Friday, December 9, 2011

Health Provisions in House Payroll Tax Bill

As you know, the House introduced their payroll tax bill earlier today; text can be found here.  With regard to health care provisions, the bill provides for a two year Medicare physician payment update of 1 percent, costing just under $39 billion.  This spending is more than offset by spending reductions – including several included in the President’s deficit proposal, such as additional Medicare means-testing – meaning that the health care provisions collectively reduce the deficit by $32.9 billion.

A summary of the bill follows below; the full CBO score is online here.


Medicare Physician Payment:  Provides for a 1 percent update in reimbursement levels for 2012 and 2013.  Provides that these updates shall not be considered when calculating the Sustainable Growth Rate (SGR) reimbursement levels in 2014 and future years.  Costs $35 billion over five years and $38.9 billion over ten years.

Mandates three studies related to physician payments – an HHS study (due January 1, 2013) regarding bundled or episodic-based payments, a GAO report (due January 1, 2013) of private payer initiatives to promote quality and efficiency, and a MedPAC report (due March 1, 2013) on aligning payment incentives between Medicare and private payers.  Commits the committees of jurisdiction to spend the balance of the 112th Congress reviewing options, with an eye toward replacing the SGR mechanism.

Medicare “Extenders:”  Extends for one year increases in ground and rural ambulance reimbursement rates scheduled to expire at year’s end.  Requires an updated GAO report and MedPAC study on ambulance reimbursement levels.  Costs $100 million over five and ten years.

Extends for two years the Medicare therapy caps exception process scheduled to expire at year’s end.  Inserts a new requirement that claims processed under the exception process include an appropriate modifier indicating the claims are medically necessary as justified by medical records documentation.  Beginning in July 2012, subjects claims over $3,700 to a manual medical review process; the $3,700 threshold for review shall apply separately to physical therapy services (including speech-language pathology services) and occupational services.  Requires a report from MedPAC on the therapy benefit, data from HHS on the therapy payment system, and a study from GAO on the manual review process implementation.  Costs $700 million over five years, but saves $1.7 billion over ten.

Extends for one year the Medicare geographic floor for work scheduled to expire at year’s end.  Requires a MedPAC report by June 1, 2012 on work geographic adjustments.  Costs $500 million over five and ten years.

Extends for one year the Qualifying Individual program, which provides assistance to low-income seniors in paying Medicare premiums.  Costs $700 million over five and ten years.

Extends for one year Transitional Medical Assistance (TMA), which provides Medicaid benefits for low-income families transitioning from welfare to work.  Beginning in 2012, provides a process for terminating TMA benefits if a family’s income over a three-month period exceeds 185 percent of the federal poverty level ($41,347 for a family of four in 2011).  Costs $1.2 billion over five and ten years.

Physician-Owned Hospitals:  Modifies requirements on physician-owned hospitals included in last year’s health care law (PPACA, P.L. 111-148).  Permits hospitals under construction as of the date of enactment of PPACA to retain physician ownership; under current law, only those facilities that actually had a Medicare provider agreement in place as of the date of PPACA’s enactment may retain physician ownership.  Removes several restrictions currently in effect that limit the number of physician-owned facilities that may expand.  Costs $100 million over five years, and $300 million over ten; background information on CBO’s scoring practices with respect to physician-owned hospitals can be found here.

Health Insurance Subsidy Recapture:  Modifies the repayment levels for insurance subsidies provided under PPACA.  Under the health law, new health insurance subsidies are based on an individual’s (or family’s) most recent tax return – so that subsidy levels beginning in January 2014 will be based on reported income for 2012.  However, a family’s circumstances can change significantly during this time lag for a variety of reasons – a change in job, significant raise, divorce, birth, or death, to name just a few.

PPACA established a reconciliation process intended to recapture any subsidy over-payments – but the law capped the amount of such repayments at $250 for individuals and $400 for families for all families with incomes under 400 percent of the federal poverty level (FPL, $89,400 for a family of four); above 400% FPL, no limits applied.  Both the “doc fix” that passed in December 2010 (P.L. 111-309), and the 1099 repeal bill enacted earlier this year (P.L. 112-9), modified these levels; the House proposal would modify those levels still further.  The below spreadsheet shows the maximum repayment amounts (for individuals and families) under the original law, the current law (as modified), and the proposed changes:

Percentage of Poverty PPACA as Enacted December 2010 “Doc Fix”           (P.L. 111-309) Current Law (P.L. 112-9) House Proposal
Under 100% FPL $250/$400 $300/$600 $300/$600 $300/$600
100-150% FPL $250/$400 $300/$600 $300/$600 $400/$800
150-200% FPL $250/$400 $300/$600 $300/$600 $500/$1,000
200-250% FPL $250/$400 $500/$1,000 $750/$1,500 $750/$1,500
250-300% FPL $250/$400 $750/$1,500 $750/$1,500 $1,100/$2,200
300-350% FPL $250/$400 $1,000/$2,000 $1,250/$2,500 $1,250/$2,500
350-400% FPL $250/$400 $1,250/$2,500 $1,250/$2,500 $1,600/$3,200
400-450% FPL* Full subsidy $1,500/$3,000 Full subsidy Full subsidy
450-500% FPL* Full subsidy $1,750/$3,500 Full subsidy Full subsidy
Above 500% FPL* Full subsidy Full subsidy Full subsidy Full subsidy

(*While subsidies are only available to individuals and families with incomes below 400% FPL, the recapture penalties would apply to individuals who received subsidies, yet were not eligible for ANY subsidies based on their income.)

Saves $2.8 billion over five years, and $13.6 billion over ten (including both outlay and revenue effects).

Democrat claims notwithstanding, many may argue that the subsidy recapture provision does NOT represent a tax increase, on the grounds that individuals will be repaying a subsidy they received in error.  In addition, most of the subsidies provided under PPACA are refundable in nature, and some would argue that limiting refundable subsidies reduces government spending, rather than increasing taxes.  While some Democrats in the House have previously expressed concern about the higher repayment requirements, it is worth noting that last December’s increase in subsidy repayments passed the Senate by voice vote, and passed the House by the overwhelming margin of 409-2, with 243 House Democrats supporting what they later criticized as a “tax increase.”

Prevention “Slush Fund:”  Caps spending for the Prevention and Public Health Fund created in the health care law at $640 million annually, beginning in 2013.  Under current law, the Fund is granted $2 billion in mandatory appropriations for Fiscal Year 2015 and every year thereafter.  Some Members have previously expressed concern that this fund would be used to fund projects like jungle gyms and bike paths, questionable priorities for the use of federal taxpayer dollars in a time of trillion-dollar deficits.  Saves $2.5 billion over five years, and $8 billion over ten.

Hospital Outpatient Evaluation and Management:  Provides that, beginning in 2012, hospital facility fees for outpatient department evaluation and management services shall be paid at the facility practice rate associated with the physician fee schedule.  Saves $2.7 billion over five years, and $6.8 billion over ten.

Medicare Bad Debt:  Reduces bad debt payments to providers – for unpaid cost-sharing owed by beneficiaries – from 45 percent down to 25 percent over three years, beginning in 2013.  Applies changes to skilled nursing facilities and all other providers receiving payments for bad debt.  Differing versions of this proposal have previously been included in the President’s September deficit submission, and the Fiscal Commission’s final reportSaves $3 billion over five years, and $10.6 billion over ten.

Rebase Medicaid Disproportionate Share Hospital Payments:  In 2021, reallocates Medicaid DSH payments to hospitals treating low-income patients, based on states’ actual 2020 allotments (as amended and reduced by the health care law).  No budgetary impact in the first five years, but saves $4.1 billion over ten.

Additional Means Testing:  Increases means tested premiums under Parts B and D by 15%, beginning in 2017.  Freezes the income thresholds at which means testing applies until 25 percent of beneficiaries are subject to such premiums.  This proposal was previously included in the President’s September deficit submissionNo budgetary impact in the first five years, but saves $31 billion over ten.