare Advantage plans; they do not have to have networks of providers nor do the plans have to submit data about the quality of care their enrollees receive, witnesses said.

And they said the plans use deceptive marketing tactics to confuse Medicare beneficiaries, who mistakenly believe that they are still enrolled in traditional Medicare but, in fact, have been switched to a private fee-for-service plan, which their physician or hospital may not accept. Baucus said the panel would hold a separate hearing to focus on marketing practices.

Created in 1997, enrollment in the fee-for-service plans exploded after Congress created the Medicare prescription drug benefit (PL 108-173), which increased payment rates for private plans in Medicare. Enrollment in Medicare private fee-for-service plans has increased eight-fold in just two years, now totaling 1.7 million enrollees, according to MedPAC.

While insurers were not invited to testify at the hearing, they have a number of opportunities to speak with Finance staff and will continue to do so, Ignagni said. She said the hearing was a continuation of the Finance panel's ongoing examination of the plans. "They're picking up where they left off in the fall. This is not a shift in position for them," Ignagni said. Bush administration officials have said they do not want Medicare Advantage funding reduced.

Albert Fisk, medical director at the Everett Clinic in Everett, Wash., told the Finance panel that his clinic's "abysmal" experiences with private fee-for-service plans have led facility officials to decide to stop seeing Medicare private fee-for-service patients as of January 2009. The insurers, he said, "are extremely hard to deal with both in terms of negotiating fair rates and collaboration on care coordination. We have been very frustrated with both identifying the private fee-for-service plans and negotiating fair funding."

Daryl Weaver, testifying on behalf of the National Rural Health Association, said that Medicare private-fee-for-service plans are available in 96 percent of rural counties, and that they are the most prevalent type of Medicare plan in rural areas. Rural Medicare beneficiaries enrolled in the plans has increased from 18 percent in December 2005 to 62 percent today, he said.

Weaver, who runs a hospital in Yazoo City, Miss., said that while traditional Medicare pays claims within 15 days, private fee-for-service plans delay payments for months, which hurt rural medical facilities that operate on a cash basis. "Whatever the reason for the delays, at my facility this has contributed to a 30 percent increase in accounts receivable representing almost $1 million in unrealized cash," Weaver testified, adding that payment problems have required a 20 percent increase in business office staffing in addition to puling additional resources from other staff such as administration, nursing and case management.

Ignagni said that rapid increases in plan enrollment may cause some administrative problems that are eventually resolved. "There are very specific rules with respect to payment rates, and our plans are meeting those rules ... the plans are meeting CMS requirements and we take that very seriously," she said.

Another witness, David R. Fillman, an international vice president of the American Federation of State, County and Municipal Employees, told the Finance panel that higher Medicare payment rates for private fee-for-service plans have led insurers to heavily push the plans on private employers and state governments that are eager to reduce the costs of providing health care for current and future retirees. "Aside from the confusion and added complexity, the forced shift to a Medicare replacement product can obscure a reduction in benefits and a shift of costs onto beneficiaries who have limited incomes and may be in fragile health," Fillman said.

In response, Ignagni said that "in many cases, the benefits are better" for retirees enrolled in Medicare private fee-for-service plans.