Monday, November 2, 2009

Health Care Part II; Would you Buy an Insurance Policy from this Man?[1]

On October 29, Speaker of the House Nancy Pelosi released the long-awaited House version of health care reform which was crafted partly in Congressman Rangal’s Committee on Ways and Means. Actually, she introduced two bills; H.R. 3961, the Medicare Physician Payment Reform Act[2] and H.R. 3962, the Affordable Health Care for America Act.[3]

Let’s look at H. R. 3961. In my last blog post I discussed the $285 billion budgeted in 2010 for overturning the impending 21% cut in Medicare payments to physicians scheduled to take place on January 1, 2010. That discussion pointed to a budget resolution from the House Finance Committee passed on March 29, 2009[4] which requires enacting legislation. H.R. 3961[5] is that legislation and it seeks to permanently change the way physician reimbursements are calculated through amendments to Section 1848 of the Social Security Act,[6] the section of the Act that sets physician reimbursement rates.

In an effort to be diligent and to supply you, the reader, with a clear picture of how physicians are currently compensated under Medicare, I read Section 1848. It is 40 pages long, contains 14,000 words and 86 footnotes including legislative changes. The complexities of the language make it impossible to do a simple calculation and we can only assume the Mandarins in Washington have it right. But the question is really about the cost of this legislative change. In most of my analysis I consult the Congressional Budget Office report of the fiscal impact of legislation. Unfortunately H. R. 3961 has not been scored by the CBO. I assume this is because it is in the aforementioned budget resolution, which was. I score it as they did then at a cost of $285 billion. There is a silver lining. That is Ms. Pelosi’s claim that this legislation will fall under the new Pay-go rules codified by the house, but that silver lining dims significantly when you consider the Senate has openly rejected that kind of budgetary restraint.[7] Nevertheless this represents somewhere in the neighborhood of a quarter of a trillion dollars that have to come from somewhere.

The other examination is of H. R. 3962, the “Affordable Health Care for America Act.”[8] It is nearly 2,000 pages of legislative language. I again deferred in my analysis to the CBO.[9] Table 2 from their report shows their estimate of the Net Cost at $894 billion. The first thing I noticed is the disparity between the Net Cost and the impact on the budget. In years 2010 through 2012 the cost is minimal. Yet the impact to budget is different with deficit increases of $6.8 billion in

2010 and $16.6 billion in 2011. In 2012 there is a decrease of $15.8 billion. What accounts for this? As part of the American Recovery and Reinvestment Act of 2009 (ARRA) there was a temporary increase in payments to states for Medicaid (FMAP) which apparently is not considered part of health care when it is stimulus.[10] That stimulus expires on December 31, 2010 so the House has included a one-time extension of these payments into 2011 at an estimated cost of $23.5 billion. Payments to Primary Care Practitioners account for the majority of the rest at an average of $5.7 billion per year over the ten-year estimate.[11] This of course is in addition to the $285 billion discussed above from H.R. 3961. The majority of the savings comes from discounts in Part D (Prescription Drug Benefit) and Phase-in of Payment Based on Fee-for-service Costs.
But the best way to analyze the bill is to put it against the Chairman’s Mark of the proposed Senate legislation, which I discussed in my last blog post. Several things stick out. First, the House bill is 30% more costly than the Senate proposal. Interestingly both bills assume half of

the cost will be paid for by savings in Medicare, Medicaid and other programs. Second, the House bill forgoes tax on high premium plans and makes only minimal changes in existing tax expenditures, leaving us with a $598 billion shortfall compared to the Senate plan’s $85 billion. And how does this become deficit negative? The House plan charges significantly higher penalties for non participation (to the tune of $167 billion) and raises taxes on the wealthy by $536 billion! And, if the House is successful in enforcing Pay-go for H. R. 3961 they will either have to raise taxes by an additional $285 billion or cut spending by that amount. If the savings are truly realized the plan will simply be deficit neutral at a cost of $800 billion in potential new taxes.

Once again I will pose the question, “With an unfunded liability of $107 trillion in the current Social Security and Medicare program[12] can we afford to just spin our wheels?” It appears to me the “Affordable Health Care for America Act” will be very unaffordable for someone, possibly everyone.


[11], pg. 23, Table 3.

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