February 23, 2005—A bill approved by the Senate Health, Education, Labor and Pensions Committee that would extend funding for state pools that sell health coverage to risky-to-insure individuals would cost $355 million in 2005–2010, the Congressional Budget Office said in a new estimate.

The bill (S 288)—the State High Risk Pool Funding Extension Act of 2005—would cost $14 million in 2005, it added.

States created the insurance pools to offer coverage to people who can't find health benefits in the commercial marketplace because they have costly illnesses. Policies sold through the pools are very expensive and may exclude payment for certain types of care but offer coverage to the otherwise uninsurable.

The bill would reauthorize the grant program, extending funding for seed grants through 2006 and for operational grants through 2009. Under an authorization that ended in 2004, HHS granted seed money to interested states to create the pools and issued separate operational grants to cover losses from running them.

The bill would appropriate sums greater than the $355 million CBO estimate, providing for $375 million in operational grants and $15 million in 2005 and 2006 for seed grants. CBO predicts that direct spending for seed grants would total $5 million over the five-year period.

Changes to the Grant Program
The bill makes several changes in the grant program. Grants have been based on the number of uninsured residents in a state. Under the bill, the formula would be modified to give half the funds to eligible states equally, one-quarter based on the number of uninsured residents in a state, and one-quarter on the number of enrollees in its risk pool.

The bill also would eliminate the requirement that states match the amount of federal grants given to operate the pools. In another change, some of the operational grant money would have to be spent by states on premium subsidies for people with low incomes, added benefits, or an increase in the number of uninsured people qualifying for the pools. Unspent funds for these "supplemental benefits" would be distributed to other pools with operating losses.

Changes created by the bill would increase grants to smaller states like New Hampshire, home state of the measure's Senate Republican champion last year, Judd Gregg.
Joe Barton, R-Texas, chairman of the Energy and Commerce Committee has expressed interest in moving reauthorization legislation in the House.

It's unclear how the bill's price tag will affect its prospects, although it appears to have the advantage of influential sponsorship in both chambers.

The pools provide coverage to only a tiny fraction of the nation's 45 million uninsured. Together, the nation's 32 state high-risk pools cover about 200,000 people, said Karen Pollitz, a professor at Georgetown University's Institute for Health Care Research and Policy.

The federal grants cover only a portion of the cost of running the pools, which she said cumulatively run losses totaling about $500 million per year. Of the 32 pools, 13 did not qualify for grants under the expired grant program. Three of the 13 were too new to qualify.

February 23, 2005—Spending on public health care programs will account for nearly half of health care spending in 2014, according to estimates released Wednesday by the Centers for Medicare and Medicaid Services.

The CMS report states that health care spending is expected to account for a larger portion of the economy's resources over the next 10 years, with the public sector footing a larger share of the cost. By 2014, it estimates that health care spending will constitute 18.7 percent of the gross domestic product, up from 15.3 percent in 2003.

The CMS analysis, which was published in the journal Health Affairs, was presented Wednesday at a forum on Medicare spending hosted by Health Affairs and the Kaiser Family Foundation.

"These trends will test society's willingness to find ways to slow cost growth without compromising quality or access," said Stephen Heffler, director of the National Health Statistics Group at CMS. Heffler, along with CMS actuaries and economists, prepared the report.

Heffler said this year's predictions are significant because it is the first time that CMS included the effects the Medicare prescription drug benefit will have on health care spending. The Medicare prescription drug benefit begins January 2006 as a part of the new Medicare drug law (PL 108-173).

CMS' projections said the new drug benefit will lead to a "substantial shift" in funding from private payers and Medicaid to Medicare over the next decade, even though the benefit will only have a minor effect on health care spending. National health spending growth is anticipated to remain stable through 2006.

"The implementation of the Part D benefit has very little impact on overall health spending or total prescription drug spending, but it has a significant impact on who is paying for prescription drugs," Heffler said at the forum.

Marilyn Moon, vice president and director of the health program at the American Institutes for Research, said the debate over health care costs should focus on the redistribution of how health care will be funded after the implementation of the drug benefit.

"You want to take a look at these numbers from a different perspective," she said. "Don't just think about the federal budget, think about who is going to be paying. Most individuals don't care if they are paying higher premiums or co-pays, they just know that they are paying more."

CMS Administrator Mark B. McClellan said the new drug law will provide beneficiaries with greater access to drugs and modern medical care without significantly increasing medical cost growth while reducing seniors' out-of-pocket expenses.

"We intend to use the tools provided by the new Medicare law to increase efficiency and get even more for our health care spending," McClellan said in a release.

Other Highlights of the CMS Report

• Prescription drug spending is expected to continue a slowdown which began in 2000. Prescription drug spending growth is expected to be 11.9 percent in 2004, slowing to 8.7 percent by 2014. The deceleration is due to slower growth in drug prices, greater use of generic drugs, and increased use of multi-tiered co-payments and other steps to managed drug benefit costs.
• Hospital spending growth is projected to accelerate in 2004 to 7.0 percent, after a slowdown in 2003, when hospital spending growth was 6.5 percent.
• Home health spending growth is expected to sharply increase to 13.0 percent in 2004 from 9.5 percent in 2003 due to large anticipated increases in Medicare and Medicaid spending.
• Nursing home spending growth is expected to slightly accelerate to 4.2 percent in 2004 from 4.0 percent in 2003, with a deceleration in private spending and acceleration in public spending.

'A More Balanced Approach'
Separately, members of the Value Group, a coalition of hospital, pharmaceutical, medical device, and other health care companies, are urging CMS to take "a more balanced approach" in their health care spending projections, urging federal officials to "evaluate broader societal and economic benefits beyond the current focus solely on costs."

CMS' annual release on health care spending "does not take into account the return that America receives for its investment in health care," the Value Group argues.

In 2004, the group commissioned a report that found while U.S. health care spending doubled from 1980 to 2000, many improvements occurred. Annual death rates declined 16 percent, life expectancy at birth increased 3.2 years, and the number of disabled seniors declined 2.3 million.

February 22, 2005—Sharpened appraisals made in recent days by key players in the debate over the Bush administration's Medicaid overhaul plan suggest common ground on proposals to change drug reimbursement and tighten asset-related eligibility tests for long term care coverage.

But the more detailed analyses revealed a wide gulf among key players over the overhaul plan's provisions for "flexibility" in establishing Medicaid benefits and for ending several controversial methods used by the states of getting more Medicaid money from the federal government.

Veteran Medicaid analysts Gail Wilensky, Cindy Mann, and Raymond Sheppach offered their views on the Bush plan at a forum last Friday in the nation's capital. And the liberal Center on Budget and Policy Priorities (CBPP) released a detailed critique the same day.

Although difficult, Medicaid revisions are within reach, Wilensky and Sheppach suggested. "We're on board with major Medicaid reform," Sheppach told the non-partisan Alliance for Health Reform. "We've got to have it." The current program is not sustainable and is eating away state funding for higher education, he said.

Wilensky ran the Medicaid program under President George H.W. Bush, and said the current White House plan would amount to a reduction in the growth rate of Medicaid spending of just two-tenths of a percentage point. Cuts of this magnitude may be attainable in Congress, she said.

"Cuts" and "Caps"
But Mann, who ran the federal part of the State Children's Health Insurance Program (SCHIP) late in the Clinton administration, said the net reduction of $45 billion in federal Medicaid spending Bush would achieve in 2006 to 2015 is roughly the funding level of the entire SCHIP program. SCHIP currently covers some 5 million children. CBPP said the $45 billion "is larger than the total federal share of funding for Medicaid in 10 mid-sized states."

In total, the Bush plan would take away $60 billion from Medicaid spending growth, while adding back in $15 billion for kids' coverage and home-based care for nursing home patients and other changes.

The Dollar Breakdown
The $60 billion in cuts consists of $40.5 billion from ending what the White House calls state "accounting gimmicks" to boost federal Medicaid outlays, $15.1 billion in lower payments to pharmacists who dispense pharmaceuticals, and $4.5 billion from making it harder for more affluent Americans to qualify for Medicaid nursing home coverage by transferring assets that otherwise would disqualify them.

The $15 billion add-back consists of: $11.3 billion to cover more children; $1.8 billion to switch nursing home residents to home care and other "New Freedom" initiatives Bush espouses for the frail and disabled; and another $1.9 billion in various programs to extend coverage, pay out-of-pocket costs, or provide respite care for caregivers.

The liberal Center on Budget and Policy Priorities said the net effect of the Bush plan would be higher state costs. While the approximately $20 billion in pharmaceutical payment and asset test savings would save both federal and state governments money, the plan to save the federal government $40.5 billion by ending controversial state accounting practices would switch those costs to the states, CBPP said.

And while the pharmacy and asset savings would offset about $15 billion of the $40.5 billion in added state costs from accounting changes, expanded coverage of children from the $11.3 billion in federal money would require another $8.5 billion in state outlays.

The net effect of the administration plan would be to add $34.3 billion to state costs over 10 years, the liberal think tank said. "As a result, states would likely feel compelled to institute reductions in Medicaid coverage and benefits that would lead to increases in the number of uninsured and underinsured low-income people," CBPP said. That said, CBPP doesn't necessarily oppose the accounting changes. But if they are made, savings should be fully reinvested in state Medicaid programs, it adds.

"Flexibility" Provisions
But the most intense criticism from liberals is directed at the Bush plan's "flexibility" provisions, which would allow states to trim benefits for populations states have the option of covering but are not required to cover.

Although the administration denies the flexibility plan reprises the unsuccessful "capped allotments" proposal for optional populations the White House made in 2003, critics assert that it will entail caps despite these claims.

The administration's "flat statement" that the flexibility plan would not mean additional federal costs implies a cap on at least part of federal Medicaid funding for the states, the Center said.

Mann noted that two programs that the White House describes as models for its flexibility approach, Medicaid waiver programs under its Health Insurance Flexibility and Accountability initiative and SCHIP both "operate in the confines of a cap on federal spending."

Caps "would end the entitlement to Medicaid coverage for ... millions of low-income people," the Center said. "With a cap, federal funding could fail to keep pace with health care costs, and the federal government's share of Medicaid costs consequently could fall appreciably over time." States would trim Medicaid and "the likely result would be increases over time in the number of uninsured and underinsured low-income families and individuals."

The imposition of caps isn't contingent on the administration making them part of its flexibility plan, the think tank added. Congress could choose to make changes in Medicaid other than those specifically recommended by the White House while adopting a Medicaid savings figure that entails the use of caps, CBPP said.

CBPP added that caps do figure explicitly in the White House plan when it comes to trimming federal spending growth on payments for Medicaid administrative costs, an issue that falls outside the flexibility proposal. Caps in this area will lower state spending for nursing home quality and fraud-fighting efforts, the Center said.

The Case for Flexibility
Critics of flexibility ignore state budget realities, administration officials say. Sheppach noted that state collection systems are geared to capturing revenues from the manufacturing economy of the 1930s and 1940s, not today's service-oriented economy.

HHS Secretary Michael O. Leavitt says with education funding threatened by rising Medicaid costs, states can either take the far more draconian step of ending Medicaid benefits outright for optional populations or the more humane step of offering lesser benefits under flexibility that also could widen coverage of people not now qualifying for Medicaid.

Wilensky suggested that fears about the impact of flexibility on health care for low-income Americans could be addressed by requiring states to measure and report the health status of that population. Flexibility would be a small price to pay to get this kind of information from the states, she said.

Sheppach denied that flexibility would sharply reduce growth in federal Medicaid outlays. Preliminary scoring estimates obtained by the NGA do not show large reductions, Sheppach said, although both federal and state governments would save money through flexibility, he acknowledged.

Interpretations of Tradeoffs
Governors are opposed to the accounting changes espoused by the White House. That means some form of enforceable savings from flexibility—call them caps or not—could become key to realizing Medicaid savings in the fiscal 2006 budget. But Mann warned that the tradeoff for many Medicaid beneficiaries could be harsh, despite claims by Leavitt that they would be trading "Cadillac" benefits for "Chevy" benefits. Mann said the accurate analogy is the "Pinto"—benefits that may not include hospital or mental health care and add up to "a non-moving vehicle."

Wilensky emphasized the importance of more efficient care for "dual-eligibles," low-income Medicare beneficiaries who also qualify for Medicaid. A large part of Medicaid spending is on that population. A big part of Medicaid spending growth goes for long-term care, she also noted, expressing puzzlement at the "scorn" shown by Democrats for "Partnership" long-term care insurance policies sold in four states that allow buyers to preserve some of their assets when they go on Medicaid. Those policies could help reduce Medicaid outlays by encouraging sales of private coverage, she suggested.

But Wilensky voiced skepticism that the White House plan to move more nursing home residents to home-based care would generate large savings.

Savings would be offset by added costs from other Medicaid beneficiaries attracted to new home- and community-based care programs, she predicted.

February 22, 2005—Disparities related to race, ethnicity, and socioeconomic status remain in the American health care system but improvements have been made in several areas, including diabetes, mammogram testing, and medication errors, according to two new federal reports.

The Agency for Healthcare Research and Quality (AHRQ), an agency within HHS, on Tuesday released its second annual national reports on the quality of and disparities in health care in America.

The reports measure quality and disparities in effectiveness of care, patient safety, timeliness, and patient centeredness. The reports also present disparities in the quality of access and differences in access to services for clinical conditions such as cancer, diabetes, and nursing home and home health care.

Both studies "provide a benchmark on the quality of care and health disparities in our country, and they also track the progress we are making," said Dr. Carolyn M. Clancy, AHRQ director. "This is important information for those who wish to improve health care quality and access to services for all individuals."

Among its findings, the 2004 National Healthcare Disparities Report concluded that blacks received poorer quality of care than whites for about two-thirds of qualify measures and had worse access to care than whites for about 40 percent of access measures.

Hispanics received lower quality of care than non-Hispanic whites for half of quality measures and had worse access to care than non-Hispanic whites for about 90 percent of access measures.

While disparities are pervasive, improvement is possible but gaps in information exist, especially for specific conditions and populations, the report notes.

One bright spot was the improvement in care provided to the nation's poor, uninsured, and minorities through federally supported health centers.

The 2004 National Healthcare Quality Report finds that while quality is improving in many areas, change takes time. It also notes that the gap between the best possible care and actual care remains large, with the quality of care remaining "highly variable" across the country.

Some of the biggest improvements in care included a 37 percent decrease from 2002 to 2003 in the percentage of nursing home patients who have moderate or severe pain and a 34 percent drop from 1994 to 2001 in the hospital admission rate for uncontrolled diabetes.

The report also noted a 34 decrease from 1996 to 2000 in the percentage of elderly patients who were given potentially inappropriate medications.

Many improvements were also noted at the state level, including Minnesota, which had the largest improvement in state rank for mammogram testing.

February 22, 2005—The House Ways and Means Health Subcommittee plans more than a dozen oversight hearings in the 109th session of Congress, including on retiree health benefits, health savings accounts, and Medicare coverage of new technologies.

In a letter to the House committees on Administration and on Government Reform, Ways and Means Committee Chairman Bill Thomas, R-Calif., said the Health Subcommittee will hold a hearing to evaluate management of the Medicare program by CMS, including that agency's progress in implementing the Medicare overhaul law (PL 108-173).

In a separate and broader statement of his objectives, Thomas explained that oversight of the law is "critical to ensure there is little or no disruption for seniors or providers in receiving or delivering benefits."

Thomas added in the statement to the House Budget Committee that he aims to examine ways to reduce waste and fraud in Medicare.
The Ways and Means Committee "is also examining all of Medicare's payment systems to ensure reimbursements to providers are appropriate and that quality is rewarded."

The committee also "plans to examine strategies to reduce the number of Americans without health insurance and allow consumers greater choice in obtaining health care."

The specific list of Health Subcommittee hearings also mentions plans to examine "pricing transparency" for hospital services, the wage index used in Medicare hospital payment, and the differences between specialty and community hospitals. Also in the hospital sphere, the subcommittee will look at paying facilities based on quality and their use of "physician resources." And it will examine the need for more timely and accurate reporting of financial data by hospitals.

The subcommittee will hold a hearing on whether Medicare payments contain incentives to inappropriately shift treatment to more lucrative post-acute care settings. And the panel will study proposals "that provide financial security to individuals for long term care costs outside of the traditional Medicare structure."

Other hearings will look at the impact of the Medicare law on retiree drug coverage offered by employers; improvements in anti-fraud efforts; Medicare solvency; tax credits, risk reinsurance and purchasing pools to foster coverage of the uninsured; policies that hinder or foster Medicare coverage of new technologies; appropriate Medicare payments to home health agencies, skilled nursing facilities; kidney dialysis providers, and durable medical equipment firms; Medicare managed care plans; and information technology, medical liability, and Medigap revisions.