The Center's work on 'Health Reform' Issues


Health Reform Reduces the Deficit, Contrary to Senate GOP Analysis

October 21, 2014 at 5:00 am

A recent analysis by Senate Budget Committee Republican staff that claims health reform will increase the deficit rests on two dubious propositions.  Under more reasonable assumptions, health reform will reduce the deficit, as the Congressional Budget Office (CBO) and Joint Committee on Taxation have consistently estimated.  Just a few months ago, CBO Director Douglas Elmendorf wrote, “the agencies have no reason to think that their initial assessment that [health reform] would reduce budget deficits was incorrect.”

How did the Senate Budget Committee’s Republican staff reach such a different conclusion?

First, they produced an estimate of savings from the health reform provisions that reduce Medicare and other program costs that’s significantly lower than CBO’s.  They did so by assuming that health reform had nothing whatsoever to do with the substantial slowdown in health care cost growth in the past few years.  That slowdown has led CBO since 2010 to lower its projections of Medicare and Medicaid spending by $1.1 trillion over this decade (see graph).

The decline in projected Medicare spending means that health reform provisions that cut Medicare costs directly will save less than previously thought.  (A provision that reduces Medicare costs by a certain percentage will save fewer dollars if that percentage cut is applied to a smaller base of costs.)  But the Senate Republican analysis lowers CBO’s estimate of health reform’s Medicare savings to reflect that effect alone, as though not one dollar of the savings from the slowdown in health costs were due to health reform’s focus on reducing cost growth in the U.S. health care system.

As Kaiser Family Foundation President Drew Altman has written, “Even though its direct effects on system-wide costs may be limited so far, I believe Obamacare is having a significant indirect effect, although cause and effect and the magnitude are hard to prove. . . . [It] is entirely likely that Obamacare has played and will continue to play a role in the slowdown in health-care cost growth and accelerating market change.”

Even under the conservative assumption that health reform accounts for only a small part of the slowdown in health care costs, it would more than offset the Senate Republicans’ reduction in health reform’s estimated Medicare savings

Second, the Senate Republican analysis overstates the budgetary impact of changes in labor supply (that is, the total hours of work that workers choose to supply) under health reform.  CBO estimates that health reform will cause a small reduction in the labor supply, in significant part because some people who now work mainly to obtain health insurance — a situation known as “job lock” — will choose to retire earlier or work somewhat less; that reduction will shrink total labor compensation by roughly 1 percent from 2017 through 2024, according to CBO.  The Senate Republican analysis assumes that the overall amount of income subject to tax will drop by the same percentage.

But wages and salaries, in fact, represent only about 70 percent of adjusted gross income, which also includes interest, dividends, rental income, capital gains, and some retirement distributions.  Thus, a 1-percent cut in labor compensation would shrink tax revenues by much less than 1 percent.

Correcting the Senate Republican staff analysis for these two factors shows that health reform will still reduce the deficit, as CBO has estimated — not increase it.  Those who seek the best assessment of the fiscal impacts of health reform should stick with CBO’s.

Indiana Should Revise Medicaid Waiver Proposal

October 17, 2014 at 11:01 am

Indiana has proposed to expand Medicaid and extend health coverage to as many as 374,000 uninsured Hoosiers through the Healthy Indiana Plan (HIP) 2.0.  As currently designed, however, the proposal would create barriers to coverage for low-income individuals and cause substantial numbers of people to remain uninsured, as we explain in a new paper.  The state should modify its proposal to ensure that all newly eligible adults are actually able to participate and receive necessary health care services on a timely basis.

HIP 2.0 would be a new demonstration project, or “waiver,” that incorporates features from the state’s existing Medicaid waiver, which was approved prior to the enactment of health reform and offers limited coverage to about 40,000 low-income adults.

Although Medicaid waivers give states additional flexibility in how they design their Medicaid programs, the Medicaid statute requires that waivers must test new approaches to Medicaid while promoting the program’s objective of delivering health care services to vulnerable populations that can’t otherwise afford care.  As proposed, HIP 2.0 falls short of meeting this standard in several important respects: aspects of the plan would almost certainly result in substantial numbers of low-income people being unable to receive health insurance and access care for significant periods of time.  Indiana should modify those parts of the proposal to ensure that newly eligible Medicaid beneficiaries can actually enroll in coverage and receive necessary health care services.

HIP 2.0 does drop some problematic features of the state’s existing Medicaid waiver, such as a cap on the number of enrollees and annual and lifetime dollar limits on coverage, to comply with changes that the health reform law made to Medicaid.  But the state is seeking approval to maintain certain other features of its current waiver that are inconsistent with the Medicaid expansion, such as charging premiums to people with little income and delaying the start date for coverage.  A substantial body of research, including Indiana’s own experience under its existing Medicaid waiver, demonstrates that charging premiums to people with low incomes discourages them from enrolling in and maintaining coverage.

Click here to read the full paper.

GAO: Administration Can Make Health Reform’s “Risk Corridor” Payments

October 10, 2014 at 1:16 pm

Health reform’s opponents are renewing efforts to kill its temporary “risk corridor” program, through which the federal government will help cover any higher-than-expected costs for insurers that offer plans in the new marketplaces while sharing in the savings if costs prove lower than expected.  But the Government Accountability Office (GAO) legal opinion on which they’re basing this latest attack says the opposite of what they claim.

Citing the GAO opinion, opponents claim that the Administration lacks the legal authority to provide risk corridor payments and that legislation is needed to prevent it from making unlawful payments.  But GAO actually concludes that the Centers for Medicare and Medicaid Services (CMS), which administers the risk corridors, has the authority to use contributions from insurers with lower-than-expected costs to finance payments to insurers with higher-than-expected costs.

GAO finds that CMS has the authority to use its regular operating funds to finance risk corridor payments as well.  But the Administration has made clear that the risk corridor program, which will exist for three years (2014-2016), will be budget neutral over that period — that is, payments won’t exceed contributions.

CMS would only lack authority to make risk corridor payments, GAO finds, if Congress specifically blocked it as part of legislation funding the government for the rest of fiscal year 2015 (when the payments associated with health coverage in 2014 are scheduled to be made).  The GAO opinion thus offers no basis for repealing the risk corridor program or stopping it from taking effect.

Moreover, repealing or blocking the program would result in higher premiums for marketplace plans.  That’s because the program helps keep premiums affordable by reducing uncertainty for insurers.  Health reform’s major reforms to the poorly functioning individual insurance market (like prohibiting insurers from charging higher premiums to people in poorer health or excluding them entirely) and the launch of its new marketplaces have temporarily raised insurers’ uncertainty in pricing their premiums during the marketplaces’ first few years.

If Congress blocked the risk corridors now, insurers would build a bigger “risk premium” into their premiums for 2016, making coverage less affordable.  (Insurers have already finalized their 2015 rates in many states.)  And some insurers might decide not to participate in the marketplaces in 2016.

Once insurers have had several years of actual claims experience with their marketplace plans, they’ll be able to price their premiums with more confidence and accuracy.  At that point, the risk corridors will no longer be needed and will expire as scheduled.

Another Health Reform Attack Falls Flat

October 2, 2014 at 3:00 pm

Many health reform opponents warned that people buying health insurance in the individual market would face a sharp, pervasive spike in premiums.  The Manhattan Institute predicted that “Obamacare” would bring double-digit premium increases, while the Heritage Foundation wrote, “individuals in most states will end up spending more on the exchanges” (or marketplaces) than they previously paid.  Not only did those dire predictions fail to come true, but there’s good news to report about premiums as open enrollment under the Affordable Care Act (ACA) approaches.

To be sure, some people buying coverage in the pre-health reform individual market saw their premiums rise, partly due to more robust benefits and market reforms under the ACA that barred insurers from charging higher premiums to people with health conditions.  But for many others, health reform’s consumer protections and premium subsidies to buy marketplace coverage brought lower premiums or the ability to buy coverage for the first time.  Now, as the November 15 start of the ACA’s second open enrollment season draws closer, the outlook for 2015 premiums in the individual market is even more encouraging.

Unsubsidized premiums for the silver-level “benchmark” plans in 16 cities around the country are falling by an average of 0.8 percent compared with 2014, according to a recent report by the Kaiser Family Foundation.  The cheapest bronze-level plan (a basic plan under health reform) in those same areas is rising by an average of just 3.3 percent in 2015.

Those rate changes mark an improvement over the pre-ACA market.  Individual-market health insurance premiums rose an average of 10 percent each year in 2008 through 2010, according to a Commonwealth Fund study.  For 2014 to 2015, the consulting firm PricewaterhouseCoopers estimates a 7 percent average increase in premiums (across all plan tiers and without accounting for subsidies) in the individual markets of those states for which it has data.  Premiums for the cheapest silver plans will rise an average of 8.4 percent in select states that the McKinsey Center for U.S. Health System Reform reviewed.

Of course, preliminary 2015 premiums vary significantly from state to state and insurer to insurer.  This variation means some consumers could see a higher price tag in 2015 for the plans they have now.  But many will be able to find coverage for the same or a lower price — provided they’re willing to shop around during open enrollment.

The bottom line: widespread rate shock isn’t happening.  Yet another attack on health reform is falling flat.

3 Reasons Why Oklahoma Decision Is Wrong About Health Subsidies

October 1, 2014 at 1:14 pm

A central piece of health reform authorizes the federal government to provide tax credits to help low- and moderate-income people buy coverage in the new health insurance marketplaces.  A federal district court judge in Oklahoma ruled yesterday that the law only authorizes the tax credits in states that have set up their own exchanges, not in states with a federally operated exchange.  (Other federal courts have split on the issue, which may eventually reach the Supreme Court.)  But this argument rests on a distorted reading of the law.  As I’ve explained:

  1. Section 1321 of health reform (the Affordable Care Act or ACA) says that if a state does not establish its own exchange or won’t be ready to operate its exchange in 2014, “the Secretary shall (directly or through agreement with a not-for-profit entity) establish and operate such Exchange within the State” (emphasis added).   In other words, the federal government will essentially “stand in the shoes” of a state that elects not to operate an exchange by establishing and operating the exchange on the state’s behalf.  That’s what the federal government has done in Oklahoma and other states that chose not to create their own exchange.
  2. Section 36B of the Internal Revenue Code, which section 1401 of the ACA added to the Code, specifically refers to federal exchanges in requiring all exchanges — state and federally operated — to report to the federal government on the amount of advance payments of premium credits that taxpayers receive.  That provision would make no sense if people buying coverage through a federally operated exchange weren’t eligible for credits.
  3. To help residents of states with state-run exchanges buy coverage but not residents of other states would clearly conflict with the ACA’s purpose, which is to ensure that all Americans have a path to affordable coverage, regardless of where they live.  As Chief Justice John Roberts noted in referring to the ACA’s Medicaid expansion, the exchanges are “an element of a comprehensive national plan to provide universal health insurance coverage.”