By John Reichard, CQ Roll Call

April 10, 2013 -- Federal officials recently revealed long-withheld details about how the Obama administration is funding the creation of an insurance marketplace critical to the success of the health care law and its coverage expansion provisions.

Health and Human Services (HHS) Department officials said they expect to spend some $1.5 billion in fiscal 2013 on the federal exchange. They are piecing together funding from sources such as a Public Health and Prevention Fund created under the law (PL 111-148, PL 111-152), a "non-recurring expenditures" account and other sources.

These newly revealed details about where HHS is finding the money could spark attempts by Republicans to shut off those financing sources in fiscal 2014, which starts Oct. 1, just as the operations of the exchange are scheduled to start.

Republicans including Sen. Orrin G. Hatch of Utah have repeatedly asked for such details. Hatch criticized Marilyn Tavenner, the acting administrator of the Centers for Medicare and Medicaid Services, for not providing the information at her confirmation hearing last week.

HHS hopes that Congress will give it the $1.5 billion for fiscal 2014 and that it won't have to keep cobbling together money from other sources. Both are iffy propositions.

HHS officials said at a recent budget briefing that they need a total of $2 billion next year to operate the federal marketplace—to be called the "federally facilitated exchange"—including the $1.5 billion from Congress. HHS will receive an estimated $450 million in fees on insurers that already have been promulgated under the law.

"We need to get that $1.5 [billion] in budget authority from the Congress," said Ellen Murray, assistant HHS secretary for financial resources, at a press briefing on the administration's fiscal 2014 HHS budget proposal.

Asked about the chances of getting such implementation funding from lawmakers, HHS Secretary Kathleen Sebelius said: "This is an ongoing conversation with Congress."

"As this act is fully implemented and Americans begin to take advantage of the benefits, I'm hopeful that Congress will see that this is the law of the land, the Supreme Court has ruled, we intend to implement the law, and millions and millions of Americans are looking forward to full implementation," she said.

Murray said the $1.5 billion this fiscal year has come from these sources: what remains from $1 billion that was allotted under the law for its implementation; "frugal" use of the CMS administrative budget; the "non-recurring expenses fund, which is authority we have to use past-year dollars for IT investments"; and "the secretary's authority to transfer limited sums of money."

Specifically, Murray said, $235 million is coming from the original $1 billion in implementation money, $450 million from the non-recurring expense fund and $116 million from the secretary's authority to transfer funds.

"We're still finalizing the final dollars," she said.

Asked to elaborate on the nature of the non-recurring expenses fund, Murray said it is "a fund which was set up by the appropriators in 2008. Social Security, many other agencies have such a fund, which enables an agency to use dollars from prior years that are no longer available for obligation, for one-time IT and real estate investments."

Asked whether HHS would have access to that fund in fiscal 2014, Murray said: "We are using the fund for the first time because authority began in 2008, and as many of you may know, funds are available often for five years, so most of the money that we know is definitely available [will] come, we don't have projections yet for what might be available next year."

Murray also said that an undisclosed amount is coming this fiscal year from the Public Health and Prevention Fund. Sen. Tom Harkin, D-Iowa, who secured that funding in the health care law, recently was adamant in saying that money for the fund would not be used for exchanges in fiscal 2014. However, Murray served for many years as an aide to Harkin in his capacity as chairman of the Senate Labor-HHS-Education Appropriations Subcommittee.

The federal exchange is the mechanism established by the law to expand coverage of the uninsured in states that refuse to create their own such marketplaces—and there are many.

Twenty-six states have declined to play any role in creating their own exchanges, which means their uninsured residents must rely on the federal exchange. An additional seven states will rely at least partially on the federally operated marketplace under agreements with HHS to open "partnership" exchanges.

The upshot is that in much of the country, make-or-break functions of the health law will have to be performed by the federal exchange—assuming it will have the money to do them. These include determining eligibility for coverage, establishing individual income levels for purposes of setting subsidy amounts, steering the uninsured to Medicaid coverage and enrolling people in plans.

Because many of the uninsured are unaware that starting Jan. 1 they will be eligible for full or partial financial assistance to obtain coverage under the health law, another key operation of the federal exchange will be conducting marketing and outreach to help those without coverage to get signed up in a plan.

By Melissa Attias, CQ Roll Call

April 12, 2013 -- Health and Human Services (HHS) Secretary Kathleen Sebelius repeatedly asserted last week that the health care law's insurance exchanges would open for business on time.

But she didn't elaborate on what would happen if Congress doesn't meet the Obama administration's request for an additional $1.5 billion in fiscal 2014 for a federally run exchange that is integral to the law.

And although it seems highly unlikely that Republicans would be willing to approve the extra funds, House Ways and Means Committee members didn't explicitly say that they wouldn't provide them.

Testifying before committee, Sebelius juggled a variety of questions spanning from Medicare to mental health to specific details about implementing the 2010 health care law (PL 111-148, PL 111-152).

Outlining the funding sources for the overhaul, Sebelius noted that the law appropriated $1 billion to her department for its implementation. She maintained that the amount was one-tenth of the administrative cost that was initially estimated by the Congressional Budget Office.

"I think we have done an extraordinary job, frankly, here in 2013, allocating and using judiciously the $1 billion that we had," she said.

About $230 million is left in that fund, she noted, which will be used with money from other sources in 2013. The administration is asking for another $1.5 billion in fiscal 2014 that she said would help get up and running both a data hub to coordinate eligibility information for the exchanges and a call center.

An HHS budget official also said a major use of the $1.5 billion would be for marketing and outreach for the federal exchange.

Indiana Republican Todd Young questioned whether HHS would be able to launch the exchanges by the January 2014 deadline if it did not receive the additional funds and asked for the department's contingency plans. But Sebelius said she was confident that the exchanges would launch on time, ready for open enrollment Oct. 1.

"The hub is basically built and paid for, and we'll be using the remaining resources that we have," she said. "We are using every opportunity we have to look at my transfer authority within HHS and the dollars that we have."

New York Democrat Charles B. Rangel returned to the issue later in the hearing, asking whether the assurances that the department is on track depends on some cooperation from Congress. Sebelius reiterated that administration is on track to implement the law on time.

Although it remains unclear how HHS would make do without the extra funding in fiscal 2014, it wouldn't be the first time that Congress failed to play along. The administration wanted an additional $949 million for the Centers for Medicare and Medicaid Services in fiscal 2013 that was expected to go toward implementing the exchanges, but the spending bill (PL 113-6) was cleared without the extra funds.

HHS officials said earlier this week that they expect to spend about $1.5 billion on the federal exchange in fiscal 2013 by piecing together funding from various sources, including the law's Prevention and Public Health Fund.

By Jane Norman, CQ HealthBeat Associate Editor

April 10, 2013 -- The time is ripe to permanently fix the Medicare physician payment formula, and there's an essential group that should be pushing for progress and providing input—physicians.

That was the message last week from members of Congress, lawmakers, experts and doctors themselves at a physician leadership event at the Capitol where they talked about the upcoming debate over how to construct a better reimbursement formula. The forum, led by former Medicare director Mark McClellan, was hosted by the Engelberg Center for Health Care Reform at the Brookings Institution.

"You really, really, really, really want to be part of this discussion, if you are a clinician," said Sheldon Whitehouse of Rhode Island, one of the Democratic senators involved in the initial talks in that chamber about how to repeal the Sustainable Growth Rate (SGR) formula.

"And you want the organizations that represent you to be a part of this discussion," he said. "This is a discussion that's going to happen with you or without you. You not being there doesn't stop that. You not being there just makes it a less-educated discussion."

Rep. Allyson Y. Schwartz, D-Pa., earlier this year introduced her own Medicare payment measure (HR 574) with Nevada Republican Joe Heck, and she predicted there will be a permanent repeal. "We've going to get it done this year and we need your help to do that," Schwartz told the doctors at the event.

House Republicans recently released a detailed version of their framework for repealing the SGR, and as they move toward floor action this summer they have said they are looking for reaction from doctors.

Doctors Wary

There's some skepticism, though, that providers will warm to the initial three-phase plan, based in part on quality measures and laid out by the GOP.

Republican Rep. Bill Cassidy of Louisiana, who's a doctor and another player in the SGR debate, said "there cannot be payment reform unless there's physician leadership." And physicians are on edge about dramatic changes in Medicare payments, he said.

"If being the speaker of the House of Representatives is herding cats, then perhaps herding physicians is herding cats on crack cocaine," said Cassidy. "They're very skittish. They're going to take off. They're very nervous."

The discussion on SGR is "more advanced" in the House than in the Senate, said Whitehouse, a member of the Health, Education, Labor and Pensions Committee. However, "I think it's pretty clear that something's got to change," he said, and predicted any Senate plan will emerge from the Finance Committee and Chairman Max Baucus, D-Mont.

"There are a number of us who are continuing to try to kind of flesh out ideas and figure out what the next step is," Whitehouse said, including how to pay for the fix.

McClellan noted that a February report by the Congressional Budget Office said that overhauling the SGR and freezing physicians' payments for 10 years would cost $138 billion—in sharp contrast to an August 2012 estimate of $245 billion. That's led many people to think now is the time to repair the SGR, he said.

Doctors know that prevention, more effective care for chronic disease, care coordination and patient-focused support all are part of the solution for a better payment system, McClellan said. The current fee-for-service system isn't working, and doctors around the country can come up with good ideas about how to implement those changes based on those principles, he said.

But one of those doctors, Allen S. Lichter, CEO of the American Society of Clinical Oncology, expressed frustration with trying to interest the Centers for Medicare and Medicaid Services in demonstration projects of new payment models for oncology. "In the oncology community there is an enormous and pent up willingness to change, to change the way care is paid for," Lichter said. "But this cannot be done by physicians alone. We need the payer side."

By Jane Norman, CQ HealthBeat Associate Editor

April 11, 2013 -- The president's budget proposal for fiscal 2014 again called for a surcharge on supplemental Medicare plans, and that idea has received a boost from the head of a commission that advises Congress on Medicare policy.

Glenn Hackbarth, chairman of the Medicare Advisory Payment Commission, said many beneficiaries buy supplemental Medicare insurance policies that cover even the first dollar of their required cost sharing.

The insurance policies often come at a "very high price," and, once obtained, there's little incentive for a senior to pass up medical services or think about their value, he said. "In our view, the principal winners from the status quo are the insurance companies that sell supplemental coverage. It's a lose-lose proposition for Medicare beneficiaries and for taxpayers," Hackbarth told the health subcommittee of the House Energy and Commerce Committee.

The commission is an independent body with a staff of health policy analysts, and after extended discussion, commissioners make recommendations that often gain serious consideration by Congress, though they have no official weight.

Hackbarth said a redesigned Medicare package should include an out-of-pocket limit as a way to shield beneficiaries from catastrophic costs and reduce their fears that they'll wind up broke, which is why they flock to the Medigap policies.

Obama also proposed raising money through a surcharge on Medigap plans in his fiscal 2013 budget plan and in an earlier deficit proposal, but the idea failed to win support. Among opponents were the National Association of Insurance Commissioners, which in 2011 expressed criticism of a similar Obama proposal, saying it could harm low-income seniors.

But in the budget that Obama released last week, he said the surcharge makes sense. "Some Medigap plans cover all or almost all copayments, including even modest copayments for routine care that most beneficiaries can afford," the Department of Health and Human Services said in the budget outline. "This practice gives beneficiaries less incentive to consider the cost of services, leading to higher Medicare costs and Part B premiums."

So the administration proposed a new Part B premium surcharge for new beneficiaries who buy Medigap policies with low cost-sharing requirements, effective in 2017, according to the budget document. Plans that met an undefined higher level of cost sharing would be exempt. The surcharge, which would amount to about 15 percent of the average Medigap premium, would raise $2.9 billion over 10 years.

Subcommittee Chairman Joseph Pitts, R-Pa., indicated a willingness to start discussions on a revision of Medicare's design, including a Medigap surcharge. "We should have a single deductible for Parts A and B, and we should streamline benefits so that fewer seniors will have to purchase supplemental coverage with money from their own pocket," Pitts said in his remarks. "We should institute a catastrophic cap on out-of-pocket spending to protect seniors from the threat of medical bankruptcy."

Hackbarth also said commissioners believe that copayments, which specify fixed dollar payments for a service, should be used in Medicare rather than coinsurance, which specifies a fixed percentage that should be paid.

"The commission prefers the set dollar amounts of copayments because they are more clearly understood by beneficiaries and reduce uncertainty," Hackbarth said. "Especially if the amounts are set to create incentives for beneficiaries to make better decisions about their use of care, copayments are easy to understand, compare and respond to."

The top Democrat on Energy and Commerce, California's Henry A. Waxman, warned, however, that the surcharges should not be put in place without other changes to Medicare's benefit design because the policies often are held by older and sicker beneficiaries. Increases in charges could harm them and leave them vulnerable to high costs, he said.

By Emily Ethridge, CQ Roll Call

April 9, 2013 -- Health care stakeholders complain that some of Medicare's benefit structure is still stuck in the 1960s, when the program was created. As lawmakers search for ways to reduce government spending, many are looking to find savings by bringing all of Medicare into the current century.

One way to update Medicare would be to create a combined deductible for Medicare Parts A and B, an idea that comes up from time to time. The Obama administration and Republicans both have shown support for it, although early takes on the president's budget suggest he's not putting it on the table just yet.

Unlike almost all private insurance plans, Medicare currently has separate deductibles for different kinds of medical services. That can be confusing for beneficiaries and does not encourage them to get the most efficient care.

Creating a single uniform deductible for services under Parts A and B would modernize Medicare and make it easier for beneficiaries to get cost-effective care, supporters of the idea say.

"It's not a major item, but if you're trying to modernize Medicare, the fact that we have two separate deductibles for Part A and Part B is just something that seems like that it would be simpler if we didn't," said Alice Rivlin, a former Clinton budget director and co-chairwoman of the Bipartisan Policy Center's Debt Reduction Task Force.

But how much would such a move save Medicare? What are the odds that lawmakers would rally behind it? And what do these different parts cover anyway?

What Are the Programs?

Medicare Part A covers inpatient hospital services, while Part B covers outpatient and physician services. Almost all Medicare beneficiaries are enrolled in both parts, with about 7 percent participating in only one, according to the Medicare Payment Advisory Commission (MedPAC).

Currently, the programs have two separate deductibles, as well as different copayments and cost-sharing charges. The deductible for Part A services is relatively high and was $1,156 in 2012, according to MedPAC. For Part B, the deductible was a relatively low $140 in 2012.

The separate deductibles make Medicare different from most private insurance plans, which now have a single deductible for medical services. Medicare, on the other hand, reflects the insurance industry norms of the era when it was created.

"This structure of having two distinct parts is mainly historical, reflecting the structure of private insurance as it existed in the 1960s," MedPAC said in a June 2012 report.

Rivlin said that creating a single combined deductible for medical services would be "fixing a problem that shouldn't have occurred."

Who Supports the Change?

Several deficit reduction proposals have included the combined deductible idea, including ones from President Barack Obama's National Commission on Fiscal Responsibility and Reform, the Bipartisan Policy Center's Debt Reduction Task Force, and then-Sen. Joseph I. Lieberman, I-Conn., and Sen. Tom Coburn, R-Okla.

This year, House Majority Leader Eric Cantor, R-Va., and Senate Finance ranking Republican Orrin G. Hatch of Utah both suggested making a combined deductible part of a Medicare system change.

How Would It Affect Beneficiaries?

Supporters say a uniform, combined deductible would make things simpler for beneficiaries and help them track all their medical services.

But some beneficiaries could wind up paying more out of pocket, depending on where the deductible is set and what other benefit structure changes come along with it.

The Kaiser Family Foundation ran a model with a single deductible of $550 for services under Parts A and B, a uniform 20 percent coinsurance rate and a $5,500 limit on out-of-pocket spending—the benefit changes most commonly grouped together in the deficit reduction proposals.

Under that model, 71 percent of beneficiaries would have higher out-of-pocket spending, 5 percent would have lower, and the rest would have no or nominal changes. The design also would decrease Medicare spending by $4.2 billion in 2013, while beneficiaries' aggregate spending would rise by $2.3 billion.

Supporters argue that while beneficiaries might pay more, they would also have less reason to buy supplemental coverage through Medigap plans and would probably get a cap on out-of-pocket spending for the first time.

"We can create reasonable and predictable levels of out-of-pocket expenses without forcing seniors to rely on Medigap plans," said Cantor, when advocating for the benefit structure change.

G. William Hoagland, senior vice president at the Bipartisan Policy Center and a former top GOP Senate aide, emphasized the importance of the structural changes happening together.

"I don't think you do this in isolation of other changes within the system," Hoagland said of making a combined deductible for Parts A and B.

He noted that most proposals that feature a combined deductible also include some kind of catastrophic coverage provision, which Medicare currently lacks. As it stands now, beneficiaries have no limit on their out-of-pocket spending under Medicare.

Rivlin said that getting that catastrophic coverage is one of the main reasons beneficiaries buy Medigap insurance. But when they have Medigap coverage, people generally receive more services than they would otherwise, which raises the cost of Medicare overall, she said.

"If you had a simpler, easier-to-understand deductible, and the catastrophic coverage, you might discourage people from buying Medigap insurance," she said.

What About Savings?

Changing the Medicare benefit structure could save the federal government money, but it really depends on where the deductible is set. Opponents of the move note that any savings to the government would mostly come from beneficiaries paying more out of their own pockets, such as under the Kaiser model.

MedPAC noted that the combined deductible would affect individual beneficiaries' cost-sharing differently depending on which services they use. Most beneficiaries in a given year use only Part B services, and they would have their low deductibles increase. But the 20 percent of beneficiaries who use Part A hospital services each year would see lower deductibles there.

Most cost-sharing changes are meant to encourage beneficiaries to be choosier and find the most efficient, best quality health services. MedPAC says the current system fails at that because the health services that are generally optional are covered under Part B and so have a low deductible.

Hoagland said a combined deductible would have only a limited effect on making beneficiaries more aware of their health spending.

"It could have some behavioral impact, except, Part A, you really don't have much choice," he said. "If you have hospitalization, you have hospitalization."

Rivlin noted that in most deficit reduction plans, changes to the Medicare benefit structure are done in a benefit-neutral way—and aren't as focused on finding big savings.

Any Problems With This Idea?

Opponents of the combined deductible plan worry that seniors will carry the burden by paying more so the federal government can pay less money. Even those seniors who wind up paying lower deductibles may not actually pay less overall, as was found in the Kaiser Foundation model.

"Because the role of a deductible is to reduce the cost of other aspects of the benefit package—such as premiums, copayments, and coinsurance—a lower deductible would not necessarily lower total costs for a given beneficiary," MedPAC explained.

There could also be a problem with instituting the single combined deductible. Parts A and B have different funding sources. Part A is funded through the Hospital Insurance Trust Fund, which gets much of its funding through a payroll tax and premiums from some beneficiaries. Part B benefits are funded through a different trust fund, which gets some of its funding from premiums paid by people for Part B and Medicare Part D, which covers prescription drugs.

If the programs are combined and have a single deductible, with uniform cost-sharing, that would confuse what money goes into which trust fund.

"I have yet, to be honest with you, yet to see anybody that's said: Once we combine A and B, what do we do about the trust funds?" Hoagland said.

By John Reichard, CQ HealthBeat Editor

April 11, 2013 -- The strange bedfellows approach to influencing health policy—unifying groups that sometimes clash behind a common set of principles—can pay off. After all, it played a part in producing enough of a stakeholder consensus to allow passage of the 2010 health care overhaul. Now a similar effort is getting started to "bend the curve" in health spending.

Called the "Partnership for Sustainable Health Care," the group has some of the same names and faces involved in the consensus building efforts that preceded the health law. They include Ron Pollack, director of Families USA, Karen Ignagni, president of America's Health Insurance Plans and John Rother, an AARP lobbyist at the time who is now the president of the National Coalition on Health Care.

Rounding out the five-member group is David Lansky, president of the influential Pacific Business Group on Health, an employer coalition on the West Coast, and Robert Henkel, CEO of St. Louis-based Ascension Health, the nation's largest Catholic health system.

Because of the health care law (PL 111-148, PL 111-152), "coverage expansion is going to happen," Pollack said at a news briefing last week to announce the group's principles. That has been settled, he said. But now a broad-based effort is needed to rein in spending, not by shifting costs between the public and private sector—the usual inside the Beltway formula—but by bending down the curve in overall health spending.

"The question for us in this room is how do we sustain that," Pollack said of the expanded coverage under the health care law, which he described primarily as a vehicle for signing up millions of uninsured Americans for health coverage. "The same thing is going to be needed for cost and quality," he added.

Although its set of principles has some new elements, the group's prescription is similar to that of other recent proposals for controlling costs. But what's different, its architects say, is the involvement of key stakeholders, their commitment to the job ahead, and their emphasis on controlling overall health spending—not simply spending in government entitlement programs.

Among its newer elements is a call for a state-by-state approach in which local stakeholders agree on their own formula. "Health care is local," said Ignagni. States should convene the players in their health systems to map out a campaign to bend the cost curve, she added. "States that participate would outline specific savings goals, with defined rewards for meeting them," the group said in a news release.

The group says that over the next five years, public and private payers should test new payment and health care delivery models that reward higher quality care and discourage simply performing lots of tests and procedures. Payers should pay more for services that are shown to have value and less for those that aren't. Benefits should be redesigned in the private sector so consumers pay lower out-of-pocket charges when they opt for evidence-based treatments and high-quality providers. Within three years, Medicare "should be modified to allow tiered cost-sharing for beneficiaries who use high quality providers, and drugs and services that are proven cost effective," the group said.

The coalition also wants a "uniform and prudent set of quality and other performance measures" used by both government and business.

"Ultimately it's going to be the key interest groups that are going to bring something over the finish line," Pollack said. The next step is to recruit other interests to join in the effort, including those representing business, hospitals, doctors, consumers, and pharmaceutical companies. "If they are not brought in, we are not going to achieve significant change," he said.

Officials said the announcement is not a prelude to going to the Hill to seek legislation. The aim is to build broad-based consensus, they said. But legislation will eventually be needed at both the state and federal level to accomplish the goals of the group, Rother said. And an overhaul of the Medicare physician payment formula involving development of new forms of health care delivery could present one such opportunity for pushing its agenda.