By John Reichard, CQ HealthBeat Editor

February 13, 2012 -- The Obama administration's fiscal 2013 budget proposal seemingly charts a far different path for Medicare and Medicaid than many Republican plans, as it would preserve both as entitlement programs.

Many beneficiaries would nonetheless see big changes, with wealthier Americans paying higher costs, for Medicare in particular.

And while the budget, released last week, is written to preserve the health care law (PL 111-148, PL 111-152) and its guaranteed subsidies to buy coverage for uninsured Americans at the middle or modest end of the income scale, it shows that the administration is scrambling—perhaps futilely—to implement the overhaul in a way that will fulfill the robust vision its framers had for covering the uninsured and preventing chronic disease.

The proposal calls for more than $200 billion in Medicare cuts to hospitals, skilled nursing facilities and other "post-acute providers," and pharmaceutical companies. If post-acute provider lobbies are correct, the cuts would mean a reduction of staffing and deteriorating patient care in nursing facilities.

Medicare would change in other ways as well. Starting in 2017, beneficiaries with higher incomes would pay sharply higher Part B and Part D monthly premiums than other beneficiaries.

The current income thresholds for paying those premiums would drop from the current figure of $85,000 in annual income to $80,000. The higher premiums they pay would be raised 15 percent. And the income thresholds would not be adjusted for inflation until fully one-quarter of the Medicare population was paying the higher premiums.

As for Medicaid, states would be less able to pump up federal matching payments by raising provider taxes.

The budget proposal also calls for "a single blended matching rate for Medicaid and Children's Health Insurance Program spending to replace the current complicated patchwork of matching formulas starting in 2017." Critics of this approach say having a single rate would make it much easier for Congress to dial down how much the federal government sends to the states for Medicaid over time. And Sen. John D. Rockefeller, IV, D-W.Va., said the approach would lead to an end of the Children's Health Insurance Program.

The health care law would avoid a huge hit, but the proposal shows that $900 million of the $1.2 billion allotted in fiscal 2013 for the Prevention and Public Health Fund created under the law would go to the Centers for Disease Control and Prevention. Over a 10-year period, the Obama budget would reduce the $15 billion fund by $4.5 billion. The public heath community won passage of the fund as a way to foster tailored, grass-roots programs to prevent conditions including tobacco-related illness, diabetes and obesity.

The administration also is asking for $864 million to help the Centers for Medicare and Medicare Services create a federal insurance exchange to offer insurance options in states that do not create their own exchanges under the health care law.

What happens if Congress doesn't provide the $864 million?

Administration officials say resolutely that starting Jan. 1, 2014, all state residents will have an exchange to go to. But they are vague about how that will happen. One official said that failure to get the funds would mean the administration could do less in the way of "eligibility, enrollment and outreach" for the federal exchange.

The cuts and premium increases included in the proposal in earlier times would be viewed as politically unlikely given the lobbying and campaign funding might of the drug industry and claims that post-acute care would deteriorate in quality. But the Medicare and Medicaid changes are essentially the same as in a deficit reduction proposal President Obama floated last fall. And with the imperative to reduce deficit spending, changes once thought unthinkable become more of a possibility.

By John Reichard, CQ HealthBeat Editor

February 16, 2012 -- Most House and Senate negotiators formally signed a conference agreement this past week that extends Medicare physician payment rates at current levels through the end of the year.

The "doc fix" piece of the legislation extending payroll tax relief and unemployment benefits is the latest in a long series of temporary payment patches to block scheduled deep payment cuts under the Sustainable Growth Rate (SGR) formula. Its $18 billion cost over 10 years is offset by various cuts under the health law (PL 111-148, PL 111-152) as well as to Medicare payments to hospitals, skilled nursing facilities, and clinical labs.

Democrats and some Republicans had hoped to eliminate the SGR as part of the current package by using savings from winding down the wars in Afghanistan and Iraq. Many physician groups said last week that they were deeply disappointed that lawmakers did not take that route.

But Democratic conference negotiators said after signing the agreement that there still is an opportunity to use war savings to do away with the SGR.

The House and Senate are expected to vote on the package this week before beginning a week-long recess.

The health-related offset provisions in the final agreement are as outlined Wednesday by a GOP aide. They save $21.2 billion over 10 years. In addition to the $18 billion cost of the doc payment patch, these offsets will also pay for various so-called Medicare extender programs.

Offsets

Three of the offsets cut health law spending by $11.6 billion over 10 years. The reductions take $5 billion from a $15 billion preventive care fund, $2.5 billion by ending in 2014 a high Medicaid matching rate for the state of Louisiana, and $4.1 billion by reducing Medicaid payments to hospitals who treat a disproportionate share of low-income patients.

The other $9.6 billion in health-related savings consist of $6.9 billion in Medicare "bad debt" payment cuts to hospitals and skilled nursing facilities and $2.7 billion in reduced Medicare payments to clinical laboratories.

The bad debt payments compensate providers when patients don't pay their out-of-pocket charges. Depending on the type of patient involved, Medicare reimburses providers for some or all of these uncollected fees.

"This provision would phase down the bad debt reimbursements to 65 percent beginning in fiscal year 2013 for providers who are currently being reimbursed at 70 percent, while phasing in the reduction to 65 percent over three years for those who are reimbursed at 100 percent of their bad debt," said a Republican summary of the agreement. "President Obama recommends that bad debt payments be reduced to 25 percent," the summary added. Obama made that proposal in the context of a deficit reduction package.

Extenders

The Medicare extenders cost relatively little. A provision to extend the Section 508 hospital program only through March 31, 2012 would add $100 million. The program adjusts payments to hospitals based on geographic differences in labor costs.

A program to preserve beneficiary access to certain hospital outpatient services by limiting out of pocket charges costs $100 million. A program that limits the payment impact to physicians of geographic adjustments for physician work adds $400 million to spending. A provision extending an exceptions process to the Medicare cap on payments for various outpatient therapy services adds $700 million.

Other extender programs receiving small sums of added funding cover physician pathology services and ambulance payments.

Also extended at a cost of $600 million was the "Qualifying Individual" program, under which Medicare pays states to cover Part B premiums for certain low-income seniors. And extending the "Transitional Medical Assistance" program to temporarily cover health care costs for people moving off of welfare costs $1.1 billion.

SGR Elimination

Rep. Sander M. Levin, D-Mich., the top Democrat on the Ways and Means Committee and a conference negotiator, said that the failure to use war savings in this latest negotiation to eliminate the SGR and the ever deeper payment cuts it generates "was a lost opportunity. It may not be fading away, but it was a lost opportunity," he said.

Another conference negotiator, Rep. Allyson Y. Schwartz, D-Penn., said she will continue to work toward elimination of the SGR, which the Congressional Budget Office estimates would require offsets of $300 billion over 10 years. "Some people think we could get it done by itself, and some people think the best we could get it done is in a bigger package," she said. Such a package could be considered "at the end of the year," she said.

War savings should still be available then to eliminate the SGR, she said. Schwartz said a number of Republicans have privately told her they would be willing to use war savings for that purpose. But Republican leaders would not allow it this time, she said.

Advocates Concerned

Chris Hansen, president of the American Cancer Society Cancer Action Network said the $5 billion cut to the prevention fund "is a deeply regrettable about-face that will undermine the nationwide effort to prevent death and suffering from cancer and other life-threatening diseases through expanded access to proven prevention and early detection tools."

"The prevention fund was created to save lives by improving access to lifesaving screening tests, tobacco cessation programs and better nutrition and fitness options at the state and community level. By steering funds away from prevention efforts focused on keeping people well, Congress is pulling back from its prior commitment to the common-sense goal of saving lives and money by preventing deadly and costly chronic disease."

By Rebecca Adams, CQ HealthBeat Associate Editor

February 16, 2012 -- White House officials recently highlighted a fiscal 2013 budget proposal to spend $14 billion over a decade to expand a health care tax credit for small businesses, a move they say would benefit about 4 million workers this year.

The proposal would simplify and build on a credit that was part of the 2010 health care law (PL 111-148, PL 111-152). In 2011, about 360,000 of the estimated 6 million small business employers in the United States are expected to benefit from the existing tax credit. That means about 2 million workers will be helped to get insurance, Karen Mills, head of the Small Business Administration, and Small Business Majority CEO John Arensmeyer noted on a phone call with reporters.

National Economic Council senior aide Liz Fowler told reporters that the administration has found offsets that could pay for the expansion. However, the proposal faces a skeptical Congress because it is unlikely that Republicans who want to cut the deficit will agree to spend more money to expand the health care law.

Even before the tax credit was enacted, critics argued that its rules would be too cumbersome and restrictive. The expanded version would simplify the rules and expand the credit, White House officials said. Businesses with up to 20 workers would be eligible for a full tax credit, instead of those with up to 10 workers under the current law. Companies with up to 50 workers would be eligible for a partial credit, instead of 25 workers under the current rules. The expanded version would also increase the average wages that a company's workers could earn.

The budget proposal would eliminate two requirements for employers to claim the credit. First, it would eschew a requirement that employers show they contribute the same share of the cost for each employee's health insurance. The proposal also would eliminate a cap that now limits employer contributions to the amount that an employer would have given if they offered the health insurance plan with the average premium in their state—a requirement that administration officials acknowledge can be complicated to calculate.

Employers would still be required to contribute at least half of the insurance premium, the requirement under the current version.

One challenge to the program's success is that "some businesses just didn't know about it," Jason Levitis, senior adviser to the assistant Treasury secretary for tax policy, said on the call with reporters. An administration supporter on the call, Michigan small-business owner Mark Hodesh, said that he had to ask his accountant about it more than once and nudge him to take advantage of it.

The IRS is in the midst of a "massive outreach campaign" to raise awareness of the credit, Levitis said. The administration has sent postcards and emails to accountants and small-business owners. IRS officials have spoken at an estimated 1,500 business forums around the country about it.

Administration officials may be hoping that efforts to publicize the credit and its proposed expansion will pay political dividends. Polls by the Kaiser Family Foundation and others have shown that when Americans learn about the tax credit, many support the concept of it.

One group that was not impressed was the National Federation of Independent Business (NFIB), which represents small-business owners. NFIB is one of the parties challenging the constitutionality of the health care law.

"The current health care tax credit is ineffective at incentivizing businesses to provide health insurance," said NFIB spokeswoman Jennifer Cooper. "Expanding it does not mean that more business owners will take advantage of it. The ineffectiveness of the credit comes down to one thing: The credit does not outweigh the cost of the many taxes in the health care law."

But the White House plans to continue to tout the proposal through activities by the Small Business Administration, IRS, and HHS throughout the year, with the aim of attracting notice particularly among political independents who may not have a deep understanding of the health care law.

By John Reichard, CQ HealthBeat Editor

February 17, 2012 -- Relatively low premium charges and stable benefits have been a hallmark of the private health care plans and prescription drug plans in the Medicare program of late, and that trend will continue, federal officials said last week.

Officials released a "growth percentage" for per capita expenditures in Medicare and said it will be used to set 2013 rates for Medicare Advantage plans, the private managed care health plans in Medicare. The figure—2.47 percent—"will help ensure that beneficiaries maintain a choice of plans without significant increases in premiums or decreases in benefits," said a Centers for Medicare and Medicaid Services (CMS) news release. CMS will publish a rate announcement for 2013 on April 2.

The CMS news release did not discuss the impact of a 2 percent reduction of Medicare rates that would occur if the terms of the budget control law President Obama signed last summer are not changed. Presumably these automatic cuts—known as a "sequester"—would lop off 2 percent from the rates. But as long as rates aren't actually reduced and Medicare Advantage plans continue to charge relatively attractive premiums, enrollment in Medicare Advantage plans next year seems likely to continue growing.

CMS said it will exercise its authority under the health care law (PL 111-148, PL 111-152) to deny health plan bids for 2013 that propose too great an increase in out-of-pocket charges or too much of a decrease in benefits.

The agency added that if either a Part D prescription drug plan or a Medicare Advantage plan in 2013 does not achieve a three-star quality rating—and it is the third year in a row the plan has not done so—members will be offered a special enrollment period during which they can sign up for another plan.

By Rebecca Adams, CQ HealthBeat Associate Editor

February 16, 2012 -- Federal health officials recently denied Wisconsin's request for a waiver from a health care law requirement that insurers spend 80 percent of premium dollars on benefits. They required North Carolina insurers to meet that threshold beginning this year, but said that those who paid out at least 75 percent of premiums last year won't be penalized.

The insurance rule requiring insurers to pay out 80 percent of premiums, known as the medical loss ratio provision, were part of the 2010 health care law (PL 111-148, PL 111-152). So far, 17 states and Guam have requested temporary waivers from the rules for their insurers. One of those requests, for Maine, was approved as requested. Six states won a partial reprieve and requests from 10 states were denied. Federal officials decided that Guam's insurance carriers are so small that they don't have to submit data showing whether they comply.

Insurers will have to pay rebates to consumers this summer if they didn't pay out 80 percent of premiums last year, unless they are in a state that received an adjustment to the rules.

Steven B. Larsen, the director of the federal Center for Consumer Information and Insurance Oversight that oversees the rules, said on a call with reporters that Wisconsin officials had not proven their case that the health insurance market would be destabilized if the rules went into effect. The state had asked that insurers have a 71 percent threshold in 2011, 74 percent in 2012 and 77 percent in 2013. Larsen said that Wisconsin is "not a concentrated market but a competitive market," with 18 different carriers. Many of the insurers already either pay out at least 80 percent of premiums to consumers or are changing their practices so that they will soon. Wisconsin officials had said that six insurers would not have met the standard in 2010.

The federal health care law is a politicized issue in Wisconsin, where Gov. Scott Walker has said he will not implement the overhaul. Wisconsin officials did not immediately respond to requests for comment on the HHS decision.

Larsen said that the climate for consumers in North Carolina was a "very different market" that is dominated by BlueCross BlueShield of North Carolina, which has more than 80 percent of the business in the state. A letter to Commissioner Wayne Goodwin said that about half of the 14 carriers in the state's individual market that are subject to the rules did pay out at least 80 percent of their premiums in claims in 2010. But five companies left the market or stopped issuing new policies. Larsen told reporters that because the market is so concentrated and some insurers had already stopped offering new policies, federal officials were concerned that more insurers in that state might follow suit and leave consumers with few insurance choices.

The North Carolina Department of Insurance asked to change the medical loss ratio standard to 72 percent in 2011, 74 percent in 2012 and 76 percent in 2013. Department spokeswoman Kerry Hall called the decision to implement a 75 percent standard in 2011 and an 80 percent starting in 2012 a sensible one.

"The purpose in requesting the medical loss ratio adjustment was to prevent a destabilization of North Carolina's individual health insurance market," Hall said in an email. "We're pleased that the federal government saw merit in our analysis and request, and agreed that a short term adjustment was necessary. This decision allows us to keep a balance. It helps North Carolina maintain stability and consumer choice in the individual health market, while still providing rebates for many policyholders and holding insurers accountable. Furthermore, the announcement underscores the value and necessity of state-based insurance regulation."

Larsen also told reporters that the agency is proposing that consumers get a notice if their insurer will have to issue a rebate to them.

"Starting in August 2012, consumers will find out from insurers what value they're receiving for their premium dollars," Larsen said.

The National Association of Insurance Commissioners had estimated in a study that rebates nationwide could top $1 billion, but those projections are not currently up-to-date.

• Rebate Chart (pdf)

By CQ Staff

February 15, 2012 -- In their continuing effort to highlight the benefits of President Obama's health care overhaul, Health and Human Services officials announced that in 2011, an estimated 86 million Americans took advantage of the prevention coverage improvements in the measure.

Among those enrolled in private health insurance plans, 54 million received at least one new preventive service. The health care law (PL 111-148, PL 111-152) requires insurance plans to cover a variety of preventive services for free, including colonoscopy screening for colon cancer, Pap smears and mammograms for women, well-child visits, and flu shots for all children and adults.

An estimated 32.5 million Medicare beneficiaries also benefited from such preventive services as the new annual wellness visit. That number included 25.7 people in traditional fee-for-service Medicare. In addition, the report found that 9.3 million Americans—97 percent of those in individual Medicare Advantage managed-care plans—were enrolled in a plan that offered free preventive services. Assuming that people in Medicare Advantage plans utilized preventive services at the same rate as those with traditional Medicare, HHS estimated that 32.5 million people benefited from Medicare's coverage of prevention with no cost sharing.

"With more people taking advantage of these benefits, more lives can be saved, and costly, and often burdensome, diseases can be prevented or caught earlier," HHS Secretary Kathleen Sebelius said in a statement.

The report broke down the preventive-services results by ethnic group. The results showed that an estimated 6.1 million Latinos, 5.5 million African Americans, 2.7 million Asian Americans and 300,000 Native Americans with private insurance received expanded preventive benefits coverage in 2011.