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October 27, 2008

Washington Health Policy Week in Review Archive 79cae632-8461-4f07-b08f-0afd17423643

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Lobbies Begin New Push for Medicaid Assistance

By John Reichard, CQ HealthBeat Editor

October 20, 2008 -- Fueled by an endorsement Monday from Federal Reserve Board Chairman Ben S. Bernanke, momentum may be picking up for congressional passage of a new economic stimulus package, and this time around Medicaid may be on board.

Testifying before the House Budget Committee, Bernanke didn't specifically endorse inclusion of temporary assistance to the states with Medicaid expenditures, but he did say that an injection of federal dollars to boost state services would help the nation's faltering economy.

Medicaid wasn't a part of the stimulus package that became law earlier this year, but state officials and providers are making the case that the deepening downturn makes its inclusion more critical.

Asked Monday whether the odds of including Medicaid have grown, Executive Director Ray Scheppach of the National Governors Association said "very much so," because economists are advising congressional leadership that a temporary increase in federal Medicaid funding to the states "is one of the best counter-cyclical programs you can have."

States are now looking at a collective shortfall of $50 billion in the state fiscal year that runs from July 2008 to July 2009, Scheppach said in an interview. That leads to budget cuts and less spending, further weakening the economy. Unlike the federal government, states with shortfalls can't run deficits and must cut spending or hike taxes, weakening economic demand and adding to recessionary pressures.

But with Medicaid, the formulas for federal matching payments are all worked out, and states will quickly pull back on plans for Medicaid and other program cuts if they know that federal assistance is in the works, Scheppach said.

White House Press Secretary Dana Perino said Monday that President Bush also is open to the possibility of a second economic stimulus package this year. But Bush earlier this year strongly opposed an infusion of added federal dollars into Medicaid.

"We think that there's ample opportunity when Congress gets back to talk about lots of those ideas," Perino said Monday when asked the president's view of the Bernanke endorsement of a second stimulus package. "What we've seen put forward so far by the leaders in Congress, the Democrats, were elements of a package that we did not think would actually stimulate the economy. So we would want to take a look at anything very carefully.

Scheppach said however that passage of an economic stimulus package with Medicaid assistance has a chance in the lame-duck session of Congress, despite past opposition from the White House. He suggested that the White House might be open to negotiating on the subject in return for certain tax provisions, for example.

The governors didn't endorse a specific dollar amount in taking a general position in favor of including Medicaid in the economic stimulus package enacted in February (PL 110-185). But "we're looking at it much more seriously now" and governors in coming weeks may endorse a specific dollar amount in Medicaid assistance, Scheppach said.

Pressed by Rep. Rosa L. DeLauro, D-Conn., at the hearing on whether the overall stimulus package should be worth $150 billion, Bernanke wouldn't bite, but he didn't squawk either, saying the expenditure should be "significant."

Iris J. Lav of the Center on Budget and Policy Priorities told the budget committee that $50 billion of the package should go to the states, with about two-thirds of that used to temporarily boost federal Medicaid payments to the states. The center is a left-leaning think tank.

Congressional Democratic leaders have said they're looking at a package in the $150 billion to $300 billion range, with the lower number the more likely size of the package. They've also said that relief to the states should be part of the package.

Scheppach sees a growing sense in Congress that it should act soon on a new stimulus package. "The earlier the better" to get more bang for the buck, he said. There's growing awareness among lawmakers that the downturn may be akin to that in the early 1980s that produced double-digit unemployment rates. "I think that's beginning to sink in," he said.

One of the issues in giving relief to the states is whether it represents "moral hazard"—whether in effect the relief would contribute to a lack of fiscal discipline in the future on the part of the states.

Rep. Mike Simpson, R-Idaho, challenged the idea of moving to "bail out states." Simpson said "now we are going to prevent states from making difficult choices" that would be helpful in getting their fiscal houses in order.

Rep. Paul D. Ryan, R-Wis., complained about the limited impact of economic stimulus measures. "It might give you a pop in the quarter in which they take place, but then things go right back down," he told the hearing.

Enacting an overall stimulus package worth $300 billion would send the fiscal 2009 deficit to over a trillion dollars, Ryan said, asking what message that would send abroad about the ability of the United States to borrow funds.

But providers will seek to keep lawmakers focused on the more immediate impact they see of the economic downturn. "On behalf of the nation's most vulnerable seniors who need and depend upon access to quality nursing home care, we believe any economic stimulus package must include a state Medicaid relief component," said Bruce Yarwood, president of the American Health Care Association, a nursing home lobby.

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Noted Economist Offers 'Inconvenient Truths' About Health Care

By John Reichard, CQ HealthBeat Editor

October 24, 2008 -- As winning candidates make the transition from campaign promises to the harsh post-election realities of trying to figure out actual health system changes, emeritus professor of economics Victor R. Fuchs of Stanford University advises that their deliberations would be more fruitful if they adopted three "inconvenient truths" as their starting point.

Fuchs argues these truths to be evident: that the growth of all health spending, not just that of government, must be reined in; that advances in medicine are the main reason costs outpace economic growth; and that universal coverage is impossible without "subsidization and compulsion."

Truth number one, according to Fuchs: "Over the past 30 years, U.S. health care expenditures have grown 2.8 percent per annum faster, on average, than the rest of the economy. If this differential continues for another 30 years, health care expenditures will absorb 30 percent of the gross domestic product—a proportion that exceeds that of current government spending for all purposes combined.

"The negative implications of such increases for the support of education, infrastructure, national security, capital investment, and ordinary consumption would be huge," he says. Fuchs agrees with former Congressional Budget Office Director Alice Rivlin on what must be done, quoting her as saying, "'The principal challenge to achieving a sustainable long-run fiscal policy turns out to be reducing the rate of growth of health spending—all health spending, not just the federal or the federal/state portion.'"

Covering the uninsured is "a worthy goal, but without sustained attention to the cost of care, gains in coverage will not be sustainable," he writes. Now, the United States spends about twice as much per person on health care as the average high-income country, Fuchs notes. "An absolute reduction in that level of spending would be desirable but is not likely. The most tempting targets—'waste,' 'fraud,' and 'abuse'—have proven remarkably resistant to attack.

"A major reason why it is so difficult to reduce costs is that every dollar of health care spending is a dollar of income to someone involved in providing health insurance or health care." Administrative costs, insurance company profits, and high executive salaries "are only a small part of the story. The biggest part consists of payments to tens of thousands of telephone and computer operators, claim payers, insurance salespersons, actuaries, benefit managers, consultants, and other low- and middle-income workers.

"Overutilization of care is another problem that is not easily solved, partly because unnecessary or marginally useful tests, prescriptions, operations, and visits generate income for providers," he says.

More regulation won't tame administrative expenses or costs from overutilization. "The only way for the country to restrain costs without hurting quality is to make major changes in the way health insurance is financed and the way health care is organized and delivered," Fuchs says.

Truth number two: "Advances in medicine are the main reason why health care spending has grown 2.8 percent per annum faster than the rest of the economy."

Advances "in diagnostic and therapeutic interventions have been largely responsible for increases in the length and quality of life. How can we retain most of the health benefits of future medical advances while slowing the rate of growth of health care expenditures?"

Fuchs says that "part of the answer lies in the creation of a large, semi-independent organization—something like Britain's National Institute for Health and Clinical Excellence [NICE] —to evaluate the benefits and costs of new medical interventions." But such an organization must have steady, substantial funding because of the flood of new tests and treatments each year.

The other part of the answer is that health care organizations "must be willing and able to incorporate the assessments into their daily practice. They must have the information, infrastructure, and incentives to deliver high-quality, cost-effective care," he says.

Truth number three: "Universal coverage requires subsidies for the poor and those too sick to afford insurance at an actuarially appropriate premium; it also requires compulsion for those who don't want to help pay for the subsidies or who want a 'free ride' expecting that they will get care if they need it."

"No country achieves universal coverage without subsidization and compulsion," Fuchs writes, "but U.S. politicians tie themselves in knots by proposing reforms designed to conceal these realities. Politically, the most appealing plans are those that mislead people into thinking that someone else is paying for their insurance."

But workers are actually paying the costs of coverage in foregone wages. Also, "every dollar the government spends on health insurance must come out of the public's pocket. If the government is acting responsibly, the money will come in the form of taxes. If irresponsibly, it will be borrowed, creating debts for which future generations will have to tax themselves in order to pay interest and principal."

"The most efficient, equitable way to achieve universal coverage is to make basic health insurance available to everyone regardless of income, employment status, family circumstances, or other characteristics and to pay for it with a tax roughly proportional to income or consumption. In such a system, the wealthy and the healthy would subsidize insurance for the poor and the sick. Persons of average income and average health would pay enough to cover the cost of their own insurance."

Ignoring the current state of affairs—which many analysts consider a "mess" because of high costs, the large number of uninsured, and growing expenditures—won't do, Fuchs says. "The present impasse must give way to recognition that major change will not be an option much longer: it will be a necessity."

Of course, the trick will be getting powerful players to buy into the truths offered by Fuchs. The medical technology industry, for example, doesn't see eye to eye with his analysis.

"Professor Fuchs, like the CBO study he cites, overestimates the contribution of medical technology to cost increases and underestimates the negative impact on medical progress of adopting a NICE-like approach to coverage of new treatments," said David Nexon, senior executive vice president of the Advanced Medical Technology Association (AdvaMed). "We need to get health care costs under control, but we should do it not by rationing safe and effective technology but by improving management of chronic disease, emphasizing health promotion and disease prevention, and reorienting incentives in the system toward quality and efficiency."

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Report: Prevention Should Play Critical Role in Overhauling Health Care

By Meghan McCarthy, CQ Staff

October 21, 2008 -- Trust for America's Health (TFAH), a nonprofit and nonpartisan health advocacy group, issued a new report Tuesday stating that prevention should play a significant role in any major effort to overhaul health care in America.

Preventative measures will reduce the cost of health care, according to report, which is meant as a guide to the new administration and Congress.

"Disease prevention needs to be a cornerstone. We will never contain costs without a commitment to health prevention, because we won't be able to even afford health reform," said Jeffrey Levi, author of the report and the executive director for TFAH.

Based on analysis conducted in conjunction with the New York Academy of Medicine, researchers found a shortfall of $20 billion per year in spending on public health, which TFAH says encompasses emergency preparedness efforts and preventative care measures, such as education on healthy diet and exercise. Researchers said a review of Organization for Economic Cooperation and Development (OECD) countries' spending on public health found that the United States spends $24 billion less than the average percentage expenditure of other OECD countries.

"In almost all OECD countries there is a larger investment in prevention . . . we also see the cost of health care is lower there. Is it the only the reason? I would say 'no', but is it a contributing factor? I would say 'yes,' " Levi said.

He also emphasized the report's findings of significant returns on the investment of health care dollars in preventative care. For every $10 per person invested in a "proven" community prevention program, over $6 would be returned for every dollar invested in ten to twenty years, according to the report.

Both presidential campaigns are on record supporting some form of preventative health care. In an issue of the New England Journal of Medicine, Republican nominee John McCain of Arizona called for the creation of a "next generation of efforts to prevent chronic disease," and Democratic candidate Barack Obama of Illinois committed to new funding for "community-based programs aimed at priority public health problems such as smoking and obesity."

In a September briefing on Capitol Hill, Richard Hamburg, director of government relations for TFAH, urged the Congressional Budget Office (CBO) to give a greater value to prevention efforts in its analysis of the cost of health care legislation.

But at a news conference on Sept. 9, 2008, CBO Director Peter Orszag was hesitant to commit to using prevention in scoring when asked about it.

"We do take those [prevention programs] into account when there is evidence of their efficacy," Orszag said. "But it is unfortunately the case in a lot of examples where people think there's sort of good evidence, but when you scrub the evidence a little bit, it turns out not to be so great."

Researchers also said that focus groups believed the government has an important role in helping Americans access preventative care measures.

"We asked people about prevention, and they see three entities responsible: the individual is most responsible, businesses are seen as somewhat responsible, but the government also has a role. It's not telling people what to do, but helping people make healthy choices, and making options available to people who would not have them, particularly children," said Alan Quinlan, president of Greenberg Quinlan Rosner Research, which conducted portions of the study.

The report was signed by over 140 organizations, including AARP, the American Federation of State, County and Municipal Employees, the American Heart Association, and the American Lung Association.

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Report: Subsidies for Low-Income Individuals Better Way to Cover Uninsured

By Ben Weyl, CQ Staff

October 22, 2008 -- Providing subsidies to individuals rather than to businesses is a fairer and more efficient way to extend health coverage to the uninsured, according to a new report released by the Urban Institute.

Subsidies for individuals and family members are better at targeting low-income people—those who are least likely to be insured, argue report authors Linda J. Blumberg and John Holahan. Such a system is more equitable since individuals with similar economic circumstances would receive similar treatment. Furthermore, employer subsidies are of little use to workers who cannot afford health insurance even if their employers offer it or to those who are unemployed, they said.

"Given these issues," they conclude, "it is probably best to rely primarily on individual and family income-related subsidies."

Support for employer subsidies has gained traction in recent years in part because of the disparity between small and large companies in employee coverage. According to the report, 33 percent of workers in small businesses (those with fewer than 25 employees) are uninsured, versus just 13 percent of workers in the largest businesses (more than 1,000 employees). Businesses with fewer than 25 employees comprise 35 percent of the uninsured workforce, according to the report; nearly half of all uninsured workers are employed in businesses with fewer than 100 people.

One reason for the discrepancy is that small businesses are simply less likely to offer health insurance. Some policy makers have therefore gravitated to the idea of employer subsidies in hopes that more small businesses will offer coverage, thus decreasing the number of uninsured. For example, bipartisan legislation in the Senate (S 2795) would give tax credits to employers who purchase insurance from a small business pool.

However, authors note that small businesses are considerably less efficient at providing coverage so there is good reason to oppose attempting to expand coverage in this manner. It is also not clear that many more small businesses would offer health insurance even if given subsidies, they said.

"Because small employer purchasers face higher prices for the same benefits and tend to face significant barriers related to having a lower-wage workforce, inducing a substantial share of currently non-offering small employers to provide [employer-sponsored insurance] absent a mandate would be difficult," the authors said.

Providing income-related subsidies to individuals makes more sense because of the inverse relationship between income and being insured, according to the report. While nearly 50 percent of workers below the poverty line lacked health insurance, just 5 percent of workers making 500 percent of the poverty line were uninsured. Providing increased assistance to individuals as their income declines would be the most effective way to increase the number of insured, the authors found. This also would more effectively target those in need because most small businesses have a combination of low and high wage earners.

In an interview, Blumberg said the health care proposal put out by Democratic presidential candidate Barack Obama of Illinois is more in sync with the report's suggestions than the proposal of GOP nominee John McCain of Arizona.

McCain's health care plan provides no employer subsidies and includes a refundable tax credit of up to $2,500 for individuals and $5,000 for families. While Obama would create a new public plan that individuals could buy coverage from modeled on the Federal Employees Health Benefits Program, McCain's proposal does not have any guaranteed new source or pool for purchasing coverage, Blumberg said. Because providing individual subsidies is likely to seriously undermine the employer-based health insurance system, according to the report, an alternative guaranteed source for purchasing coverage is crucial, Blumberg said. Without such a source, significant numbers of people are likely to become uninsured, the report said.

"If you look at the conclusions of our report, while we believe the individual [subsidy] is more effective, you have to be really careful with what you do with replacing the employer system," Blumberg said. "They are going the individual route that we prefer but they're not filling in all the pieces."

The McCain proposal, she added, does not tie those subsidies to income, which diminishes their effectiveness. "They're not targeting those dollars to those who need it most," she said.

The Obama proposal centers on income-related subsidies to individuals and also offers small businesses a refundable tax credit of up to 50 percent of premiums for employees. "Largely, they're focused on individual subsidies," Blumberg said, "and they do a good job, in my opinion, of providing a structured marketplace for individuals with those subsidies."

Blumberg criticized the employer subsidies but said she understood why, for political reasons, Obama included them.

"I think that's not the most efficient way to go. From my perspective, we have to be careful about encouraging small employers to provide coverage," she said. "They're really pretty inefficient purchasers."

"What [Obama is] trying to do is stem the decline of employer-based coverage. People like being covered by employers," she continued. "The more you disrupt what people have now, the more you risk upsetting people." Employer subsidies makes sense "more from a political perspective, than from . . . a policy perspective."

Obama also would require large companies to provide coverage to their employees or contribute to the costs of the new public plan.

Complicating matters, subsidies for low-income individuals and family members will bring significant costs, according to the report, at a time of quickly growing deficits, but Blumberg said that might not be an obstacle to overhauling the health insurance system in light of the political and economic climate.

"The insecurity that people feel may help push the health reform process even in difficult times," she said. With more and more people worried the economic downturn could cost them their job along with their health insurance, "their feelings of insecurity could push the political process forward."

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Solving the Riddle of Patchwork Family Coverage

By Neda Semnani, CQ Staff

October 21, 2008 -- When Americans are uninsured, it may not be a family affair. Because of the nation's patchwork coverage system, kids who have health benefits may have uninsured parents, and parents with health coverage may have uninsured kids. If only some members of a family have insurance, a new study notes, the most typical pattern is that parents go without while their children are insured—particularly since the 1997 creation of the State Children's Health Insurance Program (SCHIP). Still, for policy makers trying to figure out how to widen coverage, covering uninsured kids whose parents have health insurance benefits is a big part of the puzzle, the study suggests.

Led by Oregon Health & Science University researcher Jennifer DeVoe, the study found that some 2.3 million children a year are uninsured even though at least one of their parents has health insurance. That means that slightly under one-third of the nation's 9 million uninsured children have one or more parents with coverage.

These parents are more likely to be covered through private insurance or employer-based insurance where the costs for including their child or family can be a significant portion of or, in some cases, exceed their salaries.

According to the study, this group of uninsured children is more likely to be from low- and middle-income families rather than from among the nation's poor. These insured parents are more likely to have limited or low levels of education and are more likely to be of Hispanic origin, heading a single parent household, and living in the geographic South or the West of the country.

In order to appropriately address this gap in coverage, the researchers recommend "increasing public outreach and retention efforts to keep eligible children enrolled in public insurance benefits, easing prohibitive barriers, and expanding the SCHIP."

Another possible policy intervention, the authors note, could be the expansion of partial assistance programs that help make private coverage more affordable for families who prefer coverage for everyone under one plan, an approach that would rely on the current private insurance market.

"When family members are covered separately under different plans or when certain individuals have coverage and others do not, children's health declines," researchers said. Over the long term, having both children and their parents covered under the same public insurance will be not only the most economic policy option, but also the most likely to provide stable coverage for children leading to better health outcomes for the nation's most vulnerable, they said.

"We know that two-thirds of children who are eligible for SCHIP are not enrolled in the program," said Bruce Lesley, president of First Focus, an advocacy organization for children and families. "This is an issue of outreach and enrollment, but it is not a substitute for national health reform."

The article is published as part of the Journal of the American Medical Association's "Health of the Nation" issue, a comprehensive overview of the heath policy–related debates, including state federal and state health care funding, tax changes as part of health care overhaul, and regulation of biotech drugs.

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Survey Finds Employers Ambivalent About Health Overhaul Plans

By John Reichard, CQ HealthBeat Editor

October 22, 2008 -- One of the truisms among those who predict a possible overhaul of the U.S. health care system in the next few years is that employers want big changes in the system this time—unlike in the early 1990s, when they played a major role in blocking the Clinton universal coverage proposal. But a new survey by the Mercer consulting firm finds no strong momentum building behind any major proposal now on the table.

"Half-hearted at best" might be one way to describe the overall level of employer enthusiasm for pending proposals uncovered by the survey of some 3,400 employers conducted in July through September.

Of the 545 employers in the survey who do not offer coverage, most said health insurance at current price levels "is far beyond their means," Mercer said in a news release on the findings. When asked how much they would be willing to contribute per employee per month if they were to offer a health plan, 59 percent of the 545 said between zero dollars and $50. "Only 10 percent said they would pay at least $200," Mercer said.

The Massachusetts' 'play or pay' law requires employers who don't offer coverage to pay a penalty of $295 per employee per year. That's the equivalent of about $25 per month.

Individuals in Massachusetts who don't obtain coverage face a penalty of up to $912 this year.

Linda Havlin, a partner with Mercer, said the survey highlights "how tough it's going to be to ask very small employers to voluntarily take on the expense of providing health coverage. It also helps explain why even relatively low-cost catastrophic plans such as Health Savings Accounts have not made great inroads with small employers that find it financially challenging to offer coverage."

If resounding majorities of employers failed to embrace any of the proposals they were asked about, adherents of the Massachusetts approach—which basically requires individuals to have coverage and employers to provide coverage or pay a penalty—nevertheless might take some heart from the findings.

Of the eight types of overhaul approaches they were asked about, employers overall ranked a Massachusetts style approach most favorably.

Fifty-three percent of employers said they strongly approve or approve of a system in which "people are required to have coverage if they can afford it, either through their employer or purchased on their own." Thirty percent said they disapprove or strongly disapprove.

Percentages registering approval or strong approval for the other seven approaches were as follows:

  • "The federal government reimburses employers' health expenses above a certain level," known as a "stop-loss" or "reinsurance" approach (46 percent);
  • "Congress waives ERISA [a 1974 law that pre-empts state laws that govern private employer-based health plans] and allows states to include all employers in state health reform programs" (34 percent);
  • "Employer plans are replaced by private plans providing individual coverage, partly financed by employer contributions" on a sliding scale (34 percent);
  • "Employers are required to either offer health coverage or pay into a government fund to cover the uninsured" (31 percent);
  • "Tax breaks for employer coverage are eliminated or capped; the value of all benefits or benefits in excess of the cap is taxable. All individuals receive the same tax deduction for health coverage" (30 percent);
  • "The U.S. adopts a system like Canada's, in which the federal government is the sole payer for health services" (29 percent);
  • "Health insurance regulatory authority is moved from state to federal government" (24 percent).

The survey also asked employers with workers in Massachusetts and other areas with broad-based health system changes to identify how burdensome mandates were under the systems. In another finding that fans of the Massachusetts plan might applaud, the survey found that only 4 percent of the employers surveyed with workers in that state said that they had to expend "considerable" resources under the state's law.

Still, "most employers are concerned about the potential impact of state or local health reform initiatives," Mercer said. Eighty-six percent of large employers said they were concerned or very concerned about the impact on cost.

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