Currently, Congress is debating if and how to provide emergency funding to fight the Zika virus. While the President has requested $1.9 billion in emergency funding this February to fight the mosquito-borne illness, the Senate has offered $1.1 billion in emergency funding and the House would provide $622 million from already-existing funds.
Under current budget rules, the emergency designation exempting Zika from the budget caps is appropriate, though it is often abused – for example, to pay for the Census in 2000. The Zika outbreak has been sudden and unforeseen, and a funding response to mitigate its effects is both necessary and urgent but would not be permanent.
Yet the fact that Congress continues to debate this is partially the result of a broken budget process that relies on an ad-hoc and somewhat inconsistent funding system for various emergencies. As Congress discusses ideas for improving the budget process, policymakers would be wise to develop a better system to budget for emergencies.
One example comes from a paper by the Peterson-Pew Commission on Budget Reform, Budgeting for Emergencies, which proposes a fiscally responsible reserve fund that would require Congress to set aside money each year to be withdrawn in case of a emergency like the Zika outbreak. In the long term, a reform like this could prevent unnecessary debate over whether emergency spending should be offset by ensuring that it is offset well in advance of a crisis.
Identifying the funds to pay for new Zika spending shouldn’t be that difficult – and all things being equal, doing so is almost always preferable, even if not required by budget rules. The House bill would offset its proposed Zika funds by reallocating unobligated funds from the 2014 Ebola outbreak and other unobligated funds from the Department of Health and Human Services. Even fully funding the President’s request would cost less than 0.2 percent of total discretionary spending for FY 2017. If paid for over ten years, costs could easily be covered through very small tax or spending changes, many of which have broad bipartisan support.
Some examples of possible offsets include:
|Potential Offsets for Zika Funding
|Reduce FY 2017 budget caps by 0.17 percent||$2.0 billion|
|Increase the Medicare sequester from 2.0 percent to 2.04 percent||$2.0 billion|
|Eliminate enhanced Medicaid funding for prisoners||$2.0 billion|
|Reform inland waterway funding||$1.3 billion|
|Increase customs and courier fees||$1.2 billion|
|Reform oil and gas management and leasing as in the President’s Budget||$1.2 billion|
|Rebase Medicaid DSH payments||$700 million|
|Eliminate payments for abandoned mines||$520 million|
|Require universities to report the amount that students must report to claim the American Opportunity Tax Credit||$500 million|
|Properly account for lottery winnings and other lump-sum income when determining Medicaid eligibility||$475 million|
|Increase agriculture user fees||$472 million|
|Increase collection of non-tax debts owed to the federal government||$400 million|
|Require businesses to withhold taxes on payments to certain contractors, similar to taxes withheld on wages||$424 million|
|Use border-crossing data to prevent improper payments to those that have left the country||$200 million|
|Reduce drug abuse in Medicare Part D||$200 million|
|Strengthen state child support enforcement||$174 million|
|Increase information sharing to administer excise taxes||$151 million|
Recently, the Center on Budget and Policy Priorities (CBPP) criticized the House Energy & Commerce (E&C) Committee for proposing to limit abuse of provider taxes, a mechanism states can use to artificially inflate their Medicaid payments from the federal government. They argued that provider taxes are not actually abused, and that limiting them would result in “damaging Medicaid cuts and undermine health reform’s Medicaid expansion.”
Though CBPP's commentary, authored by Edwin Park, makes some valid points, we believe they in some ways are off the mark. We explain below that:
- Provider taxes are in fact abused to generate “free money” from the federal government, and the most significant current anti-abuse provision only applies to taxes above the existing 6 percent threshold, which is what the E&C committee would reduce.
- Limiting the provider tax will help force states to make trade-offs as intended in the Medicaid program.
- The E&C proposal is extremely modest – probably too much so.
- As one of the largest and fastest growing government programs, Medicaid should not be exempt from all scrutiny.
1. Provider taxes are in fact abused to generate “free money” from the federal government.
Since 1984, many states have used provider taxes to increase their payments from the federal government by making Medicaid costs seem higher than they actually are. Though more complicated in reality, the practice essentially works like this: rather than paying a hospital $100 for a procedure and receiving a $50 reimbursement from the federal government (assuming a 50% matching rate), a state will pay that hospital $106, tax the hospital $6 so the state's net cost is still $100, and then get a $53 match from the federal government -- essentially tricking the federal government to pay the state an extra three dollars on top of what is intended.
Republican presidential candidate Donald Trump recently released a health care reform plan entitled “Healthcare Reform to Make America Great Again.” This plan has two major components. First, it would fully repeal the Affordable Care Act (“Obamacare”) and replace it with several new policies. Second, it would turn Medicaid into a “block grant” program.
Last week, two House Committees, Ways and Means and Energy and Commerce, released a package of bills that would reduce mandatory spending. The bills, which mostly contain policies included in a 2012 sequester replacement bill, would save a combined $123 billion over ten years. The Energy and Commerce legislation will be marked up next today, and the Ways and Means Committee may act as soon as this week.
The W&M package contains three separate bills. The first would require taxpayers claiming the refundable portion of the child tax credit to provide a Social Security number, which would save $4.8 billion over two years. The second bill requires taxpayers to repay any overpayments of health insurance subsidies; current law limits repayments to $300-$1,250 for singles and $600-$2,500 for married couples who make below 400 percent of the poverty line. This policy would save $8.7 billion over two years. The third bill would eliminate the Social Services Block Grant, which would save $3 billion over two years.
The Energy and Commerce package is one bill with five different policies:
- Limiting Medicaid eligibility for lottery winners by counting winnings as income beyond the month they win.
- Eliminating enhanced Medicaid matching for prisoners.
- Reducing the Medicaid provider tax threshold, which limits how much revenue states can raise from providers to finance their Medicaid program, from 6 percent to 5.5 percent.
- Eliminating the increased matching rate for the Childrens' Health Insurance Program (CHIP) contained in the Affordable Care Act
- Eliminating the Prevention and Public Health Fund
Progress on policies to slow the growth of health care spending is expected to be slow in an election year, but this week, the Center for Medicare and Medicaid Services (CMS) announced a proposed rule to test new ways to pay providers or charge beneficiaries for outpatient drugs in Medicare Part B, including testing a proposal we put forward in our PREP Plan last year. These payment model tests, which will be run by the Center for Medicare and Medicaid Innovation (CMMI) created in the Affordable Care Act, intend to encourage more efficient and effective use of outpatient drugs by correcting some of the flawed incentives in the current system. This announcement is a step forward in encouraging more efficient health care delivery, and hopefully at least some of these strategies will prove useful enough to be expanded on and produce significant budgetary savings in future years.
The tests will come in two steps. The first step involves changing the formula for reimbursing physicians to administer outpatient drugs, which is currently set at the average sales price (ASP) of the drug plus a 6 percent add-on payment. This formula may encourage physicians to use more expensive drugs since the add-on payment grows with the cost. The new model that would be tested starting late 2016 would change the add-on payment to 2.5 percent of the ASP plus a flat fee of $16.80 (which would be indexed for inflation in future years). This would reduce the incentive to use more expensive drugs; for example, the difference in the add-on payment for a $5 drug and a $1,000 drug is currently $59.70 but would be reduced to $24.87 under the new formula.
This policy is similar to one we proposed in our PREP Plan, though our policy would have converted the entire add-on payment to a flat fee and would have saved $10 billion over ten years. It is also similar to an option the Medicare Payment Advisory Commission (MedPAC) evaluated, with them saying that "A flat-fee add-on may help address concerns about reimbursement for very inexpensive drugs." The CMS policy is intended to be budget-neutral on a static basis assuming no change in physician behavior, but it would produce savings if physicians used less expensive drugs in response to the change in incentives. An analysis of a proposal to convert the entire add-on payment to a flat fee found savings of $4 billion over ten years as a result of the shift to lower-cost drugs.
As the 2016 Presidential primary season rolls on, CRFB continues to fact check the candidates on budget-related statements made during the campaign on our Fiscal FactCheck site. Within the past month, we have fact checked four statements, all related to federal spending. Below is a summary of each of them.
At the February 13 Republican presidential debate in South Carolina, Donald Trump stated that he would make Social Security solvent by reducing waste, fraud, and abuse in the program, citing thousands of 106-year-olds on the program who likely do not exist. We noted that only a tiny fraction of Social Security beneficiaries were found to be deceased and only 13 Social Security beneficiaries were over age 112. Even eliminating all improper payments would save just a small fraction of what would be needed to ensure solvency. Thus, we found that Mr. Trump's statement was false.
Our Rating: False
The final budget of the Obama Presidency continues a mix of long-standing policies (including a few that have been in all eight budgets) and policies that are finding their way into the budget for the first time. With regards to new policies, some were previewed during the State of the Union address last month, while others have been laid out in the weeks since then. Here's a rundown of some of the major new proposals in the President's budget.
Business Tax Reform
In his past three budgets, President Obama had proposed a revenue-neutral reserve fund for business tax reform, which included several corporate tax changes amounting to a net tax increase that would offset a reduction in the corporate tax rate to 28 percent. This year, the President has largely maintained the policies that were included in the reserve fund but is now dedicating the $549 billion of revenue to deficit reduction to pay for the business tax cuts in last year's tax deal.
Clean Transportation Investments
The President's budget includes several proposals to tackle climate change, the most ambitious being a $312 billion over ten years clean transportation investment plan. The proposal includes $200 billion for transportation projects including subways, buses, rail, and the TIGER grant program (part of this funding reflects a previous budget proposal to increase surface transportation spending by $116 billion). Another $100 billion would go to state and local governments for clean infrastructure projects. Finally, $20 billion would go to clean transportation research for things like self-driving cars, electric vehicle charging stations, and clean energy airplanes. These policies would be paid for with another new policy in the President's budget: a $10.25 per barrel oil tax. This tax comes on top of a pre-existing policy to reinstate Superfund taxes, which include a 9.7 cent per barrel oil tax.
Medicare Advantage Competitive Bidding
Update: Since this analysis, the Sanders campaign has added additional offsets to their website that will reduce the plan’s gap between new spending and new revenues, most significantly the taxation of capital gains at death. In the coming days, we will be updating our analysis to reflect the new additions.
Democratic presidential candidate Sen. Bernie Sanders (I-VT) recently released arguably his most ambitious policy proposal yet, to move to a single-payer health care system in the U.S., but debate quickly arose over just how much such a far-reaching proposal would actually cost.
The Sanders campaign relies on an estimate from UMass-Amherst economist Gerald Friedman suggesting the plan would cost $13.8 trillion over ten years. But Emory University health economist Kenneth Thorpe contends that it could actually cost closer to $24.7 trillion, particularly without simultaneously enacting very large provider payment cuts – which are not mentioned anywhere in Sen. Sanders's plan.
Sen. Sanders's single-payer proposal would cover every American under a single government-administered health insurance plan that would provide a comprehensive set of benefits, including things like mental health services and long-term care, with no cost-sharing. He also proposed several tax increases that his campaign claims would fully offset the cost of the plan.
Differing Cost Estimates
However, with many of the details left unspecified, including the exact services that would be covered and provider payment rates, different estimates have been produced that project widely different costs.
Friedman's estimate used by the campaign assumes that moving to single-payer would reduce national health spending by $10 trillion – or a full fifth – due to reduced administrative costs, reduced prices for pharmaceuticals and medical devices, and controls on administrative costs and drug prices (the estimate also assumes $3.7 trillion of added costs due to higher health utilization). It is unclear exactly how such dramatic savings would be achieved, and it would likely require tough choices that go far beyond simply adopting a single-payer plan, including significantly cutting provider payment rates closer to the much lower levels seen in some other nations with single-payer systems.
The deficit will grow from less than $550 billion in 2016 to $1.4 trillion in 2026, according to this week's report by the Congressional Budget Office (CBO), driven by a $2.5 trillion rise in spending that is only partially offset by a $1.7 trillion revenue increase. And according to CBO, nearly three-quarters of that spending increase comes from just three items – Social Security, Medicare, and interest on the debt.
CBO projects that Social Security spending will increase by about $700 billion over the next 10 years, while Medicare spending will increase by about $500 billion over the same period. These two programs account for 50 percent of the spending increase. Meanwhile, interest spending will rise nearly $600 billion over the decade – accounting for another quarter of the spending increase.