Brookings: Topics - Medicaid

Bending the Cost Curve in Health Care the Right Way—Through Better, More Person-Centered Care

Mark B. McClellan — Thu, 09 May 2013 13:54:00 -0400

The United States spends about 17 percent of GDP annually on health care, a figure that is projected to grow substantially in the years ahead, despite the recent slowdown in health care spending growth. Rising costs mean insurance coverage keeps getting more difficult to afford. Those rising costs, plus the aging demographics of the nation, account for most of the spending side of our nation’s long-term fiscal challenges at both the federal and state level. They mean higher expenditures on Medicare and Medicaid, and the tax subsidies for employer-provided coverage and the new subsidies for private insurance in the individual marketplaces. At the same time, biomedical innovation using genomics, systems biology, information technology, and innovative and convenient ways to deliver care holds the potential for much more effective, personalized care – if we can afford to develop and use it. That’s not the case so far: patients often do not get treatments we know to be effective, innovative treatments and ways of delivering care are hindered by payments that are tied more to the site of services and what we’ve paid for in the past than the value of these treatments for particular patients, and we often pay more for complications than for the coordination of care and person-focused support that could help health care providers and patients get much better results for the money they spend. Something has to change, not just to make sure that healthcare costs can be contained, but also to make sure that the quality of health care gets better by providing better support for what patients need.

Our new report, “Person-Centered Health Care Reform: A Framework for Improving Care and Slowing Health Care Cost Growth” is a system-wide framework to address our cost problems by improving care – by leveraging the large and growing opportunities for more person-focused care. We have developed a set of proposals for saving $1 trillion over 20 years and improving care at the same time. Written in collaboration with leading experts from across the academic and political spectrum, our report proposes a framework for how to improve health care financing and regulation so that we can achieve better, higher-value care for each person. The report describes a specific series of steps to improvement the way care is delivered in each part of our health care system, including Medicare and Medicaid, the employer and individual insurance markets, antitrust enforcement and other regulatory reforms. Focusing on person-level quality of care as the fundamental strategy for addressing health care cost growth is in some ways new, but it builds on promising ideas and trends throughout our health care system. It is an idea whose time as come, and which we should start to adopt as our long-term approach to addressing the health care quality and cost problems now.

This report is the third in our “Bending the Curve” series. While building on the past reports, it also differs from our previous work in some very important ways. First, we have broadened our group of authors. Still with us is the core group of experts who participated in previous reports – people like Joe Antos from AEI, Mike Chernew and David Cutler from Harvard, Mark Pauly from University of Pennsylvania, Dana Goldman from USC, Steve Shortell from UC Berkeley, and others who have a tremendous amount of health policy expertise and experience. We’ve also benefitted from some new expert perspectives, including Kate Baicker from Harvard. And along with that expertise, our group now includes some other experts with extensive policy and political experience – including NGA director Dan Crippen, former Senate Majority Leader Tom Daschle, former CEA chair and Columbia dean Glenn Hubbard, former Utah Governor and former HHS Secretary Mike Leavitt, former HHS Secretary and University of Miami President Donna Shalala, and former budget directors Peter Orszag and Alice Rivlin. Together, this unique group sparked a new and welcome level of discussion about reform. In particular, as Mike Leavitt put it, if Republicans and Democrats were at the point where they had to reach an agreement on reforming care and addressing the challenge of rising costs, what would they agree on – and how could we make sure it would work?

As we worked to answer these very practical questions, we were forced to consider the full range of key technical and political issues involved in health reform. We reviewed the kinds of reforms that we have considered before to improve quality and lower costs, along with new evidence on how those reforms and others being implemented now are working (with different degrees of success) in the public and private sectors. We combined that with consideration of how best to move forward in a way that avoids the need for disruptive short-term payment cuts, provides the policy certainty needed to accelerate the trends toward the availability of much better, more personalized care, and addresses serious short-term weaknesses in in Medicare, including unstable physician payments and a lack of support for beneficiaries to save money when they get better care These considerations led to a plan that involves implementing reforms that are not disruptive in the short term while supporting better quality and coordination of care, leading to a large impact over time on supporting improvements in care that can sustain slower cost growth in the years ahead. Our conclusion is that enacting these health care reforms will not be easy, but we agree that this is the best path forward.

We do need to act now. If enacted, our framework is able to avoid the more aggressive steps that will almost certainly be needed in the years ahead to achieve more urgent reductions in federal spending, like cuts in payment rates as in sequestration, or restrictions in coverage for vulnerable populations and in access to new types of innovative care. And even more importantly, it will speed up the innovations in health care and biomedical technology that lead to better results and lower costs for patients. The bottom line is that the best way to control health care costs is to have health care policies now that do as much as possible to support better care for each patient.

We have a window of opportunity right now for implementing thoughtful health care financing and regulatory reforms that improve care today and promote much better, person-centered health care for the future. This is the best way for the country to achieve its overall deficit reduction targets. We should act now before the window closes, and we are left only with policy options that shift costs, reduce quality, and most importantly, diminish the ability of patients and health care providers to achieve better care and better health.

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Authors

Mark B. McClellan

Image Source: © Keith Bedford / Reuters

Bending the Curve: Person-Centered Health Care Reform

Mon, 29 Apr 2013 14:30:00 -0400

Event Information

April 29, 2013
2:30 PM - 3:30 PM EDT

The Brookings Institution
1775 Massachusetts Ave., NW
Washington, DC

Michael Leavitt, Tom Daschle and Mark McClellan present the third report in the "Bending the Curve" series, a reinforcing set of reform steps across the health care system, including Medicare, Medicaid and private health insurance.

Joined by Governor Michael Leavitt and Senator Tom Daschle, Dr. Mark McClellan, Director of the Engelberg Center for Health Care Reform and the Leonard D. Schaeffer Chair in Health Policy Studies at Brookings, presented a comprehensive framework for health care reform on Monday, April 29. This report, the third in the "Bending the Curve" series produced by the Engelberg Center since 2009, recommends a reinforcing set of reform steps across the health care system, including Medicare, Medicaid, and private health insurance, that achieves better care for each person resulting in lower health care cost growth and improved health.

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Bending the Curve: Person-Centered Health Care Reform

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Event Materials

Participants

Panelists

Mark B. McClellan

Director, Engelberg Center for Health Care Reform
Senior Fellow, Economic Studies
Leonard D. Schaeffer Chair in Health Policy Studies

Tom Daschle

Mike Leavitt

Progressives and the Safety Net

Henry J. Aaron — Mon, 10 Dec 2012 15:59:00 -0500

Something wonderful happened in the United States during the middle third of the twentieth century. After decades of policies that smacked of Social Darwinism, our country created a strong, if incomplete, social-insurance safety net. The actions our government took expressed a solemn promise to vulnerable Americans. Social Security and Medicare assured the elderly and disabled basic cash income and health care roughly similar to that enjoyed by the rest of the population. They lifted the elderly and disabled from a status of privation to near equality with the nonelderly in both money income and access to health care. Various other federal programs provided food, housing, and educational support, or encouraged their provision by state and local governments. By official measures, poverty among the elderly fell below that of other age groups thanks to Social Security, and health coverage improved markedly for the nonelderly poor because of Medicaid.

Now, in the second decade of the twenty-first century, these advances are under attack and that solemn promise is in jeopardy. To be sure, these programs enjoy enormous popularity. At the same time, however, a solid minority has never accepted the idea that taxes should be used to pay for pensions and health insurance. As long as economic growth generated enough revenue to pay for these programs and the rest of government’s commitments, opponents of social insurance and other elements of the safety net gained little political traction. Three deficit reduction plans enacted during the presidencies of George H.W. Bush and Bill Clinton, along with sustained economic growth, produced budget surpluses in the late 1990s and early 2000s.

But then everything changed, and the national debt ballooned. The recessions of 2001 and 2007-2009 led to higher unemployment and lower revenues. Imprudent tax cuts slashed revenues still more. Wars in Iraq and Afghanistan following the tragedy of 9/11 led to huge increases in military spending. As a result, large and seemingly limitless deficits emerged, and budgetary angst has become epidemic.

In addition, official projections have warned that retiring baby boomers and rapidly rising health-care costs will cause Social Security and Medicare benefits to greatly outpace program revenues. Although these long-term forces have little to do with current budget deficits, they have combined to generate a sense of fiscal crisis. On top of this comes the “fiscal cliff,” the concatenation of dubious fiscal decisions timed to take effect almost simultaneously. The tax cuts enacted during President George W. Bush’s first term and the payroll-tax holiday enacted in early 2011 are set to expire on December 31, 2012. The government debt will soon breach the ceiling set in August 2011. Mindless spending cuts passed in 2011, based on formulas that pay no heed to the relative importance of programs and that have nothing to recommend them other than simplicity, are also to begin on New Year’s Day 2013.

Analysts agree that if all of the tax increases and expenditure cuts take effect, economic activity will slow, and a weak recovery will morph into recession. Failure to raise the debt ceiling would wreak tsunami-like devastation on financial markets that would inundate the rest of the U.S. and world economy.

Against this backdrop, the American public is being told that the cause of looming financial catastrophe is an “entitlement crisis.” Fiscal Jeremiahs warn that the only way to deal effectively with current deficits is to cut back Social Security, Medicare, and Medicaid years in the future. The full House of Representatives has twice passed budget plans, crafted by Budget Committee Chairman Paul Ryan, that would replace Medicare with a voucher that beneficiaries could use to buy either private insurance or a plan like traditional Medicare. The Ryan plan would also convert Medicaid into a block grant at spending levels well below what is projected under current law. The grants would not increase during recessions when Medicaid enrollments tend to spike. States, pinched by falling revenues and rising service demands, would have to cut benefits just when they are most needed.

But while reports of a crisis are overblown, and conservative proposals to solve it are draconian, progressives do need to think about how best to reform the entitlement programs. The simple fact is that Social Security, Medicare, and Medicaid form a very large and growing part of the federal budget—currently 50 percent of noninterest spending. Furthermore, the phrase “entitlement crisis” has been repeated so often and so earnestly that denying its reality is more likely to damage one’s own credibility than to dislodge what is actually profound confusion. Cuts in Social Security, Medicare, and Medicaid benefits are neither necessary nor desirable and should be resisted, even as reform of the whole health-care delivery system proceeds. But political and economic realities—the need to secure majority support for measures to lower deficits once economic recovery is well advanced—make some cuts highly likely. It behooves supporters of social insurance to have in reserve program cuts that would do the least harm and might advance other meritorious objectives. To begin this search, one should start with the underlying economic and demographic forces that are driving spending.

Read the full article at democracyjournal.org »

Authors

Henry J. Aaron

Publication: Democracy: A Journal of Ideas

Image Source: © JASON REDMOND / Reuters

Are Voters Ready to Make the Tough Fiscal Choices?

Isabel V. Sawhill — Tue, 18 Sep 2012 00:00:00 -0400

Conventional wisdom holds that the public is in denial about the need to raise taxes and reduce government benefits in order to restore fiscal sanity. Polls support the conventional wisdom. They show that the public is overwhelmingly in favor of protecting Social Security and Medicare benefits while also avoiding higher taxes. The problem is that no one is educating the public about our fiscal future and the steps that are needed to put us on a more sustainable path. If candidates for public office had the courage to educate the public, they might find voters more willing to accept the tough choices.

On September 15, I spent the day in Ohio at a town hall meeting with a reasonably representative group of registered voters sponsored by former Comptroller General David Walker’s Comeback America Initiative. The experience was eye-opening. These voters were appalled by the lack of action in Washington, eager to understand the fiscal facts and the choices, and willing to support the painful measures that will eventually be needed. After a short presentation by David Walker and myself on the facts and the kinds of policy options being widely discussed, they voted electronically on deficit-reducing measures such as putting Medicare and Medicaid on a predictable budget, raising the retirement age for Social Security, more income-relating of premiums for these health and retirements programs, raising revenues by broadening the tax base and bumping up the wage cap on the Social Security payroll tax, and cutting defense spending.

To be sure, it’s easier to support such measures in a paper (or electronic) exercise than when you actually go to the polls. Moreover, the details of each option and how it is presented matter. Although we were reasonably specific about the kinds of reforms we asked them to vote on, there wasn’t time to cover every issue. Still, there’s no question in my mind that educating these voters on the problem and the rationale for various solutions makes a huge difference.

Here are some of the results. Eighty-seven percent thought that the right way to address the debt was through a combination of spending cuts and tax increases. (This compared to 13 percent who wanted to only cut spending and 1 percent who wanted only to raise taxes.) Seventy-nine percent favored eliminating an open-ended entitlement to health care and instead putting Medicare and Medicaid on a fixed and predictable budget that would grow more slowly than in the past. Seventy-six percent favored gradually raising the retirement age for Social Security along with raising the taxable wage base and reducing the growth of benefits for the more affluent. Reforms to the way the Pentagon does business were also widely supported.

There’s a lot of talk about the need for leadership these days but little understanding about what leadership entails. Above all, it means educating the public. If candidates for national office were to tell the voters what we told them in Ohio, conventional wisdom says they would lose. But maybe, just maybe, the public is ready to hear the truth.

Authors

Isabel V. Sawhill

Publication: Real Clear Markets

Image Source: © Rebecca Cook / Reuters

The Long Term Is Now: Medicare, Medicaid, and the Financing of Long-Term Care

William A. Galston — Tue, 11 Sep 2012 12:00:00 -0400

About a decade ago, my mother’s slow mental decline became too obvious for our family to deny. She continued to live at home with my father under increasingly difficult circumstances until she fell and broke her hip. In the hospital, it became clear that her mental impairment precluded physical rehabilitation and that institutional care was unavoidable.

This is a standard baby boomer’s saga, and what came next was not unusual either. I soon learned that long-term care for institutional residents was a big-ticket item. My parents lived in Connecticut, a high-cost state. The place we chose—a “continuum of care” facility with independent living at the top and a nursing home at the bottom—cost more than $100,000 per year for a semi-private room. (The national average at the time was about $70,000, and it has since risen to $78,000, according to a Metropolitan Life survey.)

Although I had spent much of my life studying public policy, I had no idea how long-term care was financed. I soon learned that Medicare paid for at most 100 days of rehabilitation (useless in my mother’s case) and that Medicaid required beneficiaries to “spend down” nearly all their assets. Private long-term care insurance policies were available, I learned, but my parents—along with most Americans who can afford them—had not purchased one. Fortunately they had lived below their means for decades and had accumulated substantial assets, which proved sufficient to see my mother through nearly five years of full-time care.

I didn’t need to study wealth distribution tables to see that only a tiny fraction of American families could afford to do what my parents had done. The median family could self-finance only a few months of institutional care, after which they would be completely dependent on public resources. But Medicaid is devouring ever-increasing shares of hard-pressed state budgets, and huge federal budget deficits are putting pressure on the decades-old fiscal partnership between the states and the national government, and the pressure will only intensify in the decades ahead.

In this presidential election year, the impact of demographic change—especially the growing weight of immigrants and minorities—commands our attention. But another demographic change—the relentless aging of the U.S. population—will be far more consequential for national policy. Long-term care expenditures accounted for nearly one-third of Medicaid’s total outlays of $389 billion in 2010. As the population ages, the tension within Medicaid between caring for the elderly and the health needs of poor and near-poor families will escalate.

The problem is already acute. According to a recent report from the National Governors Association, Medicaid already constitutes the single largest share of state budgets—24 percent, a figure that rises relentlessly year by year. State spending on the program rose by 20 percent in the most recent reporting year and by even more—23 percent—in the previous year. The report estimated that by the end of fiscal year 2013, total Medicaid enrollment for low-income Americans and the dependent elderly will have risen by 12.5 percent in just three years. Because state revenues are growing much more slowly than Medicaid outlays, other priorities are getting squeezed. In many states, for example, public higher education—key not only to future prosperity and competitiveness but also to opportunity and mobility—is reaching a breaking point.

In short, there’s a looming crisis in long-term care because our current model for funding it is crumbling under the weight of multiple demands and inexorable demographic shifts. But we’re doing almost nothing to respond. It’s time to shift to a new long-term care model that combines personal responsibility and social insurance, the government and the market, in ways that would benefit not only current and future beneficiaries but the rest of society as a whole.

Read the full piece at Democracy Journal »

Authors

William A. Galston

Publication: Democracy Journal

Image Source: © Enrique de la Osa / Reuters

Web Chat: Health Care and the States

Wed, 11 Jul 2012 12:30:00 -0400

Event Information

July 11, 2012
12:30 PM - 1:00 PM EDT

Online Only
The Brookings Institution
1775 Massachusetts Ave., NW
Washington, DC

After the Supreme Court's recent decision to uphold Obamacare and the individual mandate, it's time for the states to implement the law. But by striking down provisions that require states to expand Medicaid eligibility, for example, the Court’s ruling raises important questions about the future of health care in America.

How will the Court's decision affect states' implementation of the law? What changes can we expect in massive programs like Medicare and Medicaid? On July 11, Brookings expert Tracy Gordon took your questions and comments in a live web chat moderated by Emily Howell of POLITICO.

12:29 Emily Howell: Welcome everyone, let's get started.

12:30 Tracy Gordon: Hi everyone. Great to be here today. Let's talk Medicaid and state budgets!

12:31 Comment From Gail: How unexpected was the idea that Medicaid provision was deemed "coercion?" In the leadup to the decision, it seemed as though experts expected the Court to rule that the provision, as it was written, merely encouraged states to follow a federal law.

12:34 Tracy Gordon: It was really unexpected! Some court watchers - including my esteemed colleague Henry Aaron - called Medicaid the "sleeper issue" of the case, but a lot of people in my world of state budgets and federalism were very surprised.
The federal government has a long history of conditioning aid on its rules and even the enabling legislation of Medicaid says that Congress reserves the right to "amend, repeal, or alter" any provision.
The court basically said this time was different because Medicaid had growth so large and was such a big part of state budgets.

12:34 Comment From Bryan, DC: It seems completely illogical to me that states would reject the Medicaid expansion, which comes with significant federal help. By doing so, are they just playing politics?

12:35 Tracy Gordon: Some people definitely think so, and bear in mind that declarations now don't mean a whole lot. The law is scheduled to go into effect in 2014 so governors have some time to mull it. As Gov. Christie said here at Brookings on Monday, it will be part of his FY2014 deliberations.

12:36 Comment From John, CA: By choosing to opt out of the medicaid expansion, will states lose money in the long run? As in - is there any validity to the idea that participating in the expansion is "too expensive?"

12:38 Tracy Gordon: The federal government picks up the whole tab in 2014. Then their share gradually declines to 90 percent and the legislation says it remains there after 2020. Some people might remember the Senator Nelson "cornhusker deal" where he tried to get a good deal for Nebraska. In the end, *all states* got the deal basically. It's a very generous subsidy.

12:39 Tracy Gordon: However, the issue from the state perspective is that they have to find that extra 10 percent somewhere. And they are feeling pinched in other areas and they are expected to balance their budgets each year.

12:40 Tracy Gordon: Plus, there is a concern that while the feds are on the hook for people who would be newly eligible for Medicaid (because they are under 138 percent of the federal poverty line) there might be other people who were previously eligible but not enrolled who would "come out of the woodwork" when they saw all the PR etc. States would have to pay for these people and it's not clear if they are high or low cost.

12:41 Comment From Sarah: What benefits will states experience for choosing to participate in the ACA Medicaid expansion?

12:43 Tracy Gordon: A benefit is that their residents who were previously uninsured will have coverage. This will be especially attractive when scheduled cuts to federal payments for uncompensated care go into effect. So some people think that hospitals and other health providers will pressure governors to say yes if uninsured people start showing up for care and that pot of money has dried up, while at the same time there's a new pot of money governors aren't accessing.

12:44 Comment From Jessie in Rockville: Will the initial subsidies offered by the ACA expansion be offered in perpetuity? Are they set to expire at any time?

12:46 Tracy Gordon: This is the big uncertainty for states. As I said above, they are supposed to last in perpetuity after 2020, but there's no guarantee. Then again, the federal government can change the regular matching rate for Medicaid and any other grant program for that matter whenever it wants too. I don't see how it could ever be an iron clad promise.

12:48 Tracy Gordon: By the way, another source of uncertainty is what the feds will do about subsidies to individuals and families so that they can purchase insurance on the exchanges. I don't think anyone really envisioned that the Medicaid expansion would be stripped from the original program so there is some reporting that HHS is now trying to figure out what to do. One line of thought is that they will expand subsidies to get people below the poverty line covered.

12:48 Comment From Guest: Once we start to see states implementing the expansion, can we expect voters in states that rejected the expansion to feel cheated? Do you think there will be political backlash toward the governors that said "no thanks"?

12:50 Tracy Gordon: I think it will be very hard to say no to a free program for the worst off among the uninsured even if it means that the state will be on the hook for 10 percent of the costs later. Then again, a lot of states held out for a long time before expanding their children's health programs in the 1990s and before taking up Medicaid in the first place (Arizona famously waited until 1982 when the Medicaid law passed in 1965).

12:51 Comment From Margaret: Six governors have declared that they won't accept the Medicaid expansion, but as you mentioned earlier these declarations don't mean much now. Which states are most likely not to accept the expansion?

12:51 Comment From Michael MA: Looking at individual states - do you know of any that would particularly benefit from participating in the expansion? Or, more broadly, what characteristics of a state's budget make it an excellent candidate for participating in a way that is beneficial to their budget?

12:54 Tracy Gordon: It's so hard to game it now and figure out what will happen in the future. As a lot of you have said, some of this is politics and some is dollars and cents. The name of the game in state budgets is always variation. I tried to examine in my blog today which states stood to benefit from refusing the expansion based on the proportion of (relatively) high income uninsured in their states. But if the rules change, this calculus could change again.

12:54 Comment From Mark: Wait - you said that it's not clear if people who "come out of the woodwork" would be high or low cost Medicaid recipients? Is this really in question? If someone was eligible for Medicaid under the criteria in place before the expansion but didn't enroll until after the expansion... I thought their benefits would clearly NOT be covered at the higher (90%) federal rate.

12:55 Tracy Gordon: Yes, they clearly would not get the 90% match, but we don't know if they are older and sicker and younger and healthier.

12:55 Comment From User in Vermont: Do you expect, over time, for the expansion to become universally popular? Obviously it's politically divisive among the states now. But do you think that, twenty years down the road, participating in it will be a no brainer?

12:58 Tracy Gordon: Looking twenty years down the road, I see a wave of rising health care costs and aging populations that will clobber both federal and state budgets if we don't get out in front of it. I think that's why it may be in state interests to expand Medicaid rather than having sick people show up in emergency rooms, etc. But in twenty years, we could also be talking about a radically different Medicaid program including block grants to states or the feds taking the most expensive recipients (elderly and disabled) off state hands. Stay tuned for Medicaid to be part of the talk on any "grand bargain" on federal deficit reduction.

12:59 Tracy Gordon: I think that's about all the time we have for now. Thanks so much for the great questions.

12:59 Emily Howell: Thanks for the questions!

Participants

Panelists

Tracy Gordon

Fellow, Economic Studies

States and Medicaid: Health Policy Jenga

Tracy Gordon — Wed, 11 Jul 2012 00:00:00 -0400

Since the Supreme Court’s Affordable Care Act (ACA) ruling, a new pastime is sweeping the nation in which health policy wonks try to guess which states will be in and which will be out of the now optional Medicaid expansion. But given the complexity of health care reform, this is less a game of chance and more like Jenga – where moving just one piece can send the whole structure crashing down.

So far six governors have said they will not participate in the Medicaid expansion scheduled for 2014, while another five are reportedly leaning against it. Their resistance comes despite federal government assurances that it will pick up 100 percent of the tab for the first few years, gradually declining to 90 percent in 2020 and thereafter.

States have a point there– the federal government has offered a helping hand before only to snatch it back later. A notorious example comes from the federal tax code and the long and twisted saga of the individual tax credit against state estate and inheritance taxes paid.

In any event, where would state opting out leave the uninsured? Because of an odd artifact in the law, those earning between 100 and 138 percent of the federal poverty line could still qualify for federal tax credits to purchase insurance on a state or federal exchange. (Note that the income cutoff for federal subsidies is 133 percent, but the law disregards 5 percent of recipient income toward that amount.)

Those below the federal poverty line (about $11,200 for individuals and $23,050 for families of four) would get their state’s old Medicaid program, and possibly worse because rules preventing changes to eligibility and benefits before ACA’s roll out will have expired. States may also have incentives to shift more Medicaid recipients into health insurance exchanges so that these individuals and families are covered on the federal dime.

But there are limits to this strategy depending on how many uninsured state residents happen to fall above the federal poverty threshold, which applies the same everywhere regardless of local income. Thus, as the map below shows, states like Louisiana where 43 percent of the uninsured are below the poverty line may be better off with the Medicaid expansion. However, states like New Jersey, with 28 percent of the uninsured below this threshold may have more opportunities for federal cost shifting as things currently stand.

Oddly, Texas also appears in this latter group. Although it has more low-income uninsured residents overall, it has fewer who are eligible for the Medicaid expansion because the ACA specifically excludes undocumented immigrants and requires a 5 year waiting period for legal residents.

Of course, there are many moving parts here. The federal government will also be cutting payments for uncompensated care, and individuals and employers will be making their own decisions about where to buy insurance coverage. Meanwhile, lurking in the background are rising health care costs that are already squeezing federal and state budgets. Given the high stakes involved for everyone, some may wish it were only a board game.

Data Source: Genevieve M. Kenney, Lisa Dubay, Stephen Zuckerman, and Michael Huntress, “Making the Medicaid Expansion an ACA Option: How Many Low-Income Americans Could Remain Uninsured,” Urban Institute, June 29, 2012. Available at: http://www.urban.org/UploadedPDF/412606-Making-the-Medicaid-Expansion-an-ACA-Option.pdf

Note: Estimates do not include households with non-group or employer provided coverage who would potentially take up Medicaid coverage under the ACA.

Authors

Tracy Gordon

States and the Affordable Care Act: An Offer They (Still) Can’t Refuse

Tracy Gordon — Mon, 02 Jul 2012 12:00:00 -0400

For months, astute observers called Medicaid the “sleeper issue” of the Supreme Court’s Affordable Care Act deliberations. Last Thursday, they were proven correct. A majority of the Supreme Court struck down a provision of the law giving the Health and Human Services Secretary authority to pull all federal Medicaid funds from states refusing to extend eligibility to low-income, non-elderly adults.

The ruling was surprising for several reasons. First, starting with land grants for public colleges and universities and continuing through to the interstate highway system and social safety net, the federal government has a long history of conditioning state and local grants on acceptance of its rules. A prime example is federal funding for K-12 education under the No Child Left Behind program.

This is also how Medicaid has operated since its inception in 1965. At the time, Congress explicitly reserved to itself the “right to alter, amend, or repeal any provision.” Indeed, it has exercised this right several times, expanding eligibility to low income pregnant women and various groups of children in the 1980s and 1990s. Some expansions came with carrots (promises of extra money) and some with sticks (threats to existing funds).

But the majority held that this expansion was different, not just tinkering around the edges but fundamentally changing the program’s identity. What’s more, because Medicaid has grown so big (it was states’ single largest budget item in FY 2010, including federal funds) and so much a part of state law, giving the HHS Secretary discretion to yank federal funds amounted to an order, even an existential threat (a “gun to the head” or “your money or your life” proposition).

But the same could be said of the federal tax code, which provides states with various expensive goodies (deductibility of state and local taxes, exemption of muni bond interest from federal income taxes) and whose very existence is a huge subsidy (because states can piggy back off of federal definitions and administration). Numerous budget commissions and task forces have put these subsidies on the chopping block, and at a recent hearing Senator Max Baucus suggested he might do the same. Are these changes now also off the table?

Moreover, in both cases, this symbiosis between states and the federal government developed over time because states said “yes” to federal support. With Medicaid, this relationship was severely tested in the Great Recession, when states had to plug massive budget holes but could not cut Medicaid eligibility because of federal program requirements. Several state Medicaid finance directors openly discussed rejecting federal funds to get out from under these requirements.

However, quitting Medicaid was never a real possibility. States needed the money to take care of individuals who would otherwise go untreated and care that would go uncompensated.

Now, as then, states will take the federal money, especially in light of longer term fiscal strains like rising health care and retirement costs. This won’t be easy. As with any federal grant program, subsidies set out in the Affordable Care Act (100 percent, declining to 90 percent in 2020 and thereafter) are not guaranteed over time.

Another source of uncertainty is what the newly eligible population, and others who come out of the wood work, will look like. Evidence from Arizona suggests some low cost young adults and some higher cost near elderly with chronic health needs.

Some governors and lawmakers have already said their states will decline to participate in the Medicaid expansion. But eight states have already gotten started on extending eligibility through waivers programs and another three are in the queue. Notwithstanding the highest court in the land, the whole Medicaid package is still an offer states can’t refuse.

Authors

Tracy Gordon

Image Source: Jim Young / Reuters

The Power to Tax Justifies the Power to Mandate Health Care Insurance, Which Can be More Economically Efficient

Amanda Kowalski — Thu, 28 Jun 2012 13:00:00 -0400

Today, the Supreme Court upheld the individual mandate, a central feature of the Affordable Care Act, under the federal government’s power to tax. I attended the Supreme Court oral arguments on the constitutionality of the individual mandate, and I noticed that the legal relationship between mandates and taxes relies very little on the economic relationship between mandates and taxes. From an economic perspective, mandates are similar to taxes, but mandates have the potential to achieve policy goals more efficiently than taxes.

Consider a simple example. In the case of expanding health insurance coverage, the government can mandate that employers provide coverage, or it can tax employers to raise revenues that could be used to provide the exact same coverage, achieving the same policy goal of coverage for all employed persons. Under the mandate, if workers value the health insurance coverage that they receive, then they will be willing to work for lower wages, and employment will not decrease. Under a similar tax, if workers do not recognize that their employers are effectively providing their health insurance coverage through the taxes that they pay, then they will not be willing to work for lower wages, and employment will decrease. Therefore, from an economic perspective, the mandate has the potential to be more efficient than the similar tax because it results in a smaller employment distortion.

Suppose that we add an individual mandate to our simple example. As in the Affordable Care Act, this individual mandate is a “pay or play” mandate, which means that individuals can decide if they would rather take up health insurance or pay a penalty. Under the individual mandate, even if individuals initially placed no value on the health insurance coverage that they received from their employers, they will now value it at least as much as the penalty that they must pay for not having it, leading them to accept lower wages. Under a tax, suppose that individuals still do not recognize that their employers are effectively paying for their health insurance through taxes, so they will not accept lower wages. In this simple example, since individuals are willing to accept lower wages under the mandate, employment will fall by less than it could fall under a tax, making the mandate more efficient.

How can we predict how workers will value health insurance coverage under the individual mandate in the Affordable Care Act? My coauthor and I look to the Massachusetts health reform of 2006, which also included an individual mandate requiring individuals to purchase health insurance or pay a penalty. Our research shows that in the Massachusetts experience, individuals valued the health insurance coverage that they received. Therefore, the decrease in employment under the mandate was much smaller than it could have been under a similar tax.

Authors

Amanda Kowalski

Image Source: JONATHAN ERNST

The Supreme Court Ruling on the Affordable Care Act—A Bullet Dodged

Henry J. Aaron — Thu, 28 Jun 2012 17:00:00 -0400

Health care reform is a drama in four acts. The first two acts—the Congressional debate leading to enactment of the Affordable Care Act, and the multiple court cases culminating in today’s Supreme Court decision—were nail-biters. The next two acts—the political debate that will culminate with the November elections, and the struggle to implement this enormously complex law—promise to be equally tense.

Few people correctly anticipated much about today’s Court action. Most believed that Chief Justice Roberts would write the opinion of the court, whether or not the law was sustained. That expectation proved correct. But the final alignment is surprising—Roberts aligned with the four liberals—Justices Breyer, Ginsburg, Kagan, and Sotomoyor—to sustain the law in its entirety, although not uniformly on the government’s reasoning. Some aspects of the Court’s reasoning are bewildering. The tone of the separate opinions written by Justice Ginsburg and jointly by Justices Kennedy, Alito, Scalia, and Thomas bespeak ferocious behind-the-scenes disagreements within the court.

The outcome can be stated simply. People must pay a tax if they fail to carry approved health insurance. States may extend Medicaid coverage as specified in the Affordable Care Act, but if they don’t, none of the funds for previously eligible Medicaid enrollees will be in jeopardy. All other provisions of the Affordable Care Act stand.

Aaron discusses the ruling in this video

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Supreme Court: Affordable Care Act Constitutional Under Congress’ Power to Tax

Behind this seemingly simple outcome stand sharp disagreements over constitutional interpretation.

For starters, by a vote of 5 to 4, the Court rejected the federal government’s argument that it can use its power to regulate interstate commerce to require people to carry insurance. Congress can impose a tax on those who don’t carry such insurance, but the concept of ‘mandate’ really doesn’t arise. The distinction between a mandate and a tax is without significance as far as the Affordable Care Act is concerned. The reason is that enforcement of the ‘mandate’ under the power to regulate interstate commerce depended solely on the ‘penalty/tax’ that the opinion of the chief justice leaves unaltered. The incentive is extremely weak in either case. The charge is modest for most people. It can be collected only from over-withheld income taxes. It does not apply to many people—for example, those for whom the cost of insurance would exceed a certain share of income. The law provides no mechanism for collecting the ‘tax/penalty’ from people who owe no tax. In brief, the incentive to carry insurance is largely hortatory for many people. In any event, whether the charge people are expected to pay is called a ‘penalty’ justified under the power to regulate interstate commerce, or a ‘tax’ under the government’s power to tax makes not a whit of difference in what the charge actually is or how it can be collected.

The argument over whether or not the power to regulate interstate commerce authorizes the requirement to carry insurance is therefore important only because of its implications for federal legislation other than the Affordable Care Act. And it is important. Justice Thomas dissent underscores why. Although he wrote only for himself, he articulated a position, popular in the conservative legal community, that the power to regulate interstate commerce should be drastically curtailed. The other conservative members of the court were unwilling to sign on to his rather extreme position. But they were nothing if not clear that the assertion of power to regulate interstate commerce under the Affordable Care Act is major legislative overreach.

Today’s decision says that the interstate commerce clause is not necessary to sustain the Affordable Care Act. But the Court clearly, if by only a 5-4 majority, rejected the government’s assertion that the Affordable Care Act is well within established precedent regarding the commerce clause, a view that had been the prevailing opinion among lawyers before this case. For seventy years, the Court placed few and minor limits on the power of the government to regulate economic activity under the Commerce Clause. This case suggests that this permissive era is over.

With respect to the extension of Medicaid coverage, seven members of the court, including two justices usually counted as liberals—Breyer and Kagan—ruled that it would be unconstitutional to penalize a state that refused to extend Medicaid coverage by curtailing current Medicaid matching funds.

The reasoning is bewildering. Medicaid, it was argued, is so important to every state that curtailment of current matching funds would dragoon states into extending coverage. Under the Constitution, it is the states that are sovereign and grant only limited powers to the federal government. No action by the federal government can convert the states into unwilling instruments of federal purpose. The majority’s view is that the threat of cutting off Medicaid funding would do just that and is therefore unconstitutional.

Yet it seems clear that the federal government could have taken two legislative steps, both clearly constitutional, that in combination would have been equivalent to the Affordable Care Act. The first step would be to repeal title XIX of the Social Security Act, which creates Medicaid. The second step would be to enact a new title XIX, creating a new Medicaid program with exactly the coverage requirements in the Affordable Care Act. States would be free to join the new Medicaid program or not, as they chose. There could be no constitutional bar to the repeal of a law Congress duly enacted. Nor would the terms of the new Medicaid law be any different from those of the old Medicaid law, which states were free to join or not to join (one state, Arizona, remained outside the program for many years). In combination, these two legislative steps, each doubtlessly constitutional, would have done precisely what seven members of the Court decided the Affordable Care Act could not do—tell states that if they did not extend coverage as specified in the Affordable Care Act, they would lose current Medicaid funding.

The tone as well as the substance of the three major opinions—by the chief justice, Justice Ginsburg, and the joint dissent of Kennedy, Alito, Scalia, and Thomas—is striking. Justice Ginsburg attacks the opinion of the chief justice with brio and scorn. She writes that the Robert’s opinion suffers from ‘multiple flaws,’ uses ‘inapt analogies,’ and ‘spurious’ complaints, charges that his argument is ‘difficult to follow,’ accepts ‘specious logic, is ‘long on rhetoric’ and ‘short on substance,’ and says one aspect of his opinion ‘disserves future courts.’ In one amusing passage, she ridicules Roberts for invoking what she calls ‘the broccoli horrible’—the suggestion that a health insurance mandate might pave the way for a mandate to eat a healthful diet, which is obviously beyond Congress’s constitutional powers.

Consider the chain of inferences the Court would have to accept to conclude that a vegetable -purchase mandate was likely to have a substantial effect on the health-care costs borne by lithe Americans. The Court would have to believe that individuals forced to buy vegetables would then eat them (instead of throwing or giving them away), would prepare the vegetables in a healthy way (steamed or raw, not deep-fried), would cut back on unhealthy foods, and would not allow other factors (such as lack of exercise or little sleep) to trump the improved diet. Such “pil[ing of] inference upon inference” is just what the Court refused to do in [two previous cases].

Unlike Justice Ginsburg, the four dissenting conservative justices do not explicitly scorn Roberts’ opinion. They simply disregard much of it, reserving their derision for the government’s claims—which just happen to be ones that Robert invoked. They agree that the commerce clause does not empower Congress to require anyone to buy insurance. And, because the Affordable Care Act describes the financial charge imposed on those without proper insurance as a ‘penalty’ imposed for violating a law that Congress lacks the power to legislate, that is the end of the story. The claim that the penalty is a tax is labeled as ‘feeble.’ The Government is the author of this ‘feeble’ argument, not the chief justice who based his reasoning on it.

Thus ends Act II in the Affordable Care Act drama. There will be no intermission. Act III was already well underway before Act II ended. It will see the obscenely well-financed political battle between supporters and opponents of the health reform law. They will contend over who will sit in the White House after next January 20. Will it be the person who staked his administration on winning passage of health reform? Or will it be the person who actually once thought the same idea was pretty terrific but who now says it isn’t and has sworn to repeal it? Act III, like the first two, promises to be a down-to-the-wire cliff-hanger. Act IV—if there is an Act IV—will play out across fifty states where governors, legislators, and state civil servants will struggle to implement the most beneficial/misguided [Choose one.] domestic legislation enacted in the last seventy-seven years.

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Supreme Court: Affordable Care Act Constitutional Under Congress’ Power to Tax

Authors

Henry J. Aaron

Image Source: Joshua Roberts / Reuters

A Supreme Court ACA Scorecard

Henry J. Aaron — Mon, 18 Jun 2012 12:06:00 -0400

Editor's note: During the Supreme Court's March hearing of the Patient Protection and Affordable Care Act, Henry Aaron wrote daily blog posts detailing his thoughts on the court's proceedings. Read Aaron’s posts on the first, second and third days of the hearing.

Watching the Supreme Court is not the same as watching a baseball game. But in both cases, a scorecard helps. So, here for those interested in making sense of what the Supreme Court says when it hands its decision on the Affordable Care Act is a scorecard of sorts. It lays out the options from which the Justices will choose in reaching their judgment.

Issue	Options for the Court	Likely Outcomes
1a. Is the ACA penalty for failure to carry insurance a tax? 1b. If it is does the Tax Anti-Injunction Act bar jurisdiction?	i. It isn’t a tax for purposes of the TAIA, skip to other issues. ii. If it is a ‘tax,’ does the TAIA flatly bar jurisdiction? If so, plaintiffs cannot sue until they pay the ‘tax’–end of decision. iii. If it is a tax and the government can waive its rights to bar suit under the TAIA, go to the other issues	Both sides want a decision. Court unlikely to treat the TAIA as a bar.

2. Does the Constitution permit Congress to require people to buy health insurance?	2a. Yes, under the commerce clause 2b. Yes, under its power to tax 2c. No, under narrow reasoning 2d. No, under broad reasoning	Likely, 2a or 2c

3. If the individual mandate is not allowed, should the rest of the bill stand?	3a. Yes, all other provisions should stand 3b. (The government’s position) Two other provisions should be tossed out—‘rate bands’ and mandatory issue; the rest should stand 3c. (Plaintiff’s position) The entire bill should be declared unconstitutional	?

4. Is the Medicaid extension constitutional?	4a. Yes 4b. No, narrow reasoning 4c. No, broad reasoning	4a 4b would be a shock; 4c would be revolutionary

Which of these options the Supreme Court chooses is obviously critical. So too is the language in which the Court couches its decision. For much of the twentieth century, the Court limited federal action to regulate business on the ground that freedom of contract was a sacred and sweeping right. That changed in the 1930s when the Court began to interpret the Congress’ constitutionally-based power to regulate interstate commerce in very broad terms. A broadly worded Court decision on the Affordable Care Act could signal limits on those powers that in the end could be even more important than the fate of the Affordable Care Act. Similarly, the federal government has used financial carrots and sticks to make the states instruments of national economic and social policy. A decision by the Supreme Court barring the extension of Medicaid coverage under the Affordable Care Act could signal limits on this federal power with ramifications far beyond the Affordable Care Act.

In brief, it is not just insurance companies, hospitals, the uninsured, and those whose taxes would be raised by the Affordable Care Act who have ‘dogs in this fight.’ Depending on how the Court decides the various cases involving this landmark legislation, the decision soon to be handed down could reshape not only health care policy, but also remake broad swathes of American constitutional law.

Authors

Henry J. Aaron

Image Source: © Kevin Lamarque / Reuters

@ Brookings Podcast: Automatic Spending Cuts and Programs for the Poor

Ron Haskins — Fri, 30 Dec 2011 11:02:00 -0500

The failure of the congressional super committee to reach a budget accord means that the budget ax will fall across many domestic spending programs and defense spending in the next fiscal year, including a number of programs that help the poor. Senior Fellow Ron Haskins says that while the automatic budget cuts will do some harm to some anti-poverty programs, the largest and most important programs – including Medicaid and Social Security – have been largely shielded.

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Medicare Premium Support: A Primer

Fri, 16 Dec 2011 00:00:00 -0500

The following primer was presented on December 16, 2011 at the event Controlling Medicare Costs: Is Premium Support The Answer? At the same event, participants Judy Feder, Paul Van de Water and Henry Aaron presented commentary opposing premium support reform for Medicare.

The major cause of the federal budget crisis, which is still in its early stages, is the relentless growth of Medicare spending. The two biggest causes of Medicare growth are the retirement of the baby boom generation, thus increasing the number of people on the rolls, and the persistent increase in the per person cost of medical care. The retirement of the baby boom generation is just beginning and the per person growth of Medicare, even though it has moderated slightly in recent years, tends to be well above economic growth, the growth of wages, and overall inflation. Unless something is done, Medicare will continue to consume an increasing percentage of the federal budget. According to the Medicare Actuary, Medicare will grow from 3.6 percent of the nation’s GDP in 2010 to 10.4 percent by 2080. Moreover, the interest on the money borrowed to pay for our programs, one of the most rapidly growing of which is Medicare, will greatly exceed even our spending on Medicare. Unchecked, growth in spending on Medicare and interest on the federal debt will bankrupt the country.

A special feature of health care that makes it difficult to control is that many Americans think the entire population has a right to the best medical care available including sophisticated tests, quality routine care, the best medicines, and expensive surgical procedures. For most other categories of spending in the federal budget, policymakers can make cuts without necessarily incurring the wrath of the American people. Not so with Medicare. A recent Washington Post-ABC News poll found that nearly 80 percent of Americans oppose Medicare cuts. The politics of dealing rationally with Medicare are further complicated by the fact that both parties have accused the other of trying to undermine the Medicare program. Republican presidential candidates, for example, are strongly criticizing President Obama for taking money from Medicare to finance the Affordable Care Act (ACA). Similarly, in the pending 2012 elections, Democrats are planning to excoriate Republicans for trying to destroy Medicare by endorsing the version of premium support incorporated in the House budget for 2012 (see below).

If the reluctance of politicians to incur the wrath of voters can be overcome, and if the internecine fighting between the parties can be quelled, analysts and policymakers have developed two broad choices for constraining the growth of Medicare costs. The first is to call on health professionals and other experts to identify reforms that would contain costs by adopting measures such as reducing the use of redundant or unnecessary tests, reducing the use of treatments that evidence shows are not effective, increasing the use of generic drugs, and increasing the effectiveness and use of preventive care. Given that approximately 25 percent of Medicare spending occurs in the last year of life, there could be significant savings in end-of-life care as well. The repeated observation that there is little or no correlation between the cost of health care spending and quality of care in a geographical area within the United States and that the U.S. spends far more on health care than any other nation but scores relatively poorly as compared with many other countries on measures of health and of quality of care strongly suggest that we are spending too much money on health care. The ACA, passed in 2010, contains several mechanisms of top-down reforms to control health care costs, most notably the Independent Payment Advisory Board (IPAB) composed of health experts who will review current research and practice and then submit reform proposals to Congress, although Congress placed limits on the types of reforms the IPAB can recommend. The proposals would then be considered under special rules in which the legislation would be considered as enacted unless Congress amended the IPAB recommendation with legislation that achieved the same level of saving.

The second way to contain Medicare growth is to adopt policies that harness market forces to control costs. Although controversial, premium support is perhaps the most credible approach of this type developed so far. The purpose of this primer is to explain premium support, to present the best arguments for and against its use to control health care spending in general and Medicare spending in particular, and to outline a premium support plan that is responsive to most of the valid criticisms. The paper was written as a background document for the Brookings-Heritage Fiscal Seminar. This paper contains an initial section explaining what premium support is (written by Ron Haskins of Brookings), a section presenting arguments against premium support (written by Henry Aaron of Brookings), a section presenting arguments in favor of premium support (written by James Capretta of the Ethics and Public Policy Center), and a section outlining a specific premium support plan—the Domenici-Rivlin plan—that many (but not all) members of our Fiscal Seminar would endorse.

The primary audience for our premium support paper is policymakers who must soon take bold steps to contain Medicare costs, but we also hope this primer will promote understanding of premium support and the arguments for and against it by reporters, students, lobbyists, and the public.

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Authors

Henry J. Aaron
James C. Capretta
Pete Domenici
Ron Haskins
Alice M. Rivlin

Image Source: Â© JASON REDMOND / Reuters

Living in "Interesting" Times: Health Policy in 2011

Henry J. Aaron — Wed, 16 Nov 2011 00:00:00 -0500

On November 16, 2011, Henry Aaron addressed the Rockford, Illinois Chamber of Commerce to discuss the future of health care policy.

Most of us have heard the wry curse, allegedly from ancient China: "May you live in interesting times." Leave aside the fact that no one has been able to find any such actual Chinese expression. Let's leave it aside because truth is more important than authenticity. And the truth is that tumultuous change is both unnerving and dangerous.

Health care policy in the United States is a mess. About that, everyone—politically left, right, and center—agrees. But they don't agree on what to do about it. That means that almost all of us think major change is in order—even likely. Still, we fear that change may be for the worse.

And the stakes are high. Health care is vital to all of us. To a greater extent than ever before, health care can spare us pain, improve the quality of our lives, and delay our deaths. We spend much of our income on it, even if we don't realize just how much, because of our remarkably convoluted payment system. How we change health care policy matters—and it matters a lot—to our well-being and to our pocket-books. We do, indeed, live in interesting times.

The times are interesting, as well, because change is coming at us in so many directions. I'd like to use my few minutes with you to describe five of them: the courts, Congress, the voting booth, state and federal executive agencies, and medical research.

Before I begin, I have to deliver an apologetic warning: to those of you who have become so habituated to PowerPoint that you think people listen with their eyes, I'm not going to use it. You'll just have to listen.

Let me start with the courts. As you all know, the Supreme Court just announced that it will hear arguments on whether key provisions of the Affordable Care Act are constitutional. Those arguments will come early next year. A decision will then follow, probably at the end of the current court term, next June.

Those challenging the ACA have raised several points. First, they have alleged that the extension of Medicaid coverage is unconstitutional. No court has found merit in that claim.

The key issue is whether the requirement that people carry health insurance is constitutional. The reason the individual mandate is so important is that most of the key provisions of the Affordable Care Act depend on it. These provisions include the health insurance exchanges through which millions would buy insurance and receive subsidies, the requirement that insurance companies insure all comers and that bars them from canceling coverage once provided, and the limits on how much premiums can vary because of age or other factors. Without the mandate, all of these provisions would become unenforceable.

Here is why. If people don't have to carry insurance but insurers have to sell it to them whenever asked, the economically sensible thing to do would be to go without insurance until you get sick, then buy it, and cancel it once you get well. As if that weren't good enough, most people will be eligible for income-related subsidies. The law provides subsidies to everyone whose income is less than four times official poverty thresholds. Presto: you get all the coverage you ever need and pay premiums only when you are sick. Seeing this opening, employers would drop their health insurance plans. Everyone not covered by Medicare or Medicaid would be eligible for this sweet deal.

There is, alas, a rather serious problem. If customers can go without insurance until they are sick and cancel it when well, insurers would have to set premiums high enough to cover the full cost of care during episodes of illness. People who are not eligible for subsidies would no more be able to afford insurance than they can afford to pay for the cost of serious illness without insurance. After all, the inability to pay for serious illness is precisely why people buy insurance. Subsidies would make such insurance affordable for many. But the budget cost of those subsidies would then explode. The cost of serious illnesses would migrate to the federal budget. Even now, some fear that the Affordable Care Act will cost more than official estimates. Repealing the individual mandate would resolve all uncertainty.

So, the economic and political stakes are high. But what is the legal issue? In passing, let's note that this issue has arisen because of the current political climate. There is little doubt that Congress has the constitutional authority to impose a head tax that could be rebated to those on those who carry health insurance that meets standards Congress could specify. Such a tax could be designed to exactly replicate the penalties the Affordable Care Act imposes for failure to carry insurance. Even attorneys who have argued in court the unconstitutionality of the individual mandate acknowledge that such a tax would have been immune to legal challenge.

To double the irony, had the individual mandate been enforced through the taxing power, there could be no litigation—at least not yet. Under established law, taxpayers can't challenge a tax until it has been levied. Since no penalties can be collected before 2014 when the individual mandate takes effect, litigation would still be at least two years away.

So, why didn't supporters of the Affordable Care Act use the government's taxing authority to enforce insurance coverage? The reason is that taxes are not and never have been popular. Republicans have, with considerable success, hammered Democrats as the 'tax and spend' party. The newly elected president Obama and the Democratic majorities in Congress were not going to hand their Republican opponents a cudgel to beat them with if they could possibly avoid it.

And a low risk alternative seemed to be at hand. The Constitution gives Congress authority to regulate interstate commerce. Health care and health insurance are clearly involved in interstate commerce. Through the power to regulate interstate commerce, Congress could penalize people who do not carry health insurance.

Not so fast, said those challenging the law. People who do not buy insurance are inactive. They are simply not doing something. Congress has no authority, they claimed, to tell people they cannot be inactive. People are inactive with respect to everything they don't buy. If Congress can tell people that they have to buy health insurance, Congress can tell them to buy anything. Basic freedom is at stake.

Those supporting the mandate countered that the distinction between activity and inactivity is bogus for at least two reasons. First, over extended periods virtually no one is inactive in the markets for health insurance and for health care. Virtually everyone buys insurance at some point. Even if they don't, they still use health care. Some may not pay for it, generating costs that providers recover by boosting charges on those who are insured. And insurance, indisputably, is interstate commerce. Second, several Supreme Court decisions have established the power of Congress to regulate activities that viewed by themselves are outside interstate commerce but that indirectly affect it.

On whether the individual mandate is constitutional, the lower courts—both the District courts where the cases were filed, and the Appellate courts to which the initial decisions were appealed—have been all over the map. Now, in this age of hyper-partisanship, one might suppose that judges appointed by Republican presidents would have sided with those who claim Congress cannot require people to buy insurance and judges appointed by Democrats would have concluded that Congress can.

Well, surprise. Most of the appellate judges, whether appointed by Democratic or Republican presidents, have voted to sustain the requirement. Decisions from two circuits eviscerated the argument that Congress lacks the power to require coverage. Both were written by judges appointed by Republicans. One was written by Laurence Silberman, a 76-year-old jurist appointed by Ronald Reagan and once considered a likely candidate for the Supreme Court. The other was written by Jeffrey Sutton, a young judge who clerked for Antonin Scalia, was nominated to the Court of Appeals by president George W. Bush, and who was so controversial that 41 Senators voted against confirming him.

One of the Supreme Court's major jobs is to settle disagreements among appellate courts. The Supreme Court consists of nine very independent-minded people. The decision will be complicated. It is fraught with legal and political significance. No prudent person should predict how the court will vote on such an issue.

So... here is my prediction. The Supreme Court will sustain the individual mandate, and it will do so not by the narrow 5 to 4 split that has become so familiar, but by a vote of 7 to 2. Or 8 to 1. Justices Breyer, Ginsburg, Sottamayor, and Kagan are virtually certain to find the mandate constitutional. But also voting to sustain it, I believe, will be Justices Scalia and Kennedy, based on reasoning similar to that of Silberman and Sutton. Justices Roberts and Kennedy are in play and I am assuming that either or both will vote to affirm the mandate. Justice Thomas, who has staked out a far-reaching opposition to federal regulation in many currently accepted forms, will say that the mandate exceeds Congress's constitutional authority.

Now, having peered deeply—although possibly inaccurately—into my crystal ball, let me turn to the second venue within which the future of health care policy is being shaped... Congress.

Last August, as part of the deal to raise the ceiling on the national debt, Congress created a Super Committee charged to propose ways to cut the deficit. The ground rules were quite extraordinary. Congress set no limits on what could be in the committee's recommendations. But it did set targets for itself.

Congress gave the committee authority to propose repealing, reforming, or enlarging any existing tax, expenditure, or regulation and to propose any new tax or outlay that it wanted. It could call for scrapping the Internal Revenue Code, repealing Social Security, imposing a tax on value added, restructuring Medicare, or closing three cabinet departments—assuming it can remember which ones it wants to close. All it takes for the committee to make a recommendation is a simple majority of committee members, half of whom are from each party and half of whom are from each house of Congress. There is only one thing that the committee must do: it must report by November 23, the day before Thanksgiving.

The peculiar power of the committee stemmed not just from its unlimited purview, but also from the rules Congress set for itself last August. Congress committed to vote on the committee's recommendations within two months, without amendment, with passage by simple majority of both houses, no filibusters allowed.

Congress also set a target amount of deficit reduction. Congress instructed the committee to propose at least $1.2 trillion in deficit cuts over the next decade. If the committee does not recommend deficit reduction of at least that amount, or if Congress does not approve the committee's recommendations, or if the president vetoes such measures and Congress does not override his veto—if, in other words, if anything stops enactment of measures to cut the deficit by at least $1.2 trillion-domestic and military spending will be cut automatically by formula enough to bring the total to $1.2 trillion, starting in 2013.

The committee could recommend measures to cut the deficit cuts by more than $1.2 trillion. And most budget analysts agree that cuts of much more than $1.2 trillion-perhaps $4-5 trillion over the next decade-are needed to prevent the national debt from continuing to grow faster than national income.

The automatic cuts will fall in part on Medicare, but not on Medicaid or on any other income tested benefits. The Medicare cuts would come only from payments to providers and insurers and are limited to 2 percent—a maximum of a little under $11 billion in 2013 and slightly different amounts in later years.

This is strong procedural medicine. What the committee recommends or doesn't recommend is important. But whatever happens, action now will only be provisional. Whatever the committee does and however Congress disposes of its recommendations, this is far from the end of the story on modifications to Medicare, Medicaid, and other aspects of health care policy.

Rising health care spending is the principal driving force behind projected increases in federal budget deficits. In fact, if health care spending were rising no faster than national income, we would have no significant long-term deficit problem. But the elderly and disabled populations are growing fast and medical science continues to generate a growing menu of beneficial treatments. These two forces mean that there is no way to sustain the nation's commitment to assure standard medical care for the elderly, disabled, and poor without sizeable tax increases. That is true, even if the Affordable Care Act or other legislation transforms the way the United States delivers health care.

That is not just my opinion. It was the unanimous view of a bipartisan panel appointed several years ago by the National Academy of Social Insurance. This dilemma is hard and enduring-second class medicine for the elderly, disabled, and poor or higher taxes. You may not like the choice. I don't. But we are stuck with it. So, whatever the Super Committee recommends and however Congress responds, budget pressures will require either higher taxes or sizeable cut backs in spending on health care.

In the near term, Congress will have to decide—as early as next month—what to do to avoid across-the-board cuts of 27 percent in physician fees under Medicare that are slated for January 2012. These cuts are the effect of legislation passed more than a decade ago to hold down Medicare costs. Furthermore, in late 2012 or early 2013, the debt ceiling will have to be raised yet again. And, of course, there is going to be an election next year. Come January 2013, the winners will have to present a budget. Nothing the super committee recommends is going to take effect before 2013. Future Congresses, which cannot be bound by what Congress may do today. They will be free to modify whatever recommendations of the super committee that Congress approves.

Meanwhile—and I know what I am about to say will come as no surprise to people who reside in Illinois—not everything of importance occurs in Washington. Right now, state legislatures, hospital administrators, and physicians are deciding how to respond to the sizeable responsibilities that the Affordable Care Act places on their shoulders. States must decide whether and how to set up insurance exchanges through which to enroll millions of people who are not insured in other ways. If they decide not to set up such exchanges, the federal government is authorized to do the job.

State governments must also prepare for a flood of new enrollees in Medicaid—about 16 million of them. The first job is to enroll them. The next job is to encourage enough doctors to see those patients to make enrollment more than a tease. That is not a trivial job, as Medicaid fees are so low that many doctors will not see Medicaid patients, and hospitals in many states lose money on them.

The Affordable Care Act includes other provisions intended to promote efficient delivery of health care. It calls for the creation of so-called 'accountable care organizations.' ACOs are groups of providers—hospitals, physicians, and others—who take responsibility for providing care in an integrated fashion and seek to simultaneously improve quality of care and hold down spending. They need to meet specified quality standards and show that they have saved money. If they do both, they get to keep part of the savings. The government has just issued regulations, but it is not clear how many providers will want to take up the offer.

The government is also trying to design new methods of paying for care under Medicare—so called 'bundled payments' that get away from the perverse incentives created by the current fee-for-service system. Whether and how fast these measures work remains to be seen.

The last force that will shape health care policy is easy to forget, but is, in fact, the most important. Over the past several decades the most powerful force driving up health care spending has been the advance of medical science. In this respect, medicine is similar to other scientifically dynamic fields. Advances in research typically boost total spending, even as they reduce price. Transportation spending rose even as the cost of moving passengers and freight fell. Computation spending rose even as the price per floating point operation fell. The same has been true of entertainment and communications.

The reason that health care poses such difficult problems is that the benefits it generates are now so large. People are living longer and medical science is advancing. Medical benefits promise to become increasingly indispensable as successive diseases become amenable to treatment and degenerative processes can be slowed or stopped. These benefits promise to transform what it means to live a normal human life. That is good news. We should want more of it. Yes, we in the United States spend more for them than we need to do. Getting more for what we spend is one of the principal objectives of health reform. But as medical science advances, we will want the benefits of those advances ever more desperately for ourselves and those we love. Our sense of justice is offended if they are not shared fairly, even among others we do not know. In the end, the most important force driving up health care spending is the advance of clinical and laboratory research that none of us would willingly sacrifice.

And so, I end with a paradox. The best news for all of us as human beings would be scientific advance that intensifies the economic and political problems that we and our elected representatives must confront. One of my health economist friends has wondered whether he would find any customers if he offered a new and novel health insurance plan: 1960s health care at 1960s prices. The sales slogan would be: we aren't very good, but we sure are cheap. He doesn't think he would have many takers. I don't think so either. I'll bet you don't as well. If we are right, that should tell all of us that however aggravating we find current policy choices and however exasperated we become with the curious ways in which our elected representatives mismanage public policy, things have actually gotten a lot better.

As an inherently pessimistic fellow, I can't end on such an upbeat note. The trend to ever higher health care costs should alert us to a troubling fact: at some point we will not be able to afford all beneficial care for all. We will have to ration health care. Let me be clear—I am no more advocating rationing than a weatherman advocates a hurricane he sees on his radar screen. I am not talking about the dependent minority of poor, disabled, and elderly. I am talking about the well-insured majority of us.

Before we have to cope with that problem, however, we have a lot of work to do. The nation needs to reform the way health care is organized and delivered. It needs to change the financial incentives that motivate patients and providers. It needs to underwrite a vast program of research on the comparative effectiveness of what physicians do. Those steps will delay the need at some point to ration health care. But if we are lucky, the menu of ways to diagnose and treat our bodies will continue to grow. Spending pressures will keep intensifying. What a blessing for extended and improved lives! What political and fiscal aggravation!

Authors

Henry J. Aaron

Publication: Rockford, Illinois Chamber of Commerce

The Central Question for Health Policy in Deficit Reduction

Henry J. Aaron — Wed, 12 Oct 2011 11:58:00 -0400

The United States is in the midst of a massive, multi-front war on federal government deficits. When Congress raised the debt ceiling, it created a super committee with unprecedented powers to recommend deficit-reducing measures totaling at least $1.2 trillion over the next decade. Virtually nothing, other than the Constitution, limits what the committee may recommend. Furthermore, Congress has obliged itself to vote on whatever the committee recommends — no filibusters allowed, no amendments permitted, and only simple majorities are required for passage. If legislated cuts fall short of the $1.2 trillion target, automatic cuts will be made in most government programs, half in the area of defense and half in domestic and international activities. Numerous official and private commissions have proposed plans for cutting the deficit as well.

President Barack Obama has simultaneously advanced a complex menu of initiatives that would boost spending and cut taxes in the near term to combat the recession but would lower the deficit of the next decade through a combination of spending cuts and tax increases. Modifications in federal health programs would account for about $300 billion of those cuts — just enough, as it happens, to pay for the added cost of not allowing scheduled cuts in Medicare’s physician fees to take effect. Obama’s proposal to boost taxes is a direct challenge to the often-repeated pledge of the Republican leadership not to accept any revenue increases.

Debates on health care policy are bound to bulk large in the deliberations of the super committee, as they do in Obama’s proposals. Health programs constitute 23% of the federal budget and even more of projected spending growth. If spending is to be cut, they are too large to leave untouched. How they are changed is important. But whether tax increases are part of any program to cut the deficit is vastly more important — not just for the economy but also for health policy.

Read the rest of this article at the New England Journal of Medicine website »

Authors

Henry J. Aaron

Publication: New England Journal of Medicine

The Deficit, Higher Taxes and Health Care

Henry J. Aaron — Wed, 12 Oct 2011 17:18:00 -0400

Sensory overload is defined as a condition in which one or more of the senses is so overloaded that it becomes difficult to focus on the task at hand. Those interested health policy may be excused if they display this disturbing condition. Health policy faces far-reaching, even fundamental, change through a bewildering variety of channels. Health policy analysts are heavily engaged in all of them. Meanwhile, they are neglecting the single policy debate that will more profoundly influence health policy than all of those now absorbing their attention: whether tax increases form a major part of any program to curb future federal budget deficits.

The distractions, though unfortunate, are understandable.

For starters, the Supreme Court is likely by mid-2012 to decide the constitutionality of the Affordable Care Act's requirement that almost everyone must carry insurance. Yet, regardless of this decision, major campaigns are under way to repeal the law, or at least block its implementation.

In the background, the House has passed a bill to convert Medicaid into a block grant and to replace Medicare with vouchers linked to indices that for decades have grown more slowly than health costs. After the 2012 elections, supporters of these proposals are likely to control the Senate, and potentially the White House, too.

And, perhaps most consequential: When Congress raised the debt ceiling, it created a super committee to cut federal budget deficits. Congress endowed the committee with unlimited authority to recommend changes to any federal law and all government spending, and, as a result, proposals that could remake Medicaid and Medicare could pass before year-end with simple majorities in each house. Whether or not the special committee deals with the currently-scheduled 30-percent cuts in fees Medicare pays physicians, Congress will have to decide whether to let them take effect in early 2012 or once again to suspend them.

President Barack Obama has presented proposals of his own to cut federal health care spending. The cuts are small -- just 3 percent over the next decade. Nonetheless, many groups are behaving as if vital interests are at stake and have protested so vociferously that the cuts seem unlikely to win congressional approval.

The outcome of these debates is obviously not without importance. But none of them will count for much, if deficit reduction plans exclude sizeable tax increases. To see why, consider what will happen if deficit reduction occurs exclusively through spending cuts.

Eventual deficit reduction is not an option; it is a necessity. Not immediately -- cutting government spending or raising taxes in the midst of a recession is an extremely bad idea. But once economic recovery is well under way, it is vital to prevent the ratio of debt to gross domestic product from continuing to rise. The United States is widely regarded as a safe place in which to invest. But if the cost of servicing the national debt continues to outpace income growth, savers -- foreign and domestic -- will eventually come to doubt the willingness of the U.S. to service that debt. At that point, savers would demand sharply higher interest rates, raising the debt service burden still further and discouraging both private investment and consumption. The result would be chaos.

There is no magic debt/GDP ratio at which a crisis will occur. But currently, the prospect of a debt/GDP ratio of 0.9 after 10 years is triggering a widespread sense that it is necessary to do something to cut future deficits soon. To stabilize the ratio of debt to GDP it would take deficit reduction steps totaling between $4 trillion and $5 trillion over the next decade.

But it is impossible to cut spending this much without slashing Medicare, Medicaid and Social Security so deeply that it would become impossible to sustain the commitments of these programs, including the assurance of standard health care to the elderly, disabled and poor. The reason is that cutting the rest of government spending by so much would amount to a permanent shut-down of most of what government now does -- to promote education, aid veterans, build highways, assure safe air travel and so on.

The special committee is charged to cut deficits 'only' $1.2 trillion over the next decade. Such cuts would put off the deficit problem for only about two years.

By 2013, looking two years farther into the future, projections indicate that, even with spending cuts of $1.2 trillion, deficits over the succeeding decade would be as large then as they are now. If in 2013 spending were cut by another $1.2 trillion over the succeeding decade, projected deficits would once again, two years later, be as bad as they are now. In brief, dealing with deficit by the age-old approach of "salami slicing" will make deficit crises a semi-permanent feature of the U.S. political debate and will guarantee that, sooner or later, health programs must be slashed. The old service station advertisement read: "you pay me now, or you pay me later." The modern paraphrase would be that without sizeable tax increases in any deficit reduction plan, "you gut Medicare and Medicaid now, or you gut it later."

For everyone interested in health care policy, therefore, the most important issue on the current policy agenda is not whether to cut physician fees, change Medicaid matching percentages, cut drug payments for dual eligibles, and so on. How these debates turn out will matter little in the end if sizeable tax increases are not part of any deficit reduction plan. If taxes go up, there will be fiscal room to sustain the nation's current commitments to the aged, disabled and poor. If they don't, those commitments will end. For those who want those commitments sustained, job one is fighting to ensure that taxes are increased at least as much as spending is cut.

Authors

Henry J. Aaron

Publication: Kaiser Health News

Census Numbers Indicate the Safety Net is Working

Henry J. Aaron — Thu, 15 Sep 2011 15:46:00 -0400

Most of the newspaper coverage of the just-released Census Bureau data on health insurance coverage has focused changes in coverage between 2009 and 2010. Since the advent of the Great Recession, the reduction in health insurance coverage has been dominated by the simple fact that as unemployment has risen, since most families with prime-age earners receive health insurance as a fringe benefit of employment, the number of uninsured has risen. The increase was large from 2008 to 2009 when unemployment rose rapidly. From 2009 to 2010, when unemployment stabilized at high levels, the increase was smaller, although still disturbingly large.

If one looks back a bit farther, however, some noteworthy differences by age group emerge, as shown in the table at the end of this post. Health insurance coverage fell for all age groups but one from 2007 to 2010 and over the longer period starting with the boom year of 1999. That coverage would have fallen in both periods is unsurprising because, as noted, health insurance for most people is linked to employment and unemployment rose over both of those periods.

The age group that stands as the major exception to this record of declining coverage is children through age 18. That coverage for this group rose over both of those periods is striking. Furthermore, although coverage of the elderly fell, the drop was minuscule. What is going on?

The answer is that the safety net is working. The proportion of young people insured privately declined as much as did that of older age groups, but total coverage of this age group not only was sustained but actually increased. The State Child Health Insurance program, enacted in 1997, has dramatically increased coverage for youngsters. Medicaid expansions mostly enacted earlier have helped expand coverage among the young as their parents have lost coverage through work.

In combination, the number of children age 18 or younger with Medicaid coverage rose by 11.3 million since 1999 and by 5.1 million since 2007. Without this expansion (and assuming no other offsets), the number of uninsured Americans would have been not 49.9 million, but more than 60 million.

These developments take on particular salience in light of the current debate about how best to control federal budget deficits. If Congress, in the end, adheres to the principle, embodied in the August 2010 debt-ceiling legislation, that programs protecting the poor should be insulated from budget cuts, the gains in coverage among the young may be sustained, despite the erosion of employment-based coverage that has been going on for more than a decade. If it abandons this principle, the increase in ‘health-insecurity’ would be large and deeply troubling.

The health coverage statistics also bear on the continuing debate about the future of the Affordable Care Act. No one should exaggerate the influence of mere facts on a debate so driven by ideology as that over the Affordable Care Act, but the data on the erosion of employment-based coverage should not be ignored. Trends in employer-sponsored health insurance have long been a contest between two opposing forces: the belief among employers that group health insurance offered as a fringe benefit is a powerful incentive for attracting workers, especially when labor markets are tight, and the concern of employers that the need to boost premiums and cost sharing repeatedly drains management time and saps employee morale.

During the 1990s, the first of these forces was in the ascendant. In the face of drum tight labor markets, increasing numbers of workers were offered health insurance as a fringe benefit and took up the offer. Since 2000, two recessions have tipped the balance the other way. The 2010 survey data—and comparisons with past years shown in the table—suggest that, without the return of tight labor markets (and, perhaps even with them), employment-based health insurance is likely to continue to erode. Given the anemic character of the current economic recovery and the regrettable possibility of yet another downturn (particularly if Congress does not at least extend the current payroll tax holiday), overall health insurance coverage is likely to continue to narrow.

The only hope for extending health insurance currently on the horizon is implementation in 2014 of the requirement in the Affordable Care Act that individuals carry affordable insurance, the associated subsidies to make coverage affordable, and the expansion of Medicaid. Without those measures, it is hard to avoid the conclusion that the absolute number of people and the proportion of the total population without health insurance is headed upward.

Without an economic recovery far more rapid than forecasters now anticipate, the Census Bureau reports on health insurance coverage are likely to be rather dismal over the next three years. The 2011, 2012, and 2013 surveys—each reported in the succeeding year—are almost certain to show an increasing number of people and proportion of the total population without health insurance. Nor is there any reason now on the horizon why the growth of health care spending is likely to slow.

For all its flaws, the Affordable Care Act is currently the only instrument around that holds any realistic prospect for dealing simultaneously with the twin problems of ‘cost’ and ‘access.’ It will take the 2012 elections to resolve the current dispute over whether the ACA is to remain law. If the ACA remains law, one hopes that the 2012 election will also result in sufficient collaboration to fix its shortcomings and to implement it effectively.

Authors

Henry J. Aaron

Publication: Health Affairs

@ Brookings Podcast: Improve Medicare, Medicaid Now to Avoid Radical Changes Later

Mark B. McClellan — Fri, 08 Jul 2011 17:04:00 -0400

As Washington struggles to tackle the nation’s debt, policymakers on both sides of the aisle have begun to acknowledge that the current course of the country’s Medicare and Medicaid programs—long thought of as the third rail of American politics—is unsustainable. Mark McClellan, director of the Engelberg Center for Health Care Reform, explains how gradual changes to Medicare and Medicaid today will prevent more painful and radical changes tomorrow.

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