By John Reichard, CQ HealthBeat Editor

June 8, 2010 -- With voters increasingly stressed about the deficit, the cost of the overhaul law remains a hot topic in Washington — but sharply varying predictions aren’t lending clarity to the budget debate. Speakers at a health policy forum Tuesday talked up estimates ranging anywhere from trillions in savings to trillions in added deficit spending. Harvard University economist David Cutler, one of the speakers at the forum sponsored by the policy journal Health Affairs, called a 1.5 percentage point reduction in health care cost growth a reasonable target as health information technology gradually makes health care more efficient.

Doing so would save the federal government $580 billion in 2010-2019, $3.5 trillion in 2020-2029 and $4.9 trillion in the decade after that, Cutler estimated in a paper released at the forum. The savings reflect a 30 percent reduction of medical spending — the part of the health care dollar spent on unjustified care, Cutler said.

Cutler tied his prediction to at least a couple of caveats, however. "First, the administration must move forward rapidly with the design and operation of the pilot programs and demonstration projects, and with needed internal reforms," he wrote. "It takes five to 10 years from concept to results; this cycle must be cut to a year or less," he added "Such streamlining is feasible, but it will require an enormous change in agency culture."

Cutler added that doctors and hospitals and big private insurers and other health care purchasers "must actively participate in the change to new models of care delivery."

But estimates that the law will cut the deficit are wishful thinking, Michael J. Ramlet, co-author of a paper with Douglas Holtz-Eakin, said in his remarks.

Stripping out the law's funding "gimmicks and budgetary games" would add $554 billion to the deficit in the first 10 years and $1.4 trillion over the next 10 years, Ramlet said in the paper written with Holtz-Eakin, the former Congressional Budget Office (CBO) director and adviser to John McCain's presidential campaign.

Dubious provisions of the law include "unachievable savings, unscored budget effects, uncollectible revenue and already reserved premiums," the paper said.

White House Office of Health Reform Director Nancy-Ann DeParle focused in her remarks on an estimate that the law would yield health system savings greater than suggested by the $143 billion in 2010-2019 deficit reduction forecast by the CBO.

DeParle noted an estimate by the Commonwealth Fund that the law would trim overall health care spending in the United States by $590 billion in its first decade, including $400 billion from federal spending. The Commonwealth study faulted other estimates for giving "almost no weight to proposals for improving the information available to providers and modifying the financial incentives in the current system."

With estimates varying based on different assessments about how providers and others will respond to efforts in the law to make care more efficient, it's likely that estimates will continue to vary in the future — and that doubts about the impact of the law will remain a fixture of the health care debate for years to come.

By Jane Norman, CQ HealthBeat Associate Editor

June 8, 2010 -- Governors appealed to Congress on Wednesday to retain an extension of Medicaid funds proposed in a tax and benefits measure, warning of thousands of layoffs and severe budget pain if Washington ends the special additional payments to states.

Nursing home owners and other providers of health care to the poor and elderly also flooded Congress with pleas as well, arguing that the temporary increase in Medicaid funds — a continuation of aid that began with the 2009 economic stimulus — is needed to keep the country from sliding back into a recession.

The latest version of the tax and benefits bill includes $24.2 billion in Medicaid funds added by Senate leaders after they were stripped out in the House amid complaints from moderate Democrats over the budget deficit. The House passed its version on May 28. Senate leaders unveiled their new, $140 billion version Tuesday.

Senate Majority Leader Harry Reid, D-Nev., said Tuesday that "I think that the House will accept" putting back the special Medicaid funds. But the measure will have to pass the Senate first, where moderate Republicans and even some Democrats are nervous about the bill's overall price tag. While there are some offsets, the overall measure would add $78.7 billion to the deficit.

On a conference call with reporters organized by the liberal-leaning Economic Policy Institute, four Democratic governors said they will have no choice but to slash state spending and jobs if the Medicaid money doesn't survive.

Unlike the federal government, states must balance their budgets.

Christine Gregoire, governor of the state of Washington, said that after both chambers of Congress initially approved the Medicaid funds in earlier versions of the bill, the state legislature in Washington decided it was "appropriate to bank on it" and so the money was factored into the state budget.

Washington was one of 30 states that included the funds in their fiscal 2011 budgets, she said. If the $480 million for her state is revoked, the state would have to reduce medical services for the poor, slash provider reimbursements or make across-the-board layoffs of about 6,400 state employees to account for the loss of revenue, she said. California faces a loss of $1.8 billion, Gregoire said.
"We have made it very clear to our members of the House and Senate it is essential they move now. Time is of the essence," she said.

If approved by Congress the $24.2 billion in Medicaid funds would be matched with state funds in the state-federal program of health care for low-income people. The additional pot of Medicaid money was first extended to states as part of the economic stimulus law in 2009 in reaction to the economic downturn. Those payments end Dec. 31, 2010. The $24.2 billion would extend the added Medicaid funding through June 30, 2011.

Wisconsin Gov. James E. Doyle said the federal Medicaid funds were not included in his state's budget but the failure to provide the money still will put "enormous pressure" on the budget. Wisconsin already has cut its Medicaid spending despite a 26 percent enrollment increase and further cuts would mean layoffs in state government, said Doyle.

Most Medicaid money in Wisconsin goes to nursing homes and rate cuts would result in homes cutting back dramatically or closing, he said. "You would see job losses in communities big and small all across Wisconsin," Doyle said.

Kansas Gov. Mark Parkinson said his state is beginning to come out of the recession but the loss of the Medicaid money would mean "a real possibility" of layoffs. Kansas is another state that included the federal government's $130 million in its state budget. Because 63 percent of the Kansas budget is for education, the main impact would be reductions to education spending resulting in the layoffs of as many as 4,000 teachers, Parkinson said.

Edward G. Rendell, governor of Pennsylvania, said his state would lose $850 million in money already included in its budget and predicted the state would be thrown back into recession. "If we have to deal with the loss of $850 million by layoffs, it would mean 20,000 layoffs," he said. That would include state workers, teachers, university professors, caseworkers, policemen and firemen, Rendell said.

Mark Zandi, chief economist at Moody's Analytics, said the funds are needed to keep the nation's economy afloat. He said that the economic expansion remains "very tentative" while unemployment remains near 10 percent and likely closer to 17 percent when the under-employed are considered. Growth likely won't accelerate by the end of the year, said Zandi.

Intense fiscal pressures on state and local governments thus will be a significant drag on the economy in coming months as well, he said.

State and local governments already have had to cut jobs and that trend would accelerate if they don't get the Medicaid funds and have to tighten their belts again, he said. Medicaid funds are an effective form of stimulus because they go directly to states and then into the economy, Zandi said.

Demands for spending offsets are not realistic, he said. "In an ideal world I think it would be good if this aid were paid for . . . but I don't think paying for it is a necessary condition for passage," he said. The risks are "just too high" to cut off the funds, he said.

On the Hill, more than 400 members of the American Health Care Association and the National Center for Assisted Living, which represents nursing homes and assisted living facilities, paid calls on members of Congress to urge support of the added Medicaid funding. "The eldercare financing crisis at hand cannot be papered-over or pushed to the policy back burner, and Congress must act now," said Bruce Yarwood, president and CEO of the organization.

By John Reichard, CQ HealthBeat Editor

President Obama struck back Tuesday at Republican claims that the health overhaul law will harm seniors by cutting close to half a trillion dollars from Medicare, saying his opponents would roll back provisions to fill the gap in Medicare drug coverage and end out-of-pocket charges for preventive care.

Republicans have put the administration on the defensive by emphasizing the Medicare cuts, a potent argument because seniors are uneasy about the law and are more likely than other voting blocs to cast ballots in midterm elections.

Appearing in a town hall-style forum at a senior center in suburban Maryland, Obama sought to reframe the issue. Republicans are aiming to repeal the improved Medicare benefits in the law, he said, including provisions to gradually eliminate the gap in Medicare prescription drug coverage known as the "doughnut hole."

Obama also sought to weaken one of the strongest GOP talking points against the law — that its big cuts to Medicare Advantage plans will harm seniors — by likening those attacks to discredited claims that the law will create "death panels" to ration care.

And he sought to undermine the concept of Republicans as defenders of Medicare by implying some in the GOP would "voucherize" the program.

The administration also is trying to win the goodwill of seniors by pledging tough efforts to curb fraud in Medicare. Congressional Democrats are joining in the effort, with House Ways and Means Health Subcommittee Chairman Pete Stark of California announcing a June 15 hearing targeting "waste, fraud, and abuse" in Medicare.

While anti-fraud efforts can generate significant savings, they fall far short of being able to assure the solvency of Medicare.

Obama began the event in Wheaton, Md., televised on C-SPAN and linked in with similar senior events elsewhere, by highlighting the case of a breast cancer patient named Fran whose prescription drug costs put her in the coverage gap.

"You've just heard Fran's story," Obama said. She "was forced to pay the entire cost of the medicine she needed out of pocket. That came to thousands of dollars, forcing her and her husband to cut back everywhere else."

He said, "Beginning this week, tens of thousands of seniors who fall into the doughnut hole, like Fran, will receive a $250 rebate check to help you cover the cost of your prescriptions." Then in 2011, "you'll get a 50 percent discount on the brand-name medicine that you need — 50 percent." And "by 2020 this law will close the doughnut hole completely."

Also, "next year, preventive care — including annual wellness visits for Medicare beneficiaries, certain screening services like mammograms — will be free," Obama added.

Tight reimbursement for private health plans in Medicare in the late 1990s led many HMOs to withdraw from the program, forcing hundreds of thousands of seniors to return to traditional Medicare or to pick another plan. The overhaul law's provisions to equalize payments for private health plans and providers in traditional Medicare may similarly rock the Medicare Advantage program.

"This has been an area where probably there's been the most misinformation and concern, after the death panels," Obama said at the Wheaton event.

He sought to put the blame for any disruptions on insurers, claiming the extra money received by private health plans from Medicare goes to CEO salaries and profits and that taking it away shouldn't lead to reductions in the added benefits seniors get from the plans or raise their premium charges.

"Last week, Secretary Sebelius reminded insurance companies that we've got the authority to review and reject unreasonable rate increases for Medicare Advantage plans, and she put them on notice that we will exercise that authority," Obama said.

Senate Minority Leader Mitch McConnell of Kentucky blasted back at a news conference Tuesday afternoon, saying the president "began today an effort to try to sell an extraordinarily unpopular health care bill to the American people."

The $250 checks will "be sent to a small percentage of seniors. Of course that does not address the issue of how many additional seniors, probably three or four times that many, will see their benefits reduced through the cuts in Medicare Advantage," he said.

McConnell added that "some of you have written about this major PR campaign to try to make something that's immensely unpopular popular, including a combination of taxpayer money and privately raised money."

He said that "this level of cynicism is not unheard of in Washington," but added that he regretted "the willingness to use the levers of government for a purpose that seems to me is highly questionable."

By Jane Norman, CQ HealthBeat Associate Editor

June 7, 2010 -- Democrats and health insurers are once again engaged in the "hand-to-hand combat" promised by Health and Human Services Secretary Kathleen Sebelius, this time over possible rate hikes in the Medicare Advantage program that was slashed as part of the health care overhaul.

Both the HHS secretary and congressional Democrats issued warnings on Friday that a close eye must be kept on health insurers who might try to increase premiums for the 11 million seniors enrolled in Medicare Advantage, the private-plan alternative for Medicare beneficiaries. Monday was the deadline for companies to file bids on those plans.

But Karen Ignagni, the head of the health insurance industry's biggest lobbying group, struck back immediately in a letter to Sebelius, pointing out that Medicare Advantage suffered "significant" cuts under the health law and insurers are "concerned" about the impact on seniors.

The thrust and parry followed a brief period of relative quiet between the industry and Democrats on the Hill and in the Obama administration. Both Sebelius and Democrats have pushed hard, though, for insurers to act in advance of the new law's deadlines for allowing young adults to remain on their parents' policies and halting cancellation of policies for sick people. And Sebelius indicated late last month that "we'll continue to look for opportunities to work with insurance companies but also keep a close watch to make sure they treat their customers fairly."

Democrats say they're now worried that insurers will try to wring profits out of seniors by hiking Medicare Advantage premiums or reducing benefits. Extra items such as eyeglass coverage often are included in those policies to entice seniors to leave traditional fee-for-service plans and join.

Any benefit reductions would have to occur in the extra benefits Medicare Advantage plans provide; under the law they could not trim the core Medicare benefits available to all beneficiaries.

"Health care reform strengthened Medicare and made Medicare Advantage more competitive but it is critical that we don't let private insurance companies use these changes as an excuse to raise premiums or cut benefits for seniors to bolster their own bottom line," said Senate Finance Committee Chairman Max Baucus, D-Mont., in a statement. Baucus and other Democratic health leaders wrote Sebelius urging that she closely review the Medicare Advantage plan bids for 2011 using tools included in the health care law.

Also, Sebelius wrote to the CEOs of health insurance companies and urged them to "focus on competing on price and quality" in Medicare Advantage rather than raising premiums for their sickest policyholders by increasing cost-sharing.

Currently, Medicare pays Medicare Advantage plans more than $1,000 per person per year on average than traditional Medicare, Sebelius wrote to Angela Braly, president and CEO of WellPoint. The health law reduces those payments, provides targeted bonuses to high-quality plans and will limit the extent to which plans can charge co-payments higher than original Medicare, Sebelius said.

In addition, 2011 payment rates are the same as in 2010 so the government expects Medicare Advantage to have "robust plan participation and similar benefits, premiums and cost-sharing offerings as it has today," said Sebelius. She also pointed out there have been reports of increases in profits for insurers who have Medicare Advantage plans.

Ignagni, president of America's Health Insurance Plans, replied in a letter to Sebelius that the new health care law includes $136 billion in direct cuts to Medicare Advantage as well as $70 billion in indirect cuts. "This amounts to the largest funding reduction in the history of this program," she said, and cited predictions by the Centers for Medicare and Medicaid Services actuaries that enrollment will drop.

As medical costs "are allowed to continue to soar" and payments are held at 2010 levels, beneficiaries will begin to feel the effect, she said.

"History has demonstrated that inadequate Medicare Advantage payments result in higher premiums and reduce benefits and choices for seniors," Ignagni said.

By John Reichard, CQ HealthBeat Editor

June 11, 2010 -- A draft version of a federal regulation circulating in recent weeks estimates that about half of employer health plans will lose their status by 2014 as "grandfathered" plans exempt from certain requirements under the health care overhaul law.

Employer plans on the market when the legislation was signed into law March 23 are considered to be grandfathered, meaning they are not subject to some of the requirements under the law although they do have to meet others.

For example, grandfathered plans do not have to meet requirements that new plans provide full coverage of preventive care, create appeals mechanisms for plan enrollees and pay the same rates for in-network and out-of-network emergency care.

The draft notes, however, that "to ensure access to coverage with certain particularly significant provisions, even grandfathered plans must comply with a subset" of the law's provisions. Thus they are barred from "rescissions" canceling benefits when an enrollee becomes sick and they must eliminate limits on lifetime payouts of medical care.

But the law doesn't address at what point a plan changes so much that it loses its grandfathered status.

That's where the regulations step in. The draft reg says plans would lose that status if they "significantly decrease the benefits covered, materially increase cost sharing by participants in ways that might discourage covered individuals from seeking needed treatment or substantially increase the cost of coverage borne by participants."

The draft document estimates that 22 percent of employer plans will lose grandfather status in 2011 and 51 percent in 2013.

Republicans charged Friday that the figures show that President Obama spoke falsely when he told Americans that if they like their current coverage, they can keep it. The draft shows, Republicans said, that most workers will be in plans subject to new requirements.

An Obama administration official who requested anonymity said that "it is difficult to predict how plans and employers will behave in the coming years, but if plans make changes that negatively impact consumers, then they will lose their grandfather status."

He added, "This is a draft document, and we will be releasing the final regulation when it is complete." He said, "The president made a promise to the American people that if they liked their health care plan, they can keep it. The regulation, when finalized, will uphold that promise."

By Jane Norman, CQ HealthBeat Associate Editor

June 11, 2010 -- How much personal responsibility do people bear for their own health? Should overweight employees and their families pay more in health insurance premiums than employees who regularly work out and sport a better body-mass index?

Those questions are at the core of a continuing unease among critics of George W. Bush-era workplace wellness regulations expanded in the new health care law. The law will allow employers to vary health insurance premiums based on how well employees do in meeting health standards.

But the workplace wellness provisions also represent a rare beachhead in the law for business groups who say employers want to control health costs and motivate workers to become healthy at the same time.

The next battle will come when the Obama administration writes more specific and complete rules defining the wellness provisions, a process that's just beginning.

Workplace wellness regulations first set in 2006 allow companies to apply penalties or rewards of up to 20 percent of the total cost of an employee's health coverage, based on whether the employee can achieve a specific goal — for example, a certain BMI, or body-mass index, a formula based on height and weight.

Under the new health care law, the figure can be as much as 30 percent of the cost of a company pays for health plans. The secretaries of Health and Human Services, Labor and Treasury are authorized to increase it to 50 percent. Those with "medical conditions" can opt out, but they have to provide verification of their condition.

Sue Nelson, vice president for federal advocacy at the American Heart Association, said her group was among dozens that strongly opposed this proposal, included in the Senate version of the health care bill. Nelson said the groups were assured that their concerns would be addressed when a House-Senate conference committee met to iron out differences in the overhaul measures. But the Senate bill was largely the version that became law.

It's not that the association opposes workplace wellness — the worry is that employers will establish standards without also setting up programs to help employees get healthy. "We have not seen evidence anywhere that simply charging people more for their health insurance, particularly for conditions like obesity, is going to really provide the incentive they need to lose the weight," Nelson said.

Sabrina Corlette, a research professor at the Georgetown Health Policy Institute, said such premium-tied incentives are particularly hard on working women with children who are most often the caregivers and pay less attention to their own health. "For low-income women who are heads of households, working two jobs, with no gym or safe place to walk — it's just much more challenging for them to meet" a health standard, Corlette said.

Bipartisan Support

However, senators on both sides of the aisle pushed incentives. Sen. Christopher J. Dodd, D-Conn., lauded as a "very sound proposal" what was suggested by three Republican senators and accepted by Democrats during markup. Sen. Tom Harkin, D-Iowa, chairman of the Health, Education, Labor and Pensions Committee, said incentives are used by companies with "great results."

Aides to Harkin said he resisted attempts to raise the reward or penalty to 50 percent immediately, thinking there isn't enough evidence yet to go that far. He will watch how the regulations are written, and wants to see protections against discrimination based on health status.

But when Starbucks spends more on health care than coffee beans, something is "seriously askew," said Harkin. "Corporations are spending untold tens of billions on illness, hospitalization, absenteeism and lost productivity," he said.

James Gelfand, director of health policy for the U.S. Chamber of Commerce, which supports the provision, said companies all across the nation host wellness programs. "Some work and some are completely ineffective," he said.

"What we've found is one of the best incentives is lowering employee premiums for health insurance," he said. "We've heard from companies that say that strategy is successful for them." Increasing the reward or penalty to 30 percent will help more of those programs succeed, he said.

Understanding motivation is not easy. A recent survey for the National Business Group on Health found that employees know how to get healthy but aren't necessarily taking action. Asked how well they do with getting exercise, just 22 percent said "great."

Interestingly, 75 percent of the 3,026 people surveyed said workers who practice healthy behaviors should pay less for their coverage. Robert Gould, president and CEO of the Partnership for Prevention, a nonprofit organization that brings together business and employees, said the main problem is there's not yet enough evidence-based research. It's understood that incentives are important, but some people may feel treated unfairly by the way in which they're used, he said.

"A carrot can become a frozen carrot that really is a stick," Gould said.