White House Budget Summary
Overall, the budget:
- Proposes $362 billion in savings, yet calls for $429 billion in unpaid-for spending due to the Medicare physician reimbursement “doc fix” – thus resulting in a net increase in the deficit. (The $429 billion presumes a ten year freeze of Medicare physician payments; however, the budget does NOT propose ways to pay for this new spending.)
- Proposes few structural reforms to Medicare; those that are included – weak as they are – are not scheduled to take effect until 2017, well after President Obama leaves office. If the proposals are so sound, why the delay?
- Requests just over $1 billion for program management at the Centers for Medicare and Medicaid Services, of which the vast majority – $864 million – would be used to implement the health care law.
- Requests more than half a billion dollars for comparative effectiveness research, which many may be concerned could result in government bureaucrats imposing cost-based limits on treatments.
- Includes mandatory proposals in the budget that largely track the September deficit proposal to Congress, with a few exceptions. The budget does NOT include proposals to reduce Medicare frontier state payments, even though this policy was included in the September proposal. The budget also does not include recovery provisions regarding Medicare Advantage payments to insurers; however, the Administration has indicated they intend to implement this provision administratively.
- Does not include a proposal relating to Medicaid eligibility levels included in the September submission, as that proposal was enacted into law in November (P.L. 112-56).
When compared to Fiscal Year 2012 appropriated amounts, the budget calls for the following changes in discretionary spending by major HHS divisions (tabulated by budget authority):
- $12 million (0.5%) increase for the Food and Drug Administration – along with a separate proposed $643 million increase in FDA user fees;
- $138 million (2.2%) decrease for the Health Services and Resources Administration;
- $116 million (2.7%) increase for the Indian Health Service;
- $664 million (11.5%) decrease for the Centers for Disease Control;
- No net change in funding for the National Institutes of Health;
- $1 billion (26.2%) increase for the discretionary portion of the Centers for Medicare and Medicaid Services program management account; and
- $29 million (5.0%) increase for the discretionary Health Care Fraud and Abuse Control fund.
With regard to the above numbers for CDC and HRSA, note that these are discretionary numbers only. The Administration’s budget also would allocate additional $1.25 billion in mandatory spending from the new Prevention and Public Health “slush fund” created in the health care law, likely eliminating any real budgetary savings (despite the appearance of same above).
Other Health Care Points of Note
Tax Credit: The Treasury Green Book proposes expanding the small business health insurance tax credit included in the health care law. Specifically, the budget would expand the number of employers eligible for the credit to include all employers with up to 50 full-time workers; firms with under 20 workers would be eligible for the full credit. (Currently those levels are 25 and 10 full-time employees, respectively.) The budget also changes the coordination of the two phase-outs based on a firm’s average wage and number of employees, with the changes designed to make more companies eligible for a larger credit. According to OMB, these changes would cost $14 billion over ten years. Many may view this proposal as a tacit admission that the credit included in the law was a failure, because its limited reach and complicated nature – firms must fill out seven worksheets to determine their eligibility – have deterred American job creators from receiving this subsidy.
Comparative Effectiveness Research: The budget proposes a total of $599 million in funding for comparative effectiveness research. Only $78 million of this money comes from existing funds included in the health care law – meaning the Administration has proposed discretionary spending of more than $500 million on comparative effectiveness research. Some have previously expressed concerns that this research could be used to restrict access to treatments perceived as too costly by federal bureaucrats. It is also worth noting that this new $520 million in research funding would NOT be subject to the anti-rationing provisions included in the health care law. Section 218 of this year’s omnibus appropriations measure included a prohibition on HHS using funds to engage in cost-effectiveness research, a provision which this budget request would presumably seek to overturn.
Obamacare Implementation Funding and Personnel: As previously noted, the budget includes more than $1 billion in discretionary spending increases for the Centers for Medicare and Medicaid Services, which the HHS Budget in Brief claims would be used to “continue implementing [Obamacare], including Exchanges.” This funding would finance 256 new bureaucrats within CMS, many of whom would likely be used to implement the law. Overall, the HHS budget proposes an increase of 1,393 full-time equivalent positions within the bureaucracy.
Specific details of the $1 billion in implementation funding include:
- $290 million for “consumer support in the private marketplace;”
- $549 million for “general IT systems and other support,” including funding for the federally-funded Exchange, for which the health law itself did not appropriate funding;
- $18 million for updates to healthcare.gov;
- $15 million to oversee the medical loss ratio regulations; and
- $30 million for consumer assistance grants.
Exchange Funding: The budget envisions HHS spending $1.1 billion on Exchange grants in 2013, a $180 million increase over the current fiscal year. The health care law provides the Secretary with an unlimited amount of budget authority to fund state Exchange grants through 2015. However, other reports have noted that the Secretary does NOT have authority to use these funds to construct a federal Exchange, in the event some states choose not to implement their own state-based Exchanges.
Abstinence Education Funding: The budget proposes eliminating the abstinence education funding program, and converting those funds into a new pregnancy prevention program.
Medicare Proposals (Total savings of $292.2 Billion)
Bad Debts: Reduces bad debt payments to providers – for unpaid cost-sharing owed by beneficiaries – from 70 percent down to 25 percent over three years, beginning in 2013. The Fiscal Commission had made similar recommendations in its final report. Saves $35.9 billion.
Medical Education Payments: Reduces the Indirect Medical Education adjustment paid to teaching hospitals by 10 percent beginning in 2014, saving $9.7 billion. Previous studies by the Medicare Payment Advisory Committee (MedPAC) have indicated that IME payments to teaching hospitals may be greater than the actual costs the hospitals incur.
Rural Payments: Reduces critical access hospital payments from 101% of costs to 100% of costs, saving $1.4 billion, and prohibits hospitals fewer than 10 miles away from the nearest hospital from receiving a critical access hospital designation, saving $590 million. The budget does NOT include a proposal to end add-on payments for providers in frontier states, which was included in the President’s September deficit proposal.
Post-Acute Care: Reduces various acute-care payment updates (details not specified) during the years 2013 through 2022, saving $56.7 billion – a significant increase compared to the $32.5 billion in savings under the President’s September deficit proposal. Equalizes payment rates between skilled nursing facilities and inpatient rehabilitation facilities, saving $2 billion. Increases the minimum percentage of inpatient rehabilitation facility patients that require intensive rehabilitation from 60 percent to 75 percent, saving $2.3 billion. Reduces skilled nursing facility payments by up to 3%, beginning in 2015, for preventable readmissions, saving $2 billion.
Pharmaceutical Price Controls: Expands Medicaid price controls to dual eligible and low-income subsidy beneficiaries participating in Part D, saving $155.6 billion according to OMB. Some have expressed concerns that further expanding government-imposed price controls to prescription drugs could harm innovation and the release of new therapies that could help cure diseases.
Anti-Fraud Provisions: Assumes $450 million in savings from various anti-fraud provisions, including limiting the discharge of debt in bankruptcy proceedings associated with fraudulent activities.
EHR Penalties: Re-directs Medicare reimbursement penalties against physicians who do not engage in electronic prescribing beginning in 2020 back into the Medicare program. The “stimulus” legislation that enacted the health IT provisions had originally required that penalties to providers be placed into the Medicare Improvement Fund; the budget would instead re-direct those revenues into the general fund, to finance the “doc fix” and related provisions. OMB now scores this proposal as saving $590 million; when included in last year’s budget back in February, these changes were scored as saving $3.2 billion.
Imaging: Reduces imaging payments by assuming a higher level of utilization for certain types of equipment, saving $400 million. Also imposes prior authorization requirements for advanced imaging; no savings are assumed, a change from the September deficit proposal, which said prior authorization would save $900 million.
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. Saves $27.6 billion over ten years, and presumably more thereafter, as additional seniors would hit the means testing threshold, subject them to higher premiums.
Medicare Deductible Increase: Increases Medicare Part B deductible by $25 in 2017, 2019, and 2021 – but for new beneficiaries only; “current beneficiaries or near retirees [not defined] would not be subject to the revised deductible.” Saves $2 billion.
Home Health Co-Payment: Beginning in 2017, introduces a home health co-payment of $100 per episode for new beneficiaries only, in cases where an episode lasts five or more visits and is NOT proceeded by a hospital stay. MedPAC has previously recommended introducing home health co-payments as a way to ensure appropriate utilization. Saves $350 million.
Medigap Surcharge: Imposes a Part B premium surcharge equal to about 15 percent of the average Medigap premium – or about 30 percent of the Part B premium – for seniors with Medigap supplemental insurance that provides first dollar coverage. Applies beginning in 2017 to new beneficiaries only. A study commissioned by MedPAC previously concluded that first dollar Medigap coverage induces beneficiaries to consume more medical services, thus increasing costs for the Medicare program and federal taxpayers. Saves $2.5 billion.
Lower Caps on Medicare Spending: Section 3403 of the health care law established an Independent Payment Advisory Board tasked with limiting Medicare spending to the growth of the economy plus one percentage point (GDP+1) in 2018 and succeeding years. The White House proposal would reduce this target to GDP+0.5 percent. This approach has two potential problems:
- First, under the Congressional Budget Office’s most recent baseline, IPAB recommendations would not be triggered at all – so it’s unclear whether the new, lower target level would actually generate measurable budgetary savings. (In August 2010, CBO concluded an IPAB with an overall cap of GDP+1 would yield $13.8 billion in savings through 2020 – not enough to make a measurable impact on a program spending $500 billion per year.)
- Second, the Medicare actuary has previously written that the spending adjustments contemplated by IPAB and the health care law “are unlikely to be sustainable on a permanent annual basis” and “very challenging” – problems that would be exacerbated by utilizing a slower target rate for Medicare spending growth.
According to the budget, this proposal would NOT achieve additional deficit savings.
Medicaid and Other Health Proposals (Total savings of $70.4 Billion)
Medicaid Provider Taxes: Reduces limits on Medicaid provider tax thresholds, beginning in 2015; the tax threshold would be reduced over a three year period, to 3.5 percent in 2017 and future years. State provider taxes are a financing method whereby states impose taxes on medical providers, and use these provider tax revenues to obtain additional federal Medicaid matching funds, thereby increasing the federal share of Medicaid expenses paid while decreasing the state share of expenses. The Tax Relief and Health Care Act of 2006, enacted by a Republican Congress, capped the level of Medicaid provider taxes, and the Bush Administration proposed additional rules to reform Medicaid funding rules – rules that were blocked by the Democrat-run 110th Congress. However, there is bipartisan support for addressing ways in which states attempt to “game” the Medicaid system, through provider taxes and other related methods, to obtain unwarranted federal matching funds – the liberal Center for Budget and Policy Priorities previously wrote about a series of “Rube Goldberg-like accounting arrangements” that “do not improve the quality of health care provided” and “frequently operate in a manner that siphons extra federal money to state coffers without affecting the provision of health care.” This issue was also addressed in the fiscal commission’s report, although the commission exceeded the budget proposals by suggesting that Congress enact legislation “restricting and eventually eliminating” provider taxes, saving $44 billion. OMB scores this proposal as saving $21.8 billion.
Blended Rate: Proposes “replac[ing]…complicated federal matching formulas” in Medicaid “with a single matching rate specific to each state that automatically increases if a recession forces enrollment and state costs to rise.” Details are unclear, but the Administration claims $17.9 billion in savings from this proposal – much less than the $100 billion figure bandied about in previous reports last summer. It is also worth noting that the proposal could actually INCREASE the deficit, if a prolonged recession triggers the automatic increases in the federal Medicaid match referenced in the proposal. On a related note, the budget once again ignores the governors’ multiple requests for flexibility from the mandates included in the health care law – unfunded mandates on states totaling at least $118 billion.
Transitional Medical Assistance/QI Program: Provides for temporary extensions of the Transitional Medical Assistance program, which provides Medicaid benefits for low-income families transitioning from welfare to work, along with the Qualifying Individual program, which provides assistance to low-income seniors in paying Medicare premiums. The extensions cost $815 million and $1.7 billion, respectively.
Limit Durable Medical Equipment Reimbursement: Caps Medicaid reimbursements for durable medical equipment (DME) at Medicare rates, beginning in 2013. The health care law extended and expanded a previous Medicare competitive bidding demonstration project included in the Medicare Modernization Act, resulting in savings to the Medicare program. This proposal, by capping Medicaid reimbursements for DME at Medicare levels, would attempt to extend those savings to the Medicaid program. OMB now scores this proposal as saving $3 billion; when included in the President’s budget last year, these changes were scored as saving $6.4 billion.
Rebase Medicaid Disproportionate Share Hospital Payments: In 2021 and 2022, 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). Saves $8.3 billion.
Medicaid Anti-Fraud Savings: Assumes $3.2 billion in savings from a variety of Medicaid anti-fraud provisions, largely through tracking and enforcement of various provisions related to pharmaceuticals. Included in this amount are proposals that would remove exceptions to the requirement that Medicaid must reject payments when another party is liable for a medical claim.
Flexibility on Benchmark Plans: Proposes some new flexibility for states to require Medicaid “benchmark” plan coverage for non-elderly, non-disabled adults – but ONLY those with incomes above 133 percent of the federal poverty level (i.e., NOT the new Medicaid population obtaining coverage under the health care law). No savings assumed.
“Pay-for-Delay:” Prohibits brand-name pharmaceutical manufacturers from entering into arrangements that would delay the availability of new generic drugs. Some Members have previously expressed concerns that these provisions would harm innovation, and actually impede the incentives to generic manufacturers to bring cost-saving generic drugs on the market. OMB scores this proposal as saving $11 billion.
Follow-on Biologics: Reduces to seven years the period of exclusivity for follow-on biologics. Current law provides for a twelve-year period of exclusivity, based upon an amendment to the health care law that was adopted on a bipartisan basis in both the House and Senate (one of the few substantive bipartisan amendments adopted). Some Members have expressed concern that reducing the period of exclusivity would harm innovation and discourage companies from developing life-saving treatments. OMB scores this proposal as saving $3.8 billion.
FEHB Contracting: Proposes streamlining pharmacy benefit contracting within the Federal Employee Health Benefits program, by centralizing pharmaceutical benefit contracting within the Office of Personnel Management (OPM). Some individuals, noting that OPM is also empowered to create “multi-state plans” as part of the health care overhaul, may be concerned that these provisions could be part of a larger plan to make OPM the head of a de facto government-run health plan. OMB scores this proposal as saving $1.7 billion.
Prevention “Slush Fund:” Reduces spending by $4 billion on the Prevention and Public Health Fund created in the health care law. 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.
State Waivers: Accelerates from 2017 to 2014 the date under which states can submit request for waivers of SOME of the health care law’s requirements to HHS. While supposedly designed to increase flexibility, even liberal commentators have agreed that under the law’s state waiver program “critics of Obama’s proposal have a point: It wouldn’t allow to enact the sorts of health care reforms they would prefer” and that “conservatives can’t do any better – at least not under these rules.” The proposal states that “the Administration is committed to the budget neutrality of these waivers;” however, the plan allocates $4 billion in new spending “to account for the possibility that CBO will estimate costs for this proposal.”
Implementation “Slush Fund:” Proposes $400 million in new spending for HHS to implement the proposals listed above.