The latest CBO projections show a slight improvement on our fiscal situation over the previous ones made in January, and lower projected health insurance premiums are at the center of that improvement. Not surprisingly, then, the agency's latest estimate of the coverage provisions of the Affordable Care Act improved as well.
The net cost of coverage -- the coverage expansions net of mandate penalties, revenue from the Cadillac tax, and related effects -- dropped by $142 billion over ten years, from $1.35 trillion to $1.21 trillion. Simultaneously, CBO projects that there will be 4 million fewer people uninsured in 2025 than they did in January. There are plenty of different effects at work, so let's take a closer look at what happened with their ACA estimates.
The largest factor, lower private health insurance premiums, comes about as CBO takes into account the slower-than-expected premium growth from 2013 and puts greater weight on the slow growth since 2006. CBO now anticipates a slower bounce back in premium growth than they expected before as the economy continues to recover. As a result, projected 10-year spending on subsidies for health insurance purchased through the exchanges dropped by one-fifth, from $1.06 trillion to $850 billion.
At the same time, though, the lower premiums mean that the Cadillac tax on high-cost insurance plans will now raise $62 billion less than expected, continuing a trend of downward revisions to projected Cadillac tax revenue (the 2023 projected revenue is now 60 percent less than was expected two years ago). The lower premiums also translate to lower revenue as a result of the fact that people losing employer coverage due to the ACA will have less compensation shifted into taxable income (lower anticipated premium growth similarly increased CBO's projections of baseline wages and salaries).
In light of the upcoming Fiscal Speed Bump when the most recent doc fix patch expires on March 31, yesterday we released an update to our Paying for Reform and Extension Policies (PREP) Plan, which illustrates how to responsibly replace the Medicare Sustainable Growth Rate (SGR) with a permanent solution. In just 3 pages, we describe a fiscally sustainable approach to finally solving the decade-long problem of the large physician payment cuts that the SGR proscribes (21 percent in the current iteration).
Building upon the bipartisan, bicamerial tricommittee bill introduced last year to replace the SGR with alternate payment models, we go one step further by proposing $215 billion of offsets to pay for the replacement and a package of "health extenders." Not only would this avoid adding to deficits, it would also provide greater incentives for high-quality, coordinated care and help to bend the health care cost curve.
The Supreme Court ruling on the King v. Burwell case being argued before the Court today will have major policy and political ramifications that have been widely discussed. But a ruling for the plaintiff (King) could also have significant budgetary implications that could complicate action on a legislative response to the Court ruling as well as any legislation to repeal and replace the Affordable Care Act.
The plaintiffs in King v. Burwell argue that language in the Affordable Care Act referring to subsidies to individuals purchasing health insurance in “an Exchange established by the State” means that individuals in the 34 states without a state-run exchange who purchased insurance through the federally-operated exchange are not eligible for the subsidies under the Affordable Care Act. If the Supreme Court rules in favor of the plaintiffs and strikes down subsidies for individuals in those 34 states, the number of people eligible for subsidies and total spending on subsidies would be significantly lower than it is under current law. According to estimates prepared by the Urban Institute, eliminating subsidies for individuals in all 34 states would affect 9.3 million people in 2016, reducing spending on subsidies for insurance premiums and cost sharing reductions by $28.8 billion in 2016 and $340 billion over ten years.
Dr. Elliott Fisher, former Senator Judd Gregg (R-NH), and Dr. James Weinstein penned an op-ed published in Modern Healthcare discussing the need to move away from fee-for-service and towards accountable and effective care in Medicare. They discussed findings of a collaboration between the Dartmouth Institute, Dartmouth-Hitchock Health, and the Campaign to Fix the Debt to create a number of suggestions for establishing better Accountable Care Organizations (ACOs) through improving the financial model and patient engagement. The full findings are available as a white paper, released yesterday.
They noted the quick timeline that the Department of Health and Human Services (HHS) has established for moving to new payment models and the difficulties ACO implementation has faced thus far:
HHS is seeking to tie 85% of traditional Medicare payments to quality or value by the end of 2016 and 90% by the end of 2018; and having 30% of Medicare payments in alternative payment models—such as ACOs—by the end of 2016 and more than 50% by 2018.
Transitioning away from fee-for-service payment at such a pace, however, will require major improvements to alternative payment models and additional reforms, some of which may require Congress to act.
ACOs in Medicare—the largest alternative payment model—continue to grow in number, with 424 organizations now serving roughly 7.8 million beneficiaries, mostly within the Medicare Shared Savings Program. However, while the early results of the Medicare ACO programs are in many ways promising, they also highlight the need for further changes. Initial data on financial performance show that only about one-quarter saved enough money to generate shared savings. Many ACO beneficiaries are unaware that they are receiving care from the ACO and seek it from non-ACO specialists or healthcare agencies, making it difficult for the physicians in their ACO to coordinate and improve their care.
The solution to fixing ACOs, they write, lies in two separate strategies.
First, the financial model for ACOs should offer them a greater share of their initial savings (to help fund start-up costs), provide stronger incentives to induce and maintain participation from low-cost provider organizations, and foster alignment of payment schemes across all payer types—not just in Medicare. This strategy will encourage the growth of shared-savings models and motivate high-performing healthcare systems to join the ACO programs.
The second strategy would improve patient engagement in ACOs by modifying how Medicare beneficiaries are assigned to an ACO: Beneficiaries should be given the opportunity to choose to join their ACO; for those not actively choosing, those eligible should be assigned at the beginning of the year (so that their ACO can contact them). Medicare should also test a benefit design that uses modest financial incentives to encourage patients to seek care within their ACO or from providers outside the ACO whom the ACO recommends. Simultaneously, to make such incentives possible, supplemental Medicare plans should be restricted from covering first-dollar beneficiary costs for non-ACO services.
Today, Fix the Debt, Dartmouth-Hitchcock Health, and Dartmouth College released a paper titled Medicare Slowdown at Risk: The Imperative of Fixing ACOs. At an event on Capitol Hill this morning, stakeholders from the Administration, private sector, and the academic community commented on the ideas in front of an audience of Congressional staff, press, and policy experts.
The paper represents the culmination of work that began this past September at the Dartmouth Summit on Medicare Reform, a conference that Fix the Debt, Dartmouth-Hitchcock Health, and Dartmouth College hosted in Hanover, NH.
In a little over one month, lawmakers will face their second significant Fiscal Speed Bump of the year when the one-year "doc fix" expires. At that point, Medicare physician payments will be cut by 21 percent because of the long-standing Sustainable Growth Rate (SGR) formula. Policymakers have avoided the cuts since 2003 through temporary doc fix patches, but the relatively low cost of a permanent fix and a bipartisan, bicameral framework for replacement in the last Congress have increased the prospects that a permanent doc fix could finally happen.
In the run-up to the lame duck session last Congress, we released the PREP Plan, which outlined tax and health savings options to pay for a two-year tax extenders and permanent doc fix package. Ultimately, lawmakers added the cost of one year of tax extenders to the debt, but they have the chance to keep with precedent and pay for a Medicare physician solution. The PREP plan divides savings equally between beneficiary and provider changes, focusing on reforms that can improve incentives.
The beneficiary changes in our plan would modernize Medicare's cost-sharing system by simplifying Part A and B deductibles and coinsurance, while creating a new out-of-pocket limit on cost-sharing. At the same time, the plan would restrict first-dollar coverage by supplemental insurance like Medigap to discourage over-utilization of care, and provide additional assistance to lower-income beneficiaries who need it most. Similar reforms have been proposed by Simpson-Bowles, the Bipartisan Policy Center, the Brookings Institution, and the Center for American Progress, among others.
In two months, lawmakers will encounter their third Fiscal Speed Bump of 2015 when the "doc fix" expires, leading to a 21 percent cut in Medicare physician payments starting in April. Replacing the Sustainable Growth Rate (SGR) formula permanently would cost at least $131 billion through 2025, according to the Congressional Budget Office (CBO), or $177 billion if the bipartisan tricommittee bill agreed to in the last Congress is pursued.
At a House Energy and Commerce hearing recently, former Sen. Joe Lieberman (I-CT) stated that it was very unlikely any SGR replacement would pass in this Congress without offsets. To that end, the Heritage Foundation recently specified four reforms that could be used to offset the SGR.
- Reforming Medicare cost-sharing: Many Medicare reform plans have proposed to overhaul Medicare's cost-sharing. These policies would replace the many different deductibles, copays, and coinsurance in Parts A and B with a single deductible with unified coinsurance across services. These changes were usually accompanied by a restriction on cost-sharing coverage by supplemental coverage plans like Medigap and a limit on out-of-pocket costs to reduce exposure to exorbitant cost-sharing. CBO's latest estimate had one version of this policy saving $110 billion over ten years.
In addition to updating budget projections, CBO's baseline also looks at the state of various government trust funds over the next ten years. Two of the trust funds – the Highway Trust Fund (HTF) and Social Security Disability Insurance (DI) will have to be dealt with this year or next. The other two with later exhaustion dates – Social Security Old Age and Survivors' Insurance (OASI) and Medicare Hospital Insurance (HI) – have both seen a drop in the size of reserves. Here's a rundown of each of these four trust funds.
Highway Trust Fund
The last time lawmakers dealt with highway financing, they intended that the expiration of the highway bill and the exhaustion of the HTF both happen at the end of May. Now, it looks like there may be a little time between the two as the general revenue transfer to the HTF may last longer.
Previously, CBO expected there to be a $2 billion shortfall in FY 2015, but that gap has been wiped out in the newest projections by two developments: slightly higher gas tax revenue (from lower gas prices increasing demand) and slightly lower spending from lawmakers freezing spending in 2015 rather than letting it grow with inflation. These developments mean that lawmakers may be able to wait until the summer to deal with the HTF, thus theoretically allowing them to write a new highway bill without dealing with the financing gap for a little bit. These two developments also make a long-term solution slightly easier, reducing the trust fund shortfall by about $10 billion.
Disability Insurance Trust Fund
The brand new 114th Congress is at it again. Only weeks into the term, a second fiscally irresponsible change to the Affordable Care Act (ACA) has been introduced -- a repeal of the law's 2.3 percent tax on medical devices sold in the U.S. that is expected to add roughly $25 billion to the debt over ten years.
The medical device tax was included in the ACA in order to help pay for the law's new health coverage subsidies and in part to compensate for the financial gains device companies could expect as a result of increased coverage.
Repeal of the tax, though, is one of the few ACA-related changes with bipartisan support -- an amendment to the FY 2014 Senate budget creating a deficit-neutral reserve fund for repeal passed by a 79-20 vote, with more than 30 Democrats joining every Republican in favor. Notably, this vote was different than outright repeal since the action was both non-binding and stipulated deficit-neutrality, but it indicated the support that repeal has in both parties. Yesterday, a bipartisan group of Senators introduced a repeal bill. If repeal is to happen, though, lawmakers need to make up the lost revenue.
Criticism of the tax generally focuses on the potential negative effects on the medical device industry, but there are also concerns about the economic inefficiency of selectively taxing one type of product and the Treasury's difficulty in administering the tax.
Earlier today, CRFB Senior Policy Director Marc Goldwein testified before the House Energy and Commerce Health Subcommittee. The hearing, entitled "Setting Fiscal Priorities," discussed policy options to reduce health care spending. Also testifying were Executive Director of the Medicare Payment Advisory Commission Mark Miller, the American Action Forum's Director of Health Care Policy Chris Holt, and Georgetown Professor of Public Policy Judy Feder. The witnesses represented different perspectives and focused on different parts of the health care system.
Miller's appearance made up the first panel, and naturally, his testimony focused on Medicare. He gave some background on Medicare but focused on the types of savings policies that MedPAC has recommended in its reports. These policies include simple recommendations on annual payment updates (increases or decreases) or more far-reaching recommendations like site-neutral payments and bundled payments (two policies that were part of our PREP Plan). Questions for Miller spanned a far range of topics, including the Affordable Care Act's payment reductions.
The second panel had the other three witnesses. Goldwein's testimony focused on both the need to rein in health spending to control debt and the options available to do so. He noted the large run-up in debt that is projected to have in the coming decades and the central role health care plays in that.
For solutions, he focused on two different types of policies: "Benders" which have the potential to bend the health care cost curve and "Savers" which are not as transformative but lead to a better allocation of health care spending. In his oral testimony, he focused on the policies in the PREP Plan, which involve reforming Medicare's cost-sharing structure and provider payments to encourage more efficient care. His written testimony included many other options with the potential for bipartisan support.