By John Reichard, CQ HealthBeat Editor

October 17, 2008 -- In the first of what it said will be an annual report projecting Medicaid outlays, the respected Office of the Actuary at the Centers for Medicare and Medicaid Services (CMS) said Friday that combined federal and state spending on the health care program for the poor and disabled will reach $339 billion in 2008. Spending on the program will grow at a 7.9 percent yearly clip over the next decade, reaching $674 billion by 2017.

CMS noted that that's a considerably faster rate of growth than for the economy generally, which is expected to grow at a yearly rate of 4.8 percent over the next decade.

"If nothing is done to rein in these costs, access to health care for the nation's most vulnerable citizens could be threatened," HHS Secretary Michael O. Leavitt said in a news release commenting on the report.

The Medicaid spending growth rate will slightly exceed that for overall health care expenditures, which CMS actuaries and economists say will rise 6.7 percent per year over the next 10 years.

CMS said that Medicare spending will grow 7.4 percent per year through 2017. Medicaid will account for 3 percent of GDP in 2017 and Medicare and Medicaid together 6.9 percent.

The report also projected that Medicaid enrollment will rise 1.8 percent to 50 million this year. Over the next 10 years, enrollment will grow 1.2 percent yearly, reaching 55.1 million by 2017. In 2007, per enrollee spending on non-disabled children covered by Medicaid averaged $2,435 and $3,586 for non-disabled adults. Medicaid's per enrollee spending for the disabled averaged $14,858 and $14, 058 in the case of aged beneficiaries.

By Claire Leavitt, CQ Staff

October 15, 2008 -- Medical technology is the main culprit behind soaring health care costs and physicians should take a closer look at how it is used, said health care experts Wednesday during a discussion on a new report examining how to curb rising costs and expand health coverage for the uninsured.

According to the report by the Center for Studying Health System Change (HSC), "technological change is the most important driver of spending increases over time," while the aging U.S. population "plays only a minor role," said the report, authored by HSC President Paul B. Ginsburg.

"Technology is the main cost driver," said Robert S. Galvin, director of Global Healthcare for General Electric. "We have to make the brave statement that some—though not all—technology is great," Galvin said during the briefing held by the Robert Wood Johnson Foundation.

"Not all technology is worth it," he added. Cost is derived from "price and use—it's the physicians that have the most to do with how [technology] is used," Galvin said.

Len Nichols, director of the Health Policy Program at the New America Foundation, said, "Technology is number 1, but we have to get smarter about its application. Once we get a new technology, we overuse it like crazy. There are just too many MRI machines out there."

Meanwhile, medical malpractice lawsuits and unhealthy lifestyles are not behind spiraling costs, some experts said.

"If we think wellness is going to solve Americans' health care problems, it won't even come close," said Robert Laszewski of Health Policy and Strategy Associates LLC. Laszewski, citing the report's findings that while reduction in obesity levels will reduce spending in the short term, said that costs will increase in the long run thanks to the subsequent rise in life expectancy and exposure to other, more dangerous illnesses.

Despite the rising cost of health insurance, "employers are committed—commendably—to providing health insurance," said Laszewski, who criticized Republican presidential candidate John McCain's proposal to eliminate the employer-tax exclusion and provide families and individuals with $5,000 and $2, 500 tax credits, respectively.

"The McCain plan would provide incentives to move people away from employer-based health care," Laszewski said, adding that employers are, on the whole, not interested in deviating from the current system. McCain has said that his plan will give Americans more choices for their health coverage than they have now, increasing competition and reducing health costs.

Panelists agreed that cost is not the only, nor most important, issue the system faces, referring to the country's 47 million uninsured. While many agree that universal coverage will come with a high price tag, it's "well worth doing" simply for ethical reasons, said David Nexon, senior executive vice president of the Advanced Medical Technology Association (AdvaMed).

By Ben Weyl, CQ Staff

October 14, 2008 -- A substantial number of Medicaid enrollees in Florida's new consumer choice program have struggled to navigate it, leaving some of Florida's most vulnerable citizens, as well as the new program, in an increasingly precarious state, according to a new report published Tuesday in Health Affairs.

Florida embarked on a transformation of its Medicaid system after obtaining a waiver from the Centers for Medicare and Medicaid Services in late 2005. The new program requires enrollees to choose between competing benefits plans rather than receive the previously defined benefits. Proponents of the program had hoped it would improve the efficiency of the Medicaid delivery system and create a competitive market that would encourage recipient involvement.

Those hopes have not yet been realized, however, said the report, based on a 2006–2007 Kaiser Family Foundation survey of enrollees in Broward and Duval counties. The lack of awareness and understanding of the new program is a "pervasive" problem, which seriously endangers the program's efficacy, it said.

Although Florida sent letters to Medicaid enrollees urging them to sign up for a plan, roughly 30 percent of survey respondents who had been enrolled in the new Medicaid program were not aware that they had been signed up. About three-quarters of those enrollees reported that the state had not told them they needed to sign up, suggesting that people did not receive, did not read, or did not understand the state's letter, according to the report.

In addition, enrollees who knew they had to select a benefits plan had trouble doing so, it found. Few respondents estimated the correct number of plans available when surveyed and a majority said it was both hard to understand information about the plans and that it was hard to pick a plan. Even more—60 percent of Duval County respondents and 71 of Broward County respondents—worried about making a bad choice, according to the report. Fewer than half of respondents received help in selecting a plan, and roughly one of five of those who sought additional guidance were unable to receive any.

Nearly half of the U.S. population has limited health literacy, the report found, but making "sound decisions may be an even greater challenge for Medicaid populations, as research indicates that advanced age, limited formal education, and poor health status—characteristics common among program recipients—are associated with poorer health literacy," it said.

If Medicaid enrollees choose the wrong plan, they could face serious financial and medical consequences. Simply to qualify for Medicaid, enrollees must be low income and, according to the report, 42 percent of Duval County respondents and nearly 50 percent of Broward County respondents struggled to pay housing and utility bills in the previous year. If people mistakenly choose a health plan not reflective of their needs, the report notes, affording care on their own would likely be quite difficult.

"The success of consumer-choice models such as that being tested by Florida's Medicaid Reform demonstration hinge on the ability to translate complicated health care information for consumers, and then help consumers use that information to make informed health-care decisions," the report concluded. "Without a well-informed consumer, a fundamental piece of the competitive model is missing, jeopardizing hoped-for efficiencies and cost savings. Further, if recipients are enrolled in health plans that do not meet their health care needs, they are at risk for having problems obtaining needed care, which could have major health consequences."

By Ben Weyl, CQ Staff

October 16, 2008 -- A new report by the PricewaterhouseCoopers Health Research Institute shows that small business owners are not nearly as satisfied with insurer-provided services as large employers and have needs distinct from large companies that are not being met.

Small employers were less satisfied than large employers on all 12 areas of service that were studied, according to the report, including the accuracy and timeliness of claims, wellness programs, and the use of technology such as personal health records. While large employers' satisfaction levels remained above 50 percent on all but one of the 12 areas, small business owners' approval dipped below 50 percent several times. The institute classified businesses with fewer than 250 employees as small; large companies were those with an average of 8,000 employees.

One reason small businesses owners may be less satisfied is the higher costs per employee usually ascribed to small groups, according to the report.

"Small employers could be the canaries in the coal mine for the employer-based model," Michael J. Thompson, principal of PricewaterhouseCoopers' human resources services group, said in a news release.

Both small and large employers ranked the accuracy and timeliness of claims as the service most important to them, but small employers are less satisfied with its delivery. Nearly one of four small business owners said they were dissatisfied, according to the report, while just 14 percent of large employers were dissatisfied with their insurance provider.

The biggest gap in importance between small and large employers was the inclusion of wellness programs to their insurance plans. While nearly 80 percent of large employers said wellness programs were important, only half of small employers did so. Neither group, however, is particularly satisfied with the wellness programs they have. Roughly one of four large employers was dissatisfied with their wellness programs and nearly twice as many—50 percent—of small employers said they were dissatisfied, according to the report.

Neither small nor large employers view the use of technology and, in particular, personal health records, as highly important, despite the increasing fanfare personal health records have received in Congress and elsewhere. Just 27 percent of small business owners and 39 percent of large employers said personal health records were important to their plans. Furthermore, neither group is highly satisfied with their use, "an indication that there is a lack of understanding of how online tools contribute to a wellness strategy," the report notes, "an area on which large employers place a great deal of importance."

About two-thirds of employers, large and small, said they would willingly accept less customized plans if it would reduce costs, the report found. Small business owners, however, said they would require a greater reduction in fees to make it worthwhile—a minimum of 10 percent, according to the report, compared with as little as 3 percent for large employers.

The report, the institute suggested, should help guide insurance providers as they seek to strengthen the employment-based health insurance system at a time when it has come under increasing strain.

"Given that the majority of American workers are employed by small business and that the erosion of health insurance coverage is among small employers," Thompson said, "insurers are keenly interested in understanding what all employers want and how they can adapt plan designs and service offerings to better meet their needs."

By Annie Shuppy, CQ Staff

October 14, 2008 -- Health care ranks right below the economy as a top presidential voting issue, and now men are following the lead of female voters in calling it a major concern, according to a survey released Tuesday of 1,500 likely voters across the country.

The survey, released by the Partnership to Fight Chronic Disease, found that 64 percent of voters said the economy was the most or second most important voting issue, while 21 percent said the same of health care. In terms of personal concerns, health care ranked at the top, with 38 percent saying it was most important or second most important.

"Interestingly, the target voters, independent women, are particularly focused on health care as an important issue," said Democratic pollster Celinda Lake of Lake Research Partners. Lake's group, along with Voter/Consumer Research, designed and conducted the survey.

Men, who previously have been more focused on energy issues, national security, and the war in Iraq, are closing the gap with women in ranking health care as a major concern. In the survey, 39 percent of women said health care was the top or second concern, while 36 percent of men said the same. These results are a break from the past, the pollsters said.

"Women have traditionally been the health care decision makers, and that's translated over to politics, too," Lake said.

Among worries about health care, 30 percent of voters said they worry most about premiums or co-pays going up. The fear of losing health insurance came in second, with 16 percent naming that as a top worry.

The voters surveyed indicated support for a major federal government role in the health care system, even if it means raising taxes. Even if it meant major federal government involvement, 64 percent of voters favored—including 51 percent who strongly favored—providing access to affordable, quality health care for all Americans. If it meant raising taxes, 64 percent favored it, with a slightly lower 44 percent still strongly favoring it.

A majority of the voters surveyed—more than 90 percent—said that both catching and treating and improving preventive care for those at high risk chronic disease should be a priority in improving the health care system. The bulk of those surveyed were familiar with chronic diseases, but 60 percent of them did not think chronic disease had been discussed much by people running for political office.

"Seventy percent of women either have a chronic disease or know someone who has one, but they don't think candidates are talking about it," said Republican pollster Brenda Wigger of Voter/Consumer Research Inc.

By John Reichard, CQ HealthBeat Editor

October 14, 2008 -- It's one of the Obama campaign ads that infuriates Republicans the most: a warning that middle-class families will pay higher taxes under the McCain health overhaul plan—the largest middle-class tax increase in history," one Obama ad asserts.

But Obama's ads largely ignore the impact of the tax credits McCain would provide Americans for the premiums they pay toward their health insurance. When those are taken into account, Americans in every tax bracket get a tax break on the average cost of a family plan, according to defenders of the McCain plan (the amount of that tax break—the sum by which the tax credit exceeded any tax increase—would be deposited into a tax-deferred savings account designed to be used only to pay health care expenses).

Tax analysts with the Urban Institute and Brookings Institution agree. Only after a decade or more would the value of the tax credits provided by the McCain plan fall behind the added tax liability Americans face under the McCain plan, these analysts say.

So while it's true the McCain plan would increase taxes, it would only do so after a decade or more, according to their analysis.

But the story isn't that simple. There's a $1.3 trillion shortfall in the 10-year cost of funding the McCain plan, according to the Urban Institute-Brookings Tax Policy Center. Making up for that shortfall any time soon would likely require tax hikes, spending cuts in other federal programs such as Medicare or Medicaid, or adding to the federal deficit—or some combination of the three.

The same also could be said of the Obama plan. While according to the center it covers many more of the uninsured, it has a bigger shortfall than the McCain plan—$1.6 trillion over 10 years. So paying for that plan also would likely require big tax hikes, spending cuts in other federal programs, adding to the federal deficit, or some combination of the three.

Into the Weeds
McCain is calling for a $5,000 tax credit to help families cover premium costs, whether they stick with employer-based coverage or try to buy coverage on their own on the non-group, or "individual" market. Individuals would get a $2,500 tax credit for those uses.

Obama says that's only part of the story:

"On health care, John McCain promises a tax credit," an Obama ad states. "But here's what he won't tell you. McCain would impose a new tax on health benefits, taxing your health care for the first time ever. It's a multi-trillion dollar tax hike—the largest middle-class tax increase in history. You won't find one word about it on his Web site. But the McCain tax could cost your family thousands. Can you afford it?"

Obama is lying, McCain's Web site says: "John McCain is not going to raise taxes on middle-class families."

It's true that the McCain plan would make employer-paid premiums taxable for the first time. In filing their tax returns, workers would have to count the value of those premiums in figuring out their taxable income. That's because McCain would end—in part—the "exclusion."

The term refers to excluding from taxable income employer-paid health insurance premiums. There are two types of possible exclusions—one is excluding employer-paid premiums from income taxes, and the other is excluding them from payroll taxes.

The McCain plan would keep the exclusion as far as payroll taxes are concerned. So, if an employer paid $12,000 in premiums for family coverage, that money wouldn't be counted in calculating payroll taxes, and payroll taxes paid by the family would not go up. But the exclusion would end as far as income taxes go. So the family would have to add the $12,000 to its tally of taxable income in filing its income tax return.

Bracketology
That doesn't mean the family's income taxes would go up, however. How much of a tax hike results from an increase in taxable income depends on one's tax bracket and the degree to which tax credits are available to offset the tax hike.

One of the Senate's leading tax writers made that point in floor remarks delivered Sept. 30.

Under the McCain plan, "this family would pay income taxes on the $12,000 policy," said Sen. Charles E. Grassley, R-Iowa, the top Republican on the Senate Finance Committee. "Let's assume that this family was in the 25 percent tax bracket. This family would pay $3,000 in additional income taxes.

"This new tax liability, however, would be offset by the $5,000 tax credit for family health insurance. As a result, $2,000 would be left over. This means that the family would receive a $2,000 tax cut." The tax cut would be even greater if the family had less expensive employer-sponsored coverage, Grassley noted.

Even if the family were in the highest tax bracket—35 percent—it would have lower taxes, Grassley noted. In that example, it would pay $4,200 in added taxes. But the $5,000 credit means it would have a tax cut of $800. And at the other end of the income scale the tax savings would be far greater.

Thus if the family were in the 10 percent tax bracket, it would pay $1,200 in added taxes, but that would be offset by the $5,000 tax credit, meaning it would get a $3,800 tax cut (which would be deposited into a tax deferred account for payment of health care expenses).

The cost of coverage would have to be very high for the increased tax liability to exceed the tax credit.

A family in the 10 percent tax bracket would have to have a policy in excess of $50,000 policy in order to see a tax increase after taking into account the $5,000 credit, according to a Senate aide familiar with the McCain plan. A family in the 35 percent bracket would have to have a policy in excess of $14,285. But defenders of the McCain plan say this would be an upper-income family, and the McCain exclusion policy aims to discourage workers from getting very expensive coverage because it contributes to increased health care spending.

So Where's the Revenue?
But if so many Americans get a tax break from the McCain plan, where does the revenue come from to fund all of the tax credits?

Supporters of the McCain plan say that while its true people in all tax brackets receiving an average family plan would get a tax cut, people in the highest tax brackets continuing to get expensive coverage would pay higher taxes. So that would pay some of the revenue to fund the tax credits, although the McCain campaign estimates that fewer than five percent of Americans with employer-based coverage would pay higher taxes.

What about the rest? The Tax Policy Center, after all, estimates a $1.3 trillion shortfall in funding for the McCain plan over 10 years.

McCain senior policy adviser Douglas Holtz-Eakin has taken exception to reports that McCain would cut Medicare and Medicaid to fund his health overhaul plan. Holtz-Eakin says that improved methods of detecting and preventing fraud would generate savings. He has also suggested that better preventive care and improved methods of treatment for chronic diseases would create savings that could fund the overhaul plan, as well as improvements in information technology and savings from selling insurance across state lines. And the campaign also says it is likely that some people on Medicaid or whose children are enrolled in the State Children's Health Insurance Program would get coverage using the McCain tax credit, thereby taking them off the public rolls.

But those sources of savings are highly speculative and are unlikely to come close to quickly plugging the revenue gap in the McCain plan, judging from previous research on the impact of preventive care, disease management, and improved fraud detection, on health care outlays.

An Obama Adviser Responds
Until recently, the McCain campaign has indicated that the tax code changes sought by McCain would cover the full cost of the tax credits.

In her Oct. 2 vice-presidential debate with Democratic Sen. Joseph R. Biden Jr. of Delaware, Alaska's Republican Gov. Sarah Palin said the McCain tax credit is "budget neutral. That doesn't cost the government anything," she said.

The Obama campaign says that isn't the case, however.

"There's a little bit of a confusion about what McCain intends to do," an Obama adviser said. "Initially, he said his plan was revenue-neutral. And of course with the Tax Policy Center saying it cost $1.3 trillion dollars, the way you do that was you had the payroll tax in there and that roughly made it revenue-neutral. And so for a while they were kind of telling people that health insurance would be subject to the payroll tax as well. If you do that then for the typical middle-income person then you're going to end up raising their taxes."

Obama's ads have assumed that the McCain plan would be budget neutral, and thus assumed the exclusion for payroll taxes would end—leaving millions more Americans paying higher taxes, he said. Since the payroll-related exclusion doesn't end under the plan, McCain has to find other ways to pay for his plans, such as Medicare and Medicaid cuts, the adviser said.

Holtz-Eakin says however of the tax code changes that "we view this as part of a broad reform that has a lot of components" and that would be budget-neutral overall. He acknowledged that putting into place system changes that produce savings "won't happen overnight," but said that producing those savings is imperative.