By John Reichard, CQ HealthBeat Editor

July 31, 2013 -- The surprising slowdown in health care spending that recently led to lowered deficit spending projections shows no strong signs of reversing, judging from comments by budget analysts and economists at a Washington, D.C., forum.

But while no one was forecasting an imminent end to the trend, speakers at the forum differed over the need for new controls to help keep it going.

The slower pace of per capita health spending growth has been apparent for many months, in large part the outgrowth of weakened demand for health care stemming from the nation's economic woes. But more recently, abundant evidence has surfaced that says not only has utilization been less, but price growth has also slowed to an historic degree. Health care price growth is lower than it has been in at least two decades, said the Altarum Institute, the Ann Arbor, Michigan-based nonprofit that sponsored the event.

"The 12-month moving average at 1.8 percent in April 2013 is the lowest since the 1.7 percent recorded in September 1998," the institute said in a July 12 report. The institute conducts research and provides consulting services to providers.

For May, hospital prices grew by 1.8 percent, nursing home prices rose by 0.5 percent and prices remained flat for physicians. Meanwhile, other prices fell: Home health prices were down by 0.2 percent, prescription drugs by 0.1 percent, and durable medical equipment by 0.5 percent.

Last week, the White House released statistics saying that consumer prices for health care goods and services increased just 1.1 percent in the 12 months ending in May, what it called the slowest annual rate of increase in 50 years.

The panelists at the forum included David Walker, a former U.S. comptroller; Maya MacGuineas, president of the Committee for a Responsible Budget; economists David Cutler of Harvard University and Uwe Reinhardt of Princeton University; and Urban Institute analysts John Holohan and Stephen Zuckerman.

MacGuineas said that while there have been some improvements in the budget picture, she's pretty sure the spending slowdown won't last and that debt will continue to be on an unsustainable path because of outlays for Medicare, Medicaid, and the health care law (PL 111-148, PL 111-152).

"We're nowhere near close to having done enough," she said. Even deficit reduction proposals like the Bowles-Simpson plan wouldn't get the job done, she said. "We haven't seen enough structural changes [in health care] to think this will last."

Structural Change Pushed

She urged using the pause in spending growth to adopt one or two structural changes and to do research to see what effect they are having. As examples, she cited changing Medicare into a two-track system preserving traditional Medicare while at the same time testing a premium support approach. And she suggested cost-sharing incentives for beneficiaries. "The whole structure of having very little skin in the game I think is very dangerous."

Walker joined MacGuineas in urging that a national budget be set for health care expenditures. "We are the only major industrialized nation dumb enough not to have a budget for health care," he said.

Walker is now CEO of a group called the Comeback America Initiative.

Walker said he supports universal coverage but criticized the health care law. "I think it's good news and bad news. The good news is, we're going to have, hopefully, about 30 million-plus people get health care coverage who don't have it."

"But what's the real cost going to be?" Walker asked. He said that "it's a typical example of what government does. If our health care system was a house before the Affordable Care Act, it was structurally unsound, mortgaged for more than it's worth, and headed for foreclosure. So what did the government do? Rather than ensuring structural integrity, making sure that we can make the mortgage payments and avoiding foreclosure, we added a new wing onto the house.

"And the new wing was supposed to be paid for—supposed to be—through spending reductions and additional tax increases. But we didn't deal with the structural integrity of the overall system." And now municipalities such as Chicago and Detroit are looking to shed their outstanding health care liabilities by sending retired employees to insurance exchanges, he said.

Walker said universal coverage should be reworked so that the government ensures proper preventive care and protects citizens against catastrophic health expenses but otherwise lessens subsidies for those who can afford to pay more.

But Zuckerman of the Urban Institute cast government insurance programs in a different light while attributing the slowdown in private sector spending growth at least in part to employers covering fewer people.

He said Medicare is actually doing a better job than the private sector in slowing per-enrollee spending, and Medicaid is doing an even better job than Medicare. Regarding Walker's "new wing" analogy, Zuckerman noted that the Congressional Budget Office said the health care law was paid for and said the overhaul was not simply a coverage expansion measure.

"Definitely the ACA did not forget costs," he said. It includes measures to control costs, such as inducing competition among insurers in the new exchanges, the coming tax on high-cost insurance plans, and innovations such as medical homes and accountable care organizations, Zuckerman said.

He said there are many such innovations occurring in the private sector, even though it has covered fewer people prior to the health care law. "All of this activity really could really be changing things over time," he said. Pricing in the United States is also part of the problem, he said. Relative to Europe, "we're paying a lot more per unit of service."

Health Law Curbing Costs

Government policy to control spending also got a big pat on the back from Chapin White, a former Congressional Budget Office (CBO) analyst who now is an analyst with the Center for Studying Health System Change.

"The ACA is slamming on the brakes," he said.

White singled out the yearly reduction the law makes to Medicare payment increases to providers to account for improved efficiency in the overall economy. "The productivity adjustment doesn't get a lot of attention" but will have a profound effect of Medicare spending over time, he said.

"Between now and 2024 CBO is projecting that Medicare's spending growth per beneficiary is actually going to be lower than growth in GDP per capita," he said. "That's something that kind of makes budget analysts' minds explode. Negative excess growth in Medicare. That's not something we're used to hearing about or thinking about."

White also questioned predictions that health spending will take off with up to 30 million more people getting coverage under the health law. The overhaul "is shifting a lot of people into Medicaid. It's shifting a lot of people into exchange plans. Both of those types of health insurance are going to be paying providers in a much more stingy way than your typical private insurance today."

White added that under the health law the "Cadillac" tax starting in 2018 "is basically putting a hard ceiling on the premiums for employer sponsored insurance." The tax requires employers to pay taxes on premiums above a certain level. He also predicted that "spillover effects" leading private insurers to follow Medicare's lead in provider payment cuts "are going to constrain prices as well."

Cutler and Holohan expressed a degree of confidence that the spending slowdown will last – in part because people are broke. Cutler noted the rise of high deductible plans. "That deductible is more than most people have in the bank," he said. "Many people are effectively acting as if they are uninsured." Holohan attributed part of the slowdown to rising numbers of Americans that earn below 200 percent of the federal poverty level, he said.

By John Reichard, CQ HealthBeat Editor

August 1, 2013 -- While doctor groups praised the House Energy and Commerce Committee's approval of a Medicare physician payment overhaul bill, they did express concern about some provisions, including one that does not require medical homes to have physicians.

Under the language adopted by the panel, nurse practitioners and physician assistants could set up medical homes, the term that describes a practice that agrees to monitor and quarterback the overall care of beneficiaries with chronic illnesses.

Julius Hobson, a lobbyist with the Polsinelli law firm, said that "there's a some longstanding friction between some of the physicians and the non-MD folks. The non-MD folks think they do a good bit of the work that primary care doctors do" and should be paid accordingly.

"I would anticipate," Hobson said, that physicians would try to get the language struck. But he also noted that there was bipartisan support for including nurse practitioners and physician assistants.

Rep. Lois Capps, D-Calif., who was trained as a nurse and is an outspoken advocate for the profession, is among the proponents of the provision.

Reid Blackwell, president-elect of the American Academy of Family Physicians, said medical homes should be led by physicians. His organizations favors team-based care, and every member of the team is important including nurse practitioners and physician assistants. But physicians, and primary care physicians in particular, are best trained to coordinate complex care, he said.

The American Medical Association (AMA) also had problems with the committee-approved measure (HR 2810). In a letter to committee leaders, the medical group expressed concern about new reporting requirements for physician practices. "Equally important, the policy under current law relating to budget neutrality for misvalued codes must be retained to provide adequate funding of the physician payment pool," the AMA said.

Under current law, when payment-related codes are reviewed and found to have resulted in payments that are too high for a particular type of doctor care, the excess amount goes back into the overall pool of payments so that it does not shrink. However, the Energy and Commerce bill directs the Centers for Medicare and Medicaid Services (CMS) in 2016, 2017, and 2018 to make net payment reductions of up to 1 percent for misvalued services in the Medicare physician fee schedule. The reductions would represent a cut in Medicare spending.

But in a July 25 letter to committee leaders from nine physician groups including the AMA and the American Academy of Family Physicians, the doctors said "from 2001 to 2013, the average annual Medicare physician payment update has been just 0.29 percent. As a result, average inflation-adjusted Medicare payment rates have fallen by nearly 20 percent.

"Siphoning funds from the fee schedule at this time contradicts our shared goal of encouraging physicians to invest in practice changes and prepare for participating in new health care delivery and payment models," the letter said.

By Emily Ethridge, CQ Roll Call

July 31, 2013 -- The House Energy and Commerce Committee unanimously approved a bill to replace Medicare's physician payment system last week, while at almost the same time Senate Finance Committee members huddled on crafting their own plan, expected this fall.

Senators leaving their closed-door meeting said they discussed goals and ways to proceed on legislation that would improve how Medicare pays physicians. They said that although the House has produced a bipartisan bill (HR 2810), the Finance panel is likely to introduce its own bipartisan measure sometime after the August recess.

"We definitely will be looking at what they've done, but putting together something that has bipartisan support in the Senate," said
Michigan Democrat Debbie Stabenow.

The Energy and Commerce Committee approved, 51-0, an amended version of its bill to repeal the sustainable growth rate (SGR) formula, which is detested by doctors, and institute an enhanced fee-for-service system as well as alternative payment models.

Committee leaders said they hoped House leadership would bring the bill to the floor this year.

"Today's vote is an important milestone, but we are all resolved to achieve reform in a fiscally responsible manner, and despite our significant progress, we will not be satisfied until the ink is dry on the president's signature," said committee Chairman Fred Upton, R-Mich., in a statement.

If Congress does not act to avert the cuts, physicians will see their payments reduced by nearly 25 percent on Jan. 1. The measure under consideration in the House would make a permanent change in the system so that the annual threat of payment reductions would be eliminated.

Although the House bill has broad bipartisan support, members emphasized that it is not yet finished. For one, it still lacks an offset to what is likely to be a large price tag. The Congressional Budget Office has found that repealing the SGR for 10 years would cost $139.1 billion.

The House Ways and Means Committee, which has jurisdiction over a number of relevant offsets, may choose to take up the Energy and Commerce bill in the fall and add a pay-for.

In the Senate, West Virginia Democrat Jay Rockefeller said he offered an idea during the meeting on how to pay for the bill—his legislation (S 740) to require drug companies to provide rebates to the federal government on drugs used by beneficiaries eligible for both Medicare and Medicaid. The Congressional Budget Office found that the bill would save $141.2 billion over 10 years.

Rockefeller said he wasn't sure how his idea was received during the meeting. When asked if there were other proposals discussed, he joked, "Yeah, but none as good."

Despite the uncertainty over the offset, many stakeholders and lawmakers support the House bill's underlying structure, which would provide a period of stable payments before transitioning physicians into either an improved fee-for-service system with increased data reporting or approved alternative payment models.

During the five-year transition period there would be annual payment updates of 0.5 percent, to give providers time to test quality measures and improvement activities.

Senate Finance Committee members said they were still focusing on what kind of structure to put in place to replace the SGR.

"Obviously fixing the SGR is the main objective here," said John Thune, R-S.D. "But we also want to look at what we can do in terms of policy to create a new system that actually works better and rewards value. And so how far we can get into that remains to be seen. And then, you know, the question of how do you pay for it."

Maryland Democrat Benjamin L. Cardin said lawmakers and their staffs were working in two general areas: how to deal with promoting the value of services over volume, and how to deal with Medicare's relative value scale, which is used to determine doctors' payments for their services.

"The two areas that we've identified is how do you deal with managing care better, particularly high-cost interventions, and how do you determine the relative value of physician services, and the current system has not been working in either case," Cardin said.

Cardin added that while he was disappointed Medicare was not further along on alternative ways of reimbursing care delivery, a payment system replacement would need to include some transition time for providers to adjust.

Provider groups praised the House panel for approving legislation that moves toward an end to the SGR. Norman E. Vinn, president of the American Osteopathic Association, said in a statement that the measure "puts a permanent end to years of annual patches that freeze payment levels, impede access to quality health care, stifle innovation and are simply no longer financially viable."

By John Reichard, CQ HealthBeat Editor

July 31, 2013 -- A number of the 35 states that set up high-risk pools to help uninsurable residents get health coverage are in the process of winding them down as the coverage expansion provisions of the health care law are set to take effect next year.

But some of these pools will stay open, at least for a while. And for Maryland, keeping its risk pool going temporarily has helped to lower initial premiums in its new insurance exchange. How much of an effect that has had on rates isn't clear. But Maryland officials have been aggressive about finding ways to keep premium charges down in the new Maryland marketplace by thoroughly reviewing proposed exchange rates and by deciding early on to keep the 20,000-person risk pool open for now.

Meanwhile, all the federally funded programs states set up under the health care law to cover uninsurable residents—which are separate from the state risk pools—are ending this year. They are part of the federal Preexisting Condition Insurance Plan. Under the law, starting next year, insurers cannot deny people insurance coverage because of their medical histories. And their premiums cannot be raised to adjust for their pre-existing conditions either.

In some cases, people who are in the federal PCIP program will be able to get coverage more cheaply, if, for example, they qualify for Medicaid or for subsidies to buy coverage on the new exchanges. That's also true for people in the 35 state high risk pools. But those predate the health care law (PL 111-148, PL 111-152), and it's up to the states to decide whether they want to keep them running.

According to a tally by the National Association of State Comprehensive Insurance plans, which represents the high-risk pools, 14 states plan to shut them down in early to mid 2014. They are: Arkansas, Colorado, Florida, Indiana, Kansas, Kentucky, Louisiana, Missouri, Nebraska, North Carolina, Oregon, Texas, West Virginia, and Wisconsin.

Another 16 states plan to maintain coverage beyond early to mid 2014. Maryland falls into that category. The board of its risk pool, which is called the Maryland Health Insurance Plan, will decide next year whether the pool will remain open past June 30, 2014. Under Maryland state law, people who enroll in the state pool before the end of this year can keep their coverage until Jan. 1, 2020. Other states in this group include Alaska, California, Connecticut, Idaho, Illinois, Iowa, Minnesota, Mississippi, New Mexico, North Dakota, Oklahoma, South Carolina, Tennessee, Washington, and Wyoming. Five states—Alabama, Montana, New Hampshire, South Dakota, and Utah—haven't decided when to cancel their pool.

States have different reasons for keeping these pools going, at least for a while. They may not have gotten around to addressing the fate of their pools in their legislative sessions. They may want to want until their insurance exchange is fully operational. Or they may not want to be perceived as cooperating with "Obamacare" by shuttering a program in response to the law, which could be seen as a concession that the overhaul is here to say.

Maryland's Factors

The final marketplace rates Maryland recently announced in many instances are sharply lower than the premiums insurers first proposed. Plans were instructed to take into account the fact that at the state risk pool would remain open, and as part of rate review regulators went over with plans their assumptions about the "morbidity" of expected enrollees.

"I think this was a factor—because both insurers and the Insurance Administration knew the plan during rate review," Joshua Sharfstein said in an email message responding to a question about whether the continuation of the risk pool helped produce lower rates. "But I don't think it's possible to say by how much."

Sharfstein is Maryland's secretary for health and hygiene. A spokeswoman for the Maryland Department of Insurance also said the risk pool's continuation was a factor in keeping rates lower but said it would be difficult to quantify by how much.

Whatever the impact, it's not likely to last because people are expected to leave risk pools like Maryland's because in many instances they'll be able to get coverage that's more affordable. In states like Maryland that are expanding their Medicaid program, people currently in the risk pool they might be eligible for that program. Or, in other instances, they might be able to get subsidies to buy coverage on the exchanges.

Karen Pollitz, an analyst with the Kaiser Family Foundation, downplayed the impact that keeping state risk pools open will have on exchange rates in other states. Not only will people be migrating out of risk pool plans under the health law, the pools nationwide only cover about 200,000 people, she said. And in many instances, states have very small pools. Maryland has one of the nation's largest with its 20,000 enrollees.

By John Reichard, CQ HealthBeat Editor

July 29, 2013 -- The Obama administration's recent announcement that it will delay by one year the health care law's employer coverage mandate will add $12 billion over 10 years to the federal tab for insurance coverage provisions of the overhaul, according to a new analysis by the Congressional Budget Office (CBO) and the Joint Committee on Taxation (JCT).

Those costs will rise to $1.375 trillion, up from $1.363 trillion, from 2014 to 2023, the analysis said. Costs for subsidies to buy coverage in insurance exchanges will rise $3 billion over that period. At the same time, the government will collect $10 billion less in penalty payments.

"Other small changes, including an increase in taxable compensation resulting from fewer people enrolling in employment-based coverage, will offset those increases by about $1 billion, CBO and JCT estimate," CBO said in a July 30 letter to House Budget Committee Chairman Paul D. Ryan, R-Wis.

Because of the delay, roughly 1 million fewer people are expected to be enrolled in employment-based coverage in 2014, the analysis said. A portion of that group – fewer than a half million additional people – are are expected to be uninsured, with the other portion getting subsidized coverage in exchanges or in Medicaid or the Children's Health Insurance Program.

The letter added that "CBO and JCT expect that some large employers that would have offered health insurance coverage to their employees in 2014 will no longer do so as a result of the one-year delay of penalties for those that do not offer affordable coverage. However, most large employers currently offer health insurance coverage to their employees, and because the delay is only for one year, CBO and JCT expect that few employers will change their decisions about offering such coverage."

The delay caused a furor among congressional Republicans, with predictions that it could lead to big increases in subsidy payouts. Although the estimate says that is not the case, the delay does add $12 billion to the federal tab, which is likely to fuel further controversy and Republican complaints that the Obama administration lacked legal authority to act on its own to make the change.

The letter also addressed the issue of how carefully exchanges will check to verify that subsidy payments to buy coverage are justified for insurance buyers.

"As a result of the temporarily looser procedures for verifying offers of employment-based coverage, CBO and JCT expect that some additional workers with affordable offers from their employer will obtain subsidized coverage through exchanges in 2014," the letter says. Employees that get offers of affordable coverage do not qualify for subsidies under the health care law (PL 111-148, PL 111-152).

"However, applicants for subsidies will still have to provide exchanges with information about how to contact their employer and will have to sign a statement indicating that their answers are accurate to the best of their knowledge; moreover, employers will be notified of employees who qualify for premium tax credits.

Consequently, although CBO and JCT expect that the verification process will have significant effects on people's behavior in coming years, the temporary loosening of verification procedures in 2014 is estimated to have only a small effect."

CBO and JCT also said they expect changes in procedures in verifying income stemming from the delay will only have a slight impact on the number of enrollees in the exchanges and on the accuracy of their income Reporting "because the Internal Revenue Service will be able to identify misreporting when it compares reported income with tax returns at year-end."

By Emily Ethridge, CQ Roll Call

Centers for Medicare and Medicaid Services (CMS) officials guaranteed lawmakers last week that they will do a "100 percent" review of income levels that applicants report to the federally run health insurance exchanges, but state exchanges do not have to conduct the same kind of review.

CMS Administrator Marilyn Tavenner said that the 100 percent check applies to the federally run health exchanges, which means that state-run exchanges can continue to delay some of their income-checking requirements for one year. Subsidies for purchasing insurance in the exchanges will be based on an applicant's income.

"We will do a 100 percent review of self attestation," Tavenner said at a House Energy and Commerce hearing. She later clarified that the "100 percent" review in the federal exchanges will be of the subset of applications for subsidies that cannot be verified through current income data sources, including the Internal Revenue Service and Equifax, a consumer credit reporting agency.

House Republicans remained confused and concerned about the administration's verification procedures and questioned whether officials would be able to identify inappropriate subsidy payments.

House Speaker John A. Boehner, R-Ohio, said in a recent statement that the House would vote "in the coming weeks and months" on a bill that would require verification of income for people applying for subsidies.

Rep. Bill Cassidy, R-La., noted that states running their own exchanges will still not be required in 2014 to verify all applicants' reported incomes, even if they don't match up with existing data sources.

Gary Cohen, deputy administrator and director of the CMS Center for Consumer Information and Insurance Oversight, said the administration would issue additional guidance this week on the income verification procedures.

Cohen also promised lawmakers at a House Ways and Means Committee hearing that the administration would review "100 percent" of the applications for subsidies that cannot be identified through existing data sources. Judging from what Tavenner said, that standard would apply to the federal exchanges.

"We said we were going to sample, and now we've concluded that the sample size is going to be 100 percent," said Cohen at the hearing. "So we always said we were going to do it – we just said we were going to do some; now we're saying we'll do all."

In July, Department of Health and Human Services (HHS) officials said they would delay for one year some of the requirements for states operating their own exchanges to verify applicants' reported income and health insurance status.

The HHS rule says that in 2014, state exchanges can accept an applicant's reported income, even if it is much lower than what was reported on the applicant's most recent tax return, without additional sources of data to confirm the decrease. States doing that would still have to conduct additional verification on a random sample of those applicants.

"States do have the option to do 100 percent or some sample," Tavenner told reporters after the hearing.

In the federal exchanges, however, officials will do additional verification on 100 percent of those applicants whose incomes can't be verified through current income data sources – not on only a random sample.

As Cohen described it, when applicants report their expected income to the federally run marketplaces, HHS will check that information against available data sources from the Internal Revenue Service (IRS) and the Social Security Administration, and also through Equifax if necessary.

If the income can't be verified and matched through those sources, HHS will ask the applicant for further information and documentation, such as pay stubs, to verify their reported income. Tavenner said it's that subset of applications that will receive a 100 percent check.

Wisconsin Republican Paul D. Ryan questioned how the IRS would recapture subsidies paid improperly. He offered a few scenarios, including one of a 25-year-old woman who could get coverage through her parents' insurance plan but instead applies for and receives a subsidy to buy insurance on the exchange. He asked how the IRS would recapture that overpayment.

"What are you going to do? Are you going to make this person pay back?" asked Ryan. "Is that going to be two years of subsidies going to people that are not eligible for it?"

Several Republicans also questioned the IRS's ability to reclaim advance subsidy payments that were made in error or were too big, noting the IRS has not been able to recapture such payments made in other programs such as the earned income tax credit.

IRS Principal Deputy Commissioner Danny Werfel emphasized the difference between the earned income tax credit and the health subsidies, noting that with the health subsidies, consumers do not receive any money from the government. Instead, the government payments go to insurance companies, and the consumer pays a lower premium for his health insurance plan.

Werfel also noted that once taxes are filed, the IRS will review a person's actual income and the subsidy amount they received, and provide a refund if a person was not paid enough, or ask for a payback if the person received too little.