Skip to main content

Advanced Search

Advanced Search

Current Filters

Filter your query

Publication Types



Newsletter Article


Who Will Get Whacked Hardest to Pay for Health Overhaul?

By John Reichard, CQ HealthBeat Editor

The big insurer Humana has fired the opening volley in the great battle of the health overhaul pay-fors that begins this week at the Senate Finance Committee, but the health industry may have a tough time avoiding the combination of cuts and fees that Committee Chairman Max Baucus has laid out to pay for his overhaul measure covering some 94 percent of the American people.

The blueprint to be marked up starting Tuesday by the Montana Democrat particularly bears watching. It's likely to come closer to matching any final funding plan that Congress passes than the tax-heavy approach favored by House Democrats. Both approaches would take big chunks out of Medicare payments to hospitals and insurance companies, but the House measure (HR 3200) tilts toward taxing the wealthy as a major source of funding, and lobbyists see that as a non-starter in any final agreement that gets through Congress.

Of course, there's no certainty that either the leading House or Senate measures now under consideration will draw the votes they need to make it through their respective chambers. But success by Baucus in getting his proposal through the Finance Committee would boost the now iffy odds of an overhaul and put its funding approach at center stage.

The "chairman's mark" released by Baucus overwhelmingly relies on the health industry for funding using a combination of cuts, taxes and fees, with hospitals and insurers two of the biggest targets.

With an overhaul a big new source of potential revenue, the health industry for the large part has been disciplined in recent months in refraining from attacks on Democratic funding schemes. But individual companies are affected differently by overhaul legislation, and one prominent company broke ranks in recent days.

Humana, one of the bigger players in the Medicare managed care market, has provoked the ire of Baucus along with threats of regulatory action by the Centers for Medicare and Medicaid Services because of a letter sent to enrollees in one or more of its Medicare Advantage plans.

CMS said that language in the letter asserting that overhaul legislation affecting Medicare "could hurt millions of seniors and disabled individuals" by reducing benefits and services "is misleading and confusing to beneficiaries." It "represents information to beneficiaries as official communications about the Medicare Advantage program, and is potentially contrary to federal regulations," the agency said in a Sept. 18 letter to Humana executives.

CMS instructed Humana "to end immediately all such mailings." In his own statement released Monday, Baucus called the Humana letter "wholly unacceptable."

Baucus said, "From lower prescription drug costs to free preventive care to better treatment for chronic conditions, seniors have so much to gain from health reform and I'm not going to let insurance company profits stand in the way of improving Medicare for seniors."

But stirring senior anxieties about their health care is, of course, a politically potent weapon, and coming on the eve of the Senate Finance Committee markup, it raises questions about whether other companies will join in potentially powerful attacks on the Baucus plan at a pivotal moment.

"I guess Humana waited until they could see the whites of Baucus's eyes," quipped Washington consultant Alec Vachon. "The question is, has Humana strayed off the reservation, or are they leading the rest of the industry to the promised land of no reform?"

America's Health Insurance Plans weighed in Monday with perhaps its strongest language to date blasting the Medicare Advantage cuts.

"The proposals currently under consideration by Congress include more than $100 billion in cuts to Medicare Advantage that will have a devastating impact on the more than 10 million seniors enrolled in the program," said AHIP spokesman Robert Zirkelbach. "If these cuts are enacted, seniors will experience premium increases, a reduction in benefits, and, in some parts of the country, could lose access to their Medicare Advantage plan altogether."

Sen. Bill Nelson, D-Fla., is expected to offer an amendment that would have the effect of reducing the Medicare Advantage cuts by an estimated $30 billion. But lobbyists and analysts note that under the rules, it will be difficult for senators offering amendments to reduce cuts proposed by Baucus to Medicare Advantage plans or other providers. That's because they must also propose alternative ways to produce the same savings or revenue increases.

Whether any other Democratic members will work with Nelson is the question, said a managed care industry executive. The executive, who agreed to speak candidly in exchange for anonymity, said "the industry has always known that there are going to be Medicare Advantage cuts." Modifying them in any major way will be hard, the source noted.

Complicating the picture for insurers is the differential impact of the House and Senate bills. The House bill would trim Medicare Advantage payments by considerably more—$156 billion versus $124 billion. But the competitive bidding approach in the Senate bill, even though it generates smaller cuts overall, is worse in the eyes of Medicare Advantage plans in concentrated urban markets than the House approach, the executive said. The House bill would take Medicare Advantage rates down to the same level fee-for-service providers receive in the traditional Medicare program.

Hospitals also are in line for big cuts, but they, too, may not change much, if at all.

Federation of American Hospitals President Chip Kahn pegs the size of Medicare cuts affecting hospitals at about $155 billion in both House and Senate bills. "They're about the same but they're a little differently distributed," he said in an interview. Payment updates in the House bill are reduced a little more than in the Senate measure, which relies more on reducing payments to hospitals that treat unusually large numbers of uninsured patients, Kahn said.

"Our agreement is with Sen. Baucus and the White House," he noted. The federation, the American Hospital Association and the Catholic Health Association announced an agreement with the White House and Baucus earlier this year in which Medicare payments would be cut by $155 billion to help fund a health overhaul. "The four corners of our agreement is with them," Kahn said. Other elements include an agreement that payment cuts will be calibrated to gains in insurance coverage.

Dan Mendelson, president of the consulting firm Avalere Health, doesn't see the size of hospital cuts budging much. "The extent of those cuts are modest relative to the size" of the hospital market, he said in an interview.

Other sectors in line for significant reductions are skilled nursing facilities and home health care agencies. Nursing facilities would see cuts of some $23 billion in the Baucus mark while home health would see a $43 billion cut. In the House bill, home health would see a $57 billion dollar reduction and skilled nursing facilities $32 billion. Amendments have been filed that would try to reduce those cuts.

One of the more vulnerable provisions of the Baucus pay-for package is a proposed 35 percent excise tax on high-cost insurance plans. That provision would raise $215 billion but there's bipartisan criticism of the measure. Republicans don't want tax hikes and Democrats in some cases worry that the tax will hit union members who have foregone wage hikes in return for generous health insurance coverage.

Mendelson sees "a lot of pushback" from employers who fear the excise tax will drive up the premiums they have to pay for coverage. If that offset goes away, it means other sectors will have to take a bigger hit in their Medicare and Medicaid cuts or revenue sources from outside health care will have to be found, such as shrinking tax deductions for the more affluent, he said. Or there could be a scaling back of health overhaul legislation, he added.

A health care lobbyist who declined to be named asserted that Democrats are far short of the votes they need to pass current legislation through either the Senate or House. They are a dozen votes shy in the Senate and five or six dozen short in the House, he said.

Joseph Antos, a health policy researcher with the right-leaning American Enterprise Institute, also doubts that support is there for a major overhaul.

Antos said that "despite appearances, there are not enough pay-fors for a trillion-dollar bill because there is not enough political support for the cuts. Baucus has telegraphed this by giving physicians the usual one-year fix instead of something permanent, which would be much more expensive. Also, even if we were not talking health reform this year, there is a deficit problem that must be dealt with. That means at least some of these pay-fors will be passed even if health reform is incremental."

But if Baucus is able to get his proposal through the Finance Committee with something like the financing package he has proposed, others see comprehensive health overhaul legislation as having a real chance of becoming law. "If Chairman Baucus is successful in seeing a bill through his committee, there will be a lot of momentum to bring health reform to conclusion," Kahn predicted.

Publication Details