A provision of the Affordable Care Act popularly – or unpopularly – known as the “Cadillac Tax” is getting lots of attention now, even though it doesn’t take effect until 2018. Voices from both parties want quick repeal. And the politics are strange.
Briefly, the tax is a 40% excise on high cost health insurance policies that cost more than $10,200 for individuals and $27,500 for families in 2018. It’s 40% on the increment, so an individual policy costing $11,200 would cost an extra $400. It was included to help finance the ACA’s cost and to apply pressure where it hurts the most to restrain the cost of health insurance.
When the ACA was signed into law in 2010, many critics asked: “where’s the cost containment?” One answer was: “the Cadillac tax.” The frequent response was derisive laughter: “The tax doesn’t hit until 2018 and it will be repealed well before then.” No laughter now. Continue reading “The Curious Politics of the “Cadillac Tax””
Two disconnected stories came across my screen yesterday so closely in time, I could not resist putting them together. See if you agree.
Story One concerns the conservative advocacy organization, Americans for Prosperity, that is possibly the leading advocacy group in the nation fighting the Affordable Care Act/ObamaCare. Funded by the billionaire brothers, Charles and David Koch, AFP is perhaps the leading group in the nation fighting to prevent red states from expanding their Medicaid programs to poor uninsured people. On the other side are hospitals, physicians, insurance companies, business groups, consumers and just about everyone else except the conservative activists led by AFP and the Koch brothers’ money.
Lest you think they are starting to give up, see this from Reuters:
“If there’s one thing that exasperates Tim Phillips, the president of the conservative advocacy group Americans for Prosperity, it’s when outsiders don’t understand he’s in it for the long run.
“The group, founded by the billionaire industrialist brothers Charles and David Koch, has been around for 10 years already, and its presence is growing. Each time the number of people signed up to volunteer for AFP reaches a certain threshold in a state, AFP opens a field office there. It now has offices in 33 states, and at its national Defending the American Dream Summit on Friday and Saturday in Columbus, Ohio, Phillips joked that he was ready to accompany the handful of volunteers from Hawaii back home to do the difficult task of opening an office there.
“In an interview Saturday, Phillips made it very clear: There’s no chance AFP is going to give up on its efforts to repeal President Barack Obama’s healthcare legislation, the Affordable Care Act.
“’When I said long-term, I meant it,’ Phillips said. “We have never stopped.”
“Congress passed the healthcare legislation in 2010 and it took effect just under four years later. The Supreme Court has since ruled twice its provisions were constitutional in cases challenging it. The U.S. House of Representatives has voted many times to repeal it, but none of those efforts has made it all the way through Congress. Public opinion polls show a majority of Americans are in favor of keeping it, and Congressional Budget Office projections show it lowering government expenditures on healthcare in the future. But Phillips has a different perspective.
“’The Left has been pushing for government-run healthcare since the 1920s,’ he said. He doesn’t think AFP’s struggle will have to last that long.
“’We’re in year six of a healthcare battle.’ he said. ‘It’s may be a 10- or 12-year battle.’”
If you were among the few looking closely, you may have noticed buzz and hoopla this past week on the release of two health reform proposals from Republican presidential candidates Gov. Scott Walker (R-WI) and Sen. Marco Rubio (R-FL). Not surprisingly, while Affordable Care Act supporters were quick to criticize, ACA detractors were complimentary: “serious plans” and “the opening theme music of health policy reform for Republican presidential primary voters.”
So, how do these two plans stack up? Not well. Here’s a handy table with which you can compare – and I’ve left nothing of out:
“Demand that we repeal Obamacare and replace it with a conservative solution.” (website)
Tax Credits to Purchase Health Insurance
“Available to anyone without employer coverage based coverage” – the amount based on age only:
0-17: $900
18-34: $1200
35-49: $2100
50-64: $3,000
“… advanceable, refundable tax credit that all Americans can use to purchase health insurance…”
Access to Health Savings Accounts (HSAs)
Anyone signing up for an HSA gets a $1000 refundable tax credit
“…should be expanded.”
Sale of Health Insurance across State Lines
Allow individuals to shop in any state for insurance
N/A
Pre-Existing Conditions
Banned for individuals who “maintain continuous creditable coverage”
“Those with pre-existing conditions should have access to affordable care through mechanisms such as federal-supported, actuarially-sound and state-based high risk pools.”
State High-Risk Pools
“…make it easier for states to expand these pools”
See above.
Mandated Essential Health Benefits, including for Young Adults <26
“…return regulatory authority to states”
N/A
Medicaid
Capped state allotment for: 1. Low-income families 2. Non-disabled adults; 3. Long term services & support
“… move … into a per capita system preserving funding for Medicaid’s unique populations while freeing states from Washington mandates.”
Insurance Pooling
“… allow for new purchasing arrangements so farmers, small business, religious groups, individual membership associations and others could join together…”
N/A
Long Term Care Insurance
Deregulate the current market
N/A
Medical Malpractice
“… incentivize states to pass meaningful lawsuit reform…”
N/A
Financing
“… repeal all of ObamaCare’s $1 trillion in new taxes…” No specifics on substitute financing.
N/A
Tax treatment of employer provided health insurance
N/A
“Glide path” downward to match the value of individual tax credits within a decade
Medicare
N/A
“A premium support system, empowering seniors with choice and market competition, just like Medicare Advantage and Part D already do.”
The report’s basic and important message is this: though it has vastly increased health insurance security and affordability for millions of vulnerable Americans, the Affordable Care Act is not affordable enough. Knowing what we know now, the law needs better affordability for millions of Americans who need access to subsidized insurance that includes more affordable premiums and stronger cost sharing protections:
“The premium and cost-sharing structures established under the law were delineated with the intention of meeting specific budget targets that now seem overly constraining. As a result, several problems occurred. Premium tax credits are substantial, but they are still inadequate for many individuals and families, given their incomes. Similarly, many individuals with modest incomes may struggle to afford the Level of cost-sharing required in the plans for which the premium tax credits are pegged. Premium tax credits are tied to a product with cost-sharing requirements that significantly exceed the typical large employer-sponsored plan. In particular, older individuals with incomes just above the current tax credit eligibility range face high premiums relative to their incomes, and because they tend to use more medical care than do their younger counterparts, they face a total bill for premiums plus out-of-pocket spending that can be very high.”
Fifty years ago this Thursday, July 30th 1965, President Lyndon Baines Johnson signed into law legislation creating two new national health insurance programs, Medicare and Medicaid. Fifty years later, these programs appear as recognizable and durable as any monuments in Washington DC. That’s an illusion because there’s little difference between the Lincoln and Jefferson Memorials today versus 1965. On the other hand, Medicare and Medicaid today look radically different from the law signed by LBJ as former President Harry Truman looked on.
If there is one constant in Medicare and Medicaid, it is change — constant, persistent change to fit the needs and preferences of the time. Both programs have been works in progress for 50 years, and so it continues.
The law’s original metaphor, coined by then-House Ways & Means Chairman Wilbur Mills (D-AR), was the “three layered cake.” The bottom layer was Medicare Part A — the original Democratic proposal for hospital insurance, funded by new employer/employee Social Security taxes deposited in a new Part A Hospital Insurance Trust Fund. When reference is made to “Medicare going broke,” it means this Trust Fund. When debate over the legislation that became the Affordable Care Act/Obamacare began in 2009, the Fund was scheduled to have insufficient funds by 2017 — last week’s new Trustees’ report now pegs the Fund’s financial reserves as solid through 2030.
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The second/middle layer was Medicare Part B — payment for physician services, funded by enrollee premiums and government revenues. During the original Medicare debate, Democrats wanted what became Part A and Republicans pressed for what became Part B. It was Wilbur Mills’ inspiration to combine them into a single program. This past March, Congress passed a new law overhauling physician payment in Part B. Parts A and B make up what is often called “Traditional Medicare,” a federal insurance program with no state government involvement.
The third layer was Medicaid — a new federal-state program to provide medical benefits for low income mothers and their children who were on “welfare” or public assistance. The law required the feds to set national rules and left administration to states with lots of discretion. A more appropriate metaphor — less tidy than Mills’ — would have been to describe Medicaid as 51+ (including DC and US territories) marbled cupcakes. The saying goes: “if you’ve seen one state Medicaid program, you’ve seen one state Medicaid program.” Because of changes brought by the ACA, Medicaid today is more a national program with uniform standards than ever — still it is 51+ marbled cupcakes, each one different from the rest.
In 1965, Medicaid was an afterthought — a make-shift, temporary caboose on the bold, new federal Medicare system that many expected/hoped would expand to cover all Americans within several years. In his definitive book on Medicare’s creation, “The Politics of Medicare,” Ted Marmor did not even mention Medicaid. Today’s ACA-reformed Medicaid covers more than 70 of 320 million Americans (Medicare covers about 54 million). It is the nation’s largest health insurance program covering 40% of all our children and paying for 40% of the nation’s births, the largest payer for nursing home and long-term care, and so much more. Sure, 19 states are still refusing to expand Medicaid as permitted by the ACA. History tells us they will come around — the last state to join original Medicaid was Arizona, and not until 1982, 17 years after the program’s creation! I continue to predict that all 50 states will be in no later than 2020.
More than Medicaid, though, Medicare has become the undisputed driver of health system reform in the US and around the world. In the 1965 law, Medicare was required to pay hospitals and physicians their “usual, customary, and ordinary” fees, a mega-inflationary scheme if there ever was one. In 1983, under “conservative” President Ronald Reagan, Medicare became the world’s biggest government agent for administered prices with the creation of the Inpatient Hospital Prospective Payment System (PPS), with Diagnostic Related Groups (DRGs) as the price-setting tool. Today, DRGs are one of the most familiar hospital payment forms around the globe.
Today, Medicare is much more than traditional A+B. It now includes C+D — (“new” Medicare). C has had several names during its 40+ year history, prominently “Medicare+Choice” between 1997 and 2003, and today’s “Medicare Advantage” by which enrollees get Medicare benefits managed by a private health insurer, now covering about one third of all Medicare enrollees. Part D was established by Congress in 2003 to provide, for the first time, an outpatient prescription drug benefit for enrollees managed by private drug plans. There’s no mandate, but if enrollees don’t sign up when first eligible, they pay increasingly higher premiums for the rest of their lives! But it’s not a mandate, so they say.
Understanding the politics of Medicare is much more straightforward if you remember this: Democrats like A+B, traditional Medicare because it is government-paid fee-for-service which keeps insurance companies out of the picture (except for Medigap coverage — another topic!) and tend to dislike C+D because of these programs’ reliance on private health insurers. By contrast, Republicans detest A+B as government bureaucracy, and love C+D because both rely on private insurers. Understand this, and everything becomes easier. Below, I also add Medicaid and the Exchanges to the political mix.
Your Easy Guide to the Politics of Federal Health Programs
Democrats
Republicans
Medicare A+B (traditional Medicare)
+
–
Medicare C+D (new Medicare)
–
+
Medicaid
+
–
ACA Health Exchanges
+
?@%&!
Republicans also tend to loathe and despite Medicaid because it is government provided health insurance. One irony is that, today, most states require that Medicaid enrollees get their coverage through private Medicaid managed care plans run by private insurers. Go figure.
While the ACA established yet a third pillar to the US health landscape in the form of Health Insurance Exchanges/Marketplaces to provide subsidized private health insurance to Americans unable to get insurance elsewhere, Obamacare also made dramatic changes to both Medicare and Medicaid, reinforcing my premise that these program always have been, and continue to be, works in progress.
The ACA not only expanded greatly who is eligible for Medicaid (to all non-elderly with incomes below 138% of the federal poverty level [$15,654 in yearly household income for a single adult]), it established for the first time national eligibility and enrollment standards. Though the Obama Administration is permitting all manner of experiments in conservative states (i.e.: Arkansas, Iowa, Indiana) hoping to “get to yes” on eligibility expansion (because of the 2012 US Supreme Court decision that made the ACA expansion an option rather than a requirement for states), Medicaid looks more like a national program today than ever before.
Meanwhile, the ACA accelerated Medicare’s role as a national delivery system reform engine through initiatives such as Accountable Care Organizations (ACOs), bundled payments, penalties on hospitals with high rates of readmissions and patient injuries, and much more. In US health policy today, Medicare is driving the reform agenda as the private sector follows and innovates in Medicare’s footsteps.
As someone who follows US health policy developments closely, I am constantly amazed by the daily and incessant deluge of news relating to both Medicare and Medicaid. Lots of these stories offer hyperbolic predictions of impending doom and calamity — this one I read today by Joe Antos of the American Enterprise Institute predicts that Medicare will be the next Greece!
Fifty years of Medicare and Medicaid and the pace of change just keeps accelerating — for better and worse. While many Americans fervently wish we could just have one solid federal health insurance pillar, now we’ve got three (not even counting the Veterans Administration and Tricare). I’m an optimist and believe that our system is getting better. I think that’s true most and not all the time. What’s undeniable is that our major health programs are works in progress, constantly moving and changing.
Here’s hoping that in the next 50 years, we will find a more stable and durable solution for all Americans.
The table contrasts ACA spending and revenues as calculated by CBO in March 2010 (when the law was signed) for the period 2010-2019 with brand new CBO estimates released last month for 2016-2025 (in bold). Not all items in the 2010 analysis were included in the 2015 version, though the biggies are. The table shows costs/spending and revenues/savings according to each respective ACA title — I created both versions using CBO data.
What can we see? Lots!
First, look at the projected reductions in numbers of uninsured Americans because of the ACA. In 2010, CBO expected the ACA would lower the nation’s uninsured by 32 million by 2019, half from private insurance/exchanges and half from Medicaid. In the 2015 report, that number is 24 million. Eight million fewer insured Americans — a 25% drop(!), and I’ve seen no comment on this.
Second, look at the “$ Spent” column to see what the ACA actually buys — health insurance, private and Medicaid. All over this chart, by the way, the 2016-25 money figures are much higher than the 2010-19 ones because the ACA’s big parts did not take effect until 2013 and 2014, while 2010-2012 had little spending or revenue, and while the 2020-2025 costs are high. The $54B in Title 3, by the way, pays for closing the Medicare Part D prescription drug “doughnut hole” or coverage gap.
Third, let’s look at the final column that includes ACA financing in the form of: 1. Title 3’s Medicare spending reductions/savings ($879B); 2. Title 9’s new taxes on high income wage earners, and on drug, medical device, and insurance companies ($718B); and 3. Title 1’s employer and individual mandates ($210B), plus others. The chart shows that Title 3’s Medicare cuts and Title 9’s new taxes pay for the Title 1 and 2’s insurance coverage expansions. If you understand this, you get the ACA’s essential financing formula.
Because of missing data, all these numbers don’t add up to the deficit reduction number at the bottom of the table, though there’s enough to show the essential picture. As detailed in my June CBO post, in 2010 the CBO projected that the ACA over 10 years would reduce the federal deficit by $124 billion; an apples to apples comparison now shows deficit reduction at $353 billion (2016-25); when including the Republicans’ voodoo economics “dynamic scoring,” this reduction drops to $137 (with a ridiculously wide variance).
There’s so much more compelling detail; here are a few important nuggets:
Title 1’s $210B revenue comes entirely from the employer and individual mandates, $167B from the former, and $43B from the latter. Big lift to repeal — especially the employer mandate.
Title 9’s new taxes on the pharmaceutical, medical device, and insurance industries have new numbers. And the winner is:
Health Insurance — $142B
Pharmaceutical — $30B
Medical Device — $24B
Title 9’s so-called “Cadillac Tax,” a new 40% excise on expensive health insurance policies scheduled to take effect in 2018, had estimated revenue at $32B (2010-19) and now comes in at $87B (2016-25), almost a tripling as business and labor groups begin pushing hard for repeal. Another big lift.
The savings from Title 3’s reductions in Medicare payments to hospitals, health insurers, home health agencies, and other providers has risen from $449B (2010-19) to $879B (2016-25). This is perhaps most important to understand. Except for insurers, hospitals and other providers agreed to these reductions to help finance expanded coverage. During the 2010, ’12 and ’14 elections, Republicans incessantly kicked Democrats for these reductions, charging them with cutting grandma’s Medicare to pay for Obamacare! (Simplified, but true.) But then, in their subsequent budget proposals, House Republicans led by then Budget Chair Paul Ryan (R-WI) always included complete repeal of the ACA except for the Title 3 Medicare reductions!
Some wonder, how could Republicans, given the chance, ever finance repealing the ACA? Here is the answer. If you repeal the entire ACA, except for the the $879 billion in Medicare reductions, that bill would reduce the deficit. A Republican President, working with a Republican-controlled Senate and House, using budget reconciliation rules which cannot be filibustered and only require 51 votes, could make that happen.
Inconceivable? Consider this. Twice, US Senate Finance Committee Chair Orrin Hatch (R-UT) and US House Commerce and Energy Chair Fred Upton (R-MI) have released the “Patient Choice, Affordability, Responsibility, and Empowerment Act” (Patient CARE) as their plan to repeal the ACA. Read their release and then click on the full description and read footnote 3 on page two and here’s what you will find:
“All provisions of PPACA and HCERA are repealed except for the changes to Medicare. Medicare reforms should be considered in the context of reforms to improve Medicare and prevent its insolvency.”
[PPACA and HCERA are the two statutes that, together, constitute the ACA.] The “changes to Medicare” — that’s the $879 billion. If you don’t think Republicans have a strategy to repeal the ACA if they win the White House and hold the Senate in 2016, think again.
Those watching the U.S. Supreme Court process on the King v. Burwell suit that almost upended insurance subsidies for about 6.4 million Americans knew that three outcomes were possible – 5-4 for the plaintiffs, and 5-4 or 6-3 for the government. That indicated to me a two-thirds probability of a pro-Affordable Care Act ruling.
Intellectually, that’s what I expected. Too many long-standing and widely-shared judicial precedents would have been trampled by a ruling for the Libertarian/Cato Institute’s lawsuit – including the core Chevron principle that “context matters,” and the Pennhurst principle that federal laws shall not “surprise states,” among others. With a ruling the plaintiffs, the Court’s only way out would be to repeat the 2000 scandalous ruling in Bush v. Gore that the Court’s decision installing George W. Bush as President would represent no precedent for any future case.
Still, it would have been foolhardy to assume any certain result from this Supreme Court. Happily, the decision was not close. The window of opportunity for using the Supreme Court to disassemble the ACA is now all but ended, even as a baker’s dozen of cases are still in circulation. Continue reading “The Supreme Court’s Surprise that Wasn’t”
My favored definition of “health policy wonk” is someone who reads health reports from the Congressional Budget Office AND enjoys it. Guilty as charged. Last Friday’s new report, “Budgetary and Economic Effects of Repealing the Affordable Care Act,” was enlightening and fascinating. It will be a benchmark document during the coming two years of debates over the ACA’s future — and required reading for my students this fall. Lucky them!
This report is already a fountain of numbers thrown around by both parties — and it reflects the changing politics at CBO under Republican control of the U.S. House of Representatives and the Senate. What are the key numbers?
Repeal on 1/1/2016 would increase the federal deficit by $353 billion between 2016-2025, or by $137B using the CBO’s new “voodoo” macroeconomic analysis;
Repeal would cause “federal budget deficits to increase by growing amounts after 2025, whether or not the budgetary effects of macroeconomic feedback are included.”
Repeal would increase the number of uninsured Americans by 19 million in 2016 and by 24 million in 2020;
Repeal would increase the US gross domestic product (GDP) by 0.7% between 2021-25, with “substantial uncertainty” regarding this estimate in both directions.
So there you have it. Repealing the ACA, the premiere policy goal of just about every Republican House and Senate member, will dramatically increase both federal deficits and the numbers of uninsured Americans in a report signed, sealed, and delivered to Capitol Hill by Republicans’ newly appointed CBO Director Keith Hall. Hall replaced the prior highly respected CBO Director Doug Elmendorf (who was just announced as the new Dean of the Kennedy School of Government at Harvard beginning next January). Continue reading “CBO Says ACA Repeal Will Increase Uninsured and Federal Deficits (by a lot)”
One proposal to change the Affordable Care Act would repeal the law’s 2.3 percent tax on sales of medical devices. On June 2, the Ways and Means Committee of the House of Representatives voted, once again, to rescind the tax and a vote in the full House is expected soon. Even progressive Democrats such as Sens. Elizabeth Warren (D-MA) and Al Franken (D-MN), who hail from states where the medical device industry is strong, support repeal. But repeal is a bad idea on principle and impact. If Congress insists on repeal, they should at least demand something in return for the public, namely, an end to the medical device industry’s secrecy clauses and gag rules.
The medical device tax is one of many revenue increases included in the ACA so that the law does not increase the federal deficit. Pegged at $29 billion in new revenues over ten years, it embodies a principle called “shared responsibility.” To achieve comprehensive health reform, every system stakeholder contributes something to make reform succeed, and nobody gets off the hook. Who else pays? Insurance companies, hospitals, home health agencies, drug companies, businesses, labor unions, hospices, consumers, tanning salons(!) – just about every constituency connected to health care pays something to achieve the coverage and system improvements in the law.
The medical device tax has been in effect since January 2013 with no disastrous effects. More than 75 percent of it is paid by the largest 1 percent of firms such as Johnson & Johnson and Medtronic. (J&J actually opposes repeal.) But the medical device lobby has focused on repeal like a laser beam gaining support among Members of Congress to accompany their tens of millions of dollars in campaign donations.
If Congress is determined repeal this tax, Members should demand something from the medical device industry to improve the health care system as an alternative form of shared responsibility. It’s this – Congress should ban the practice common among medical device makers requiring that hospitals never disclose to anyone how much they pay for the devices they purchase, especially implantable medical devices such as hip and knee implants, coronary drug eluting stents, and pacemakers. The price secrecy clauses written into contracts forbid hospitals even telling their own surgeons the costs they incur and pass onto patients. Continue reading “Of Secrets and Share Responsibility”
Today, President Obama spoke to the Catholic Health Association, the nation’s organization of Catholic Hospitals, about the progress and success of the Affordable Care Act. It’s just under 29 minutes and, in my humble opinion, it’s really worth your time to view, especially in the stories he tells of individual citizens whose lives have been rescued by this law.
Please give it a look and I don’t think you will regret it. President Obama takes his lumps every day, and I’m proud to have him as our President.
the ACA’s cost and to apply pressure where it hurts the most to restrain the cost of health insurance.
Health Stew 