CBO Is Playing with Obamacare’s Numbers Again

CBO Is Playing with Obamacare’s Numbers Again
July 30, 2014

Benjamin Domenech

Benjamin Domenech (bdomenech@heartland.org) is a senior fellow at The Heartland Institute. Domenech... (read full bio)

Consumer Power Report #430

One of the ongoing debates about policy formation in Washington that has become far more prominent since the passage of Obamacare is the role of the Congressional Budget Office and the weight given its estimates and predictions for the ramifications of legislation. CBO always has been at the center of a debate about how much we should trust these estimates and how much legislators should rely on them in crafting policy. The larger the legislation, the more moving parts it has, the more difficult it is to calculate the fiscal and economy-wide impacts.

In the case of Obamacare, the sheer largeness of the measure and its many factors contributed to a higher degree of distrust for CBO’s assumptions about what would come of Obamacare’s passage. In certain key areas, such as the impact of the long-term care provision known as the CLASS Act, CBO’s position was laughable – and scores of other steps since then also have attracted pushback. The level of distrust for the validity of CBO’s estimates is growing. Its latest effort to game the accounting on Obamacare’s ramifications, which has attracted little notice thus far but represents another step to make the law harder to repeal, is likely only to increase calls for changes and reforms of the office.

In its final cost estimate of Obamacare (released on March 20, 2010), under a section labeled “Key Considerations,” CBO cautioned the legislation would “maintain and put into effect a number of policies that might be difficult to sustain over a long period of time.” Thus, CBO asserted: “the long-term budgetary impact could be quite different if key provisions … were ultimately changed or not fully implemented” (emphasis added). Specifically, CBO mentioned the sustainable growth rate formula for paying doctors in Medicare, which was not addressed in the bill, but more importantly, here’s what CBO said about Medicare payment rates for other health care providers:

... the legislation includes a number of provisions that would constrain payment rates for other providers of Medicare services. In particular, increases in payment rates for many providers would be held below the rate of inflation (in expectation of ongoing productivity improvements in the delivery of health care). The projected longer-term savings for the legislation also reflect an assumption that the Independent Payment Advisory Board … would be fairly effective in reducing costs beyond the reductions that would be achieved by other aspects of the legislation.

Under the legislation, CBO expects that Medicare spending would increase significantly more slowly during the next two decades than it has increased during the past two decades (per beneficiary, after adjusting for inflation). It is unclear whether such a reduction in the growth rate of spending could be achieved, and if so, whether it would be accomplished through greater efficiencies in the delivery of health care or through reductions in access to care or the quality of care. The long-term budgetary impact could be quite different if key provisions of the legislation were ultimately changed or not fully implemented.

Just the day before, CBO had released a sensitivity analysis (at Paul Ryan’s request) that illustrated a similar point. Ryan asked what the budget impact of Obamacare would be in its second decade if several provisions were altered. Two of the four provisions he inquired about were IPAB and the additional indexing for exchange subsidies. In that analysis, CBO found (emphasis added):

If the changes described above were made to the legislation, CBO would expect that federal budget deficits during the decade beyond 2019 would increase relative to those projected under current law--with a total effect during that decade in a broad range around one-quarter percent of GDP.

After Obamacare passed, starting with its first long-term budget outlook report (released in June 2010), CBO included an important section titled “Questions about Sustainability.” In it CBO again stated “the recent legislation either left in place or put into effect a number of procedures that may be difficult to sustain over a long period.” See page 37 here, where CBO openly questioned whether the Medicare cuts in Obamacare and the cap on the new exchange subsidies, in particular, could be sustained over time.

… the legislation includes provisions that will constrain payment rates for other providers of Medicare’s services. In particular, increases in payment rates for many providers will be held below the rate of increase in the average cost of providers’ inputs.

Another provision that may be difficult to sustain will slow the growth of federal subsidies for health insurance purchased through the insurance exchanges. For enrollees who receive subsidies, the amount they will have to pay depends primarily on a formula that determines what share of their income they have to contribute to enroll in a relatively low-cost plan (with the subsidy covering the difference between that contribution and the total premium for that plan). Initially, the percentages of income that enrollees must pay are indexed so that the subsidies will cover roughly the same share of the total premium over time. After 2018, however, an additional indexing factor will probably apply; if so, the shares of income that enrollees have to pay will increase more rapidly, and the shares of the premium that the subsidies cover will decline.

As most observers of the budget process know, CBO produces long-term budget projections under two scenarios: there’s the extended-baseline scenario (current law) and one or more alternative fiscal scenarios (often viewed as a more realistic fiscal trajectory, since they take other factors into account). As a result of questions about their sustainability, CBO assumed these policies were not effective after the 10-year budget window for purposes of their alternative scenario projections. The 2010 long term outlook report notes:

Under the extended-baseline scenario, projected federal spending is assumed to be constrained by a number of policies specified in the recent health care legislation--the continuing reductions in updates for Medicare’s payment rates, the constraints on Medicare imposed by the IPAB, and the additional indexing provision that will slow the growth of exchange subsidies after 2018. Because those policies may be difficult to maintain over the long term, in the alternative fiscal scenario it is assumed that they will not continue after 2020.

Here’s where it gets interesting: Every CBO long-term outlook report since Obamacare was enacted included these same assumptions in the alternative scenario--until this year.

Here’s a link to all of CBO’s long-term outlook reports. The 2014 long-term outlook included a little-noticed section labeled “Changes in Assumptions Incorporated in the Extended Alternative Fiscal Scenario” on page 117–8 of Appendix B of its report. It reads (emphasis added):

Under its extended alternative fiscal scenario last year, CBO assumed that lawmakers would not allow various restraints on the growth of Medicare costs and health insurance subsidies to exert their full effect after the first 10 years of the projection period. However, this year, after reassessing the uncertainties involved, CBO no longer projects whether or when those restraints might wane. Instead, for those elements of the alternative fiscal scenario, there are now no differences from the extended baseline. For both, CBO projects that growth rates for Medicare costs will move linearly over 15 years (from 2024 to 2039) to the underlying rate that the agency has projected and that the exchange subsidies will do the same. (One exception to that new approach, though, concerns Medicare’s payment rates for physicians’ services. This year, as in previous years, projected spending under the alternative fiscal scenario reflects the assumption that those payment rates would be held constant at current levels rather than being cut by about a quarter at the beginning of 2015, as scheduled under current law.)

Beyond that brief mention of the change in its assumptions, there is no other discussion of the rationale behind the exchange subsidy provision. How significant was this unnoticed change in CBO’s assumptions? According to a health care aide on Capitol Hill who has closely followed the scorekeeping of the law, analysis of the CBO data suggests that over the 75-year period, this change in assumptions lowers projected spending by about $6.2 trillion.

That is a pretty big change, to say the least, particularly one for which the CBO hasn’t given any justification at all. Its latest update on health care spending doesn’t even mention it.

So the question is: Is CBO outside the mainstream on their new assumptions? Well, in every Medicare Trustees’ reports since the president’s health care law was enacted, the administration’s own non-partisan chief actuary of the Centers for Medicare and Medicaid Services (CMS) used his statement of actuarial opinion at end of the report to warn these cuts aren’t sustainable:

…the financial projections shown in this report for Medicare do not represent a reasonable expectation for actual program operations in either the short range (as a result of the unsustainable reductions in physician payment rates) or in the long range (because of the strong likelihood that the statutory reductions in price updates for most categories of Medicare provider services will not be viable).

The chief actuary encourages readers to view his ”illustrative alternative” based on “more sustainable assumptions” than the Trustees’ official current law estimates. The actuary’s alternative scenario assumes the Medicare provider cuts are phased out after the 10-year window:

it assumes that the productivity adjustments would be applied fully through 2019 but then phased out over the 15 years beginning in 2020. In 2034 and later, Medicare Part A and Part B per capita cost growth rates are assumed to equal the pre-ACA “baseline” growth rates, as determined by the CGE growth model.

The most recent Trustees’ report notes “the actual future costs for Medicare may exceed those shown by the projected baseline projections in this report, possibly by substantial amounts.” Therefore, “To help illustrate and quantify the potential magnitude of the cost understatement, the Trustees have asked the Office of the Actuary to prepare an illustrative Medicare trust fund projection under a hypothetical alternative that assumes that, starting in 2020, the economy-wide productivity adjustments gradually phase down to 0.4 percent.” Here’s what that looks like:

So here’s where we are now: The Congressional Budget Office is making sweeping assumptions about the future costs of Obamacare and Medicare, assumptions that are at odds with the projections of the administration’s own chief actuary at Medicare and that have no explained basis. The CBO doesn’t show its work, but you should probably just trust its projections: What’s a difference of about six trillion dollars between friends?

-- Benjamin Domenech


IN THIS ISSUE:


MIKE PENCE IS HEADED TOWARD MEDICAID EXPANSION

While [Indiana Gov. Mike] Pence’s plan is better than a blind expansion of the broken government insurance program for low-income people, his “Healthy Indiana Plan 2.0” does not align with conservative principles, nor does it take Indiana in the right direction …

Some conservatives argue that because Pence has had to negotiate with the Obama administration for a waiver, HIP 2.0 had to make some concessions.

But a better solution would be to avoid negotiating at all with the federal government on this issue because President Obama and the Department of Health and Human Services do not have conservative principles …

Although he quoted President Reagan as he unveiled his Medicaid plan at the American Enterprise Institute, his plan goes against Reagan’s suggestion that “we should measure welfare’s success by how many people leave welfare, not by how many are added.”

Medicaid -- and other safety net programs -- are supposed to be about serving the poorest of the poor, but HIP 2.0 would extend Medicaid benefits to more than 375,000 able-bodied adults -- more than three-fourths of whom have no children.

Adding more middle-income people to Medicaid not only comes with uncertain and high costs, but sadly it crowds the program, making it less secure for the truly indigent poor.

SOURCE: Hadley Heath Manning, Washington Examiner


THE WHITE HOUSE’S COZY RELATIONSHIP WITH INSURERS

As is detailed in the Oversight Committee’s report, shortly after the disastrous Obamacare rollout began, White House communications director Tara McGuiness and Chris Jennings, Obama’s deputy assistant for health policy, “traded talking points with numerous insurance company CEOs.” According to the report, “Ms. McGuiness and Mr. Jennings collaborated closely with Florida Blue Cross and Blue Shield CEO Patrick Geraghty. After a CBS Evening News appearance on October 11, 2013, Ms. McGuiness emailed Mr. Geraghty, ‘You were great! I watched. Thanks for the help.’”

Twelve days later, Geraghty and the respective CEOs of Aetna, Humana, the Health Care Services Corporation, Centene Corp., Wellpoint, Kaiser Permanente, Tufts Health, Health Net, CareFirst, the Blue Cross Blue Shield Association, and America’s Health Insurance Plans (AHIP) all met with Jarrett and Obama chief of staff Denis McDonough at the White House.

A few days after that, the report reveals, Jennings emailed Geraghty in advance of an appearance on Meet the Press, writing, “Pat: Tara McGuiness will probably reach out to you directly today to give you latest info and suggestions for press prep. Please advise if you need anything from me. I may call you later to make sure all is ok. Thanks so much for all.” Both McGuiness and Jennings then followed up with specific advice. After Geraghty’s appearance aired, Jennings emailed him and said, “Pat: You were extraordinary. …We were all impressed. Thank you so much! Would like to talk soon. …”

SOURCE: Jeffrey Anderson, Weekly Standard


FIVE TERRITORIES EXEMPTED FROM OBAMACARE

The Obama administration is coming under fire for once again making a unilateral change to ObamaCare – this time, quietly exempting the five U.S. territories and their more than 4 million residents from virtually all major provisions of the health care law.

The decision was made a week ago, and was a long time coming. For months, the territories have been complaining that the law was implemented so poorly in their regions that it destabilized their insurance markets.

Until now, the Department of Health and Human Services claimed its hands were tied. But last Wednesday, the department reversed course.

The about-face has some questioning the department’s authority to suddenly grant 4.1 million Americans an out from ObamaCare. It follows a cascade of prior unilateral actions delaying and nixing parts of the law for certain groups – actions which in part prompted House Republicans to launch a lawsuit against President Obama challenging his use of executive power …

The decision covers residents in Puerto Rico, Guam, the U.S. Virgin Islands, American Samoa and the Northern Mariana Islands. Centers for Medicare & Medicaid Services Administrator Marilyn Tavenner acknowledged in her notice last week that the law was “undermining the stability” of the territories’ insurance markets.

SOURCE: Barnini Chakraborty, Fox News


OBAMACARE MEANS WHAT WE SAY IT MEANS

Any hunt for the congressional intent behind a piece of legislation should start with the actual language of the law in question. And in this case, the language is unambiguous. Tax credits--that is, subsidies for health insurance--are limited to “Exchanges established by a State.” In case there was any confusion, the law defines “State” as “each of the 50 states plus the District of Columbia.” These qualifying exchanges must further be established under Section 1311 of the law, the section which deals with state-based exchanges. The federal exchanges are set up under the authority of a different section, 1321.

That’s it. That’s what the law says. That’s what Democratic members of Congress, in both the House and Senate, voted to pass, despite some initial disagreement over whether states or the federal government should be in charge of the exchanges. That’s the language that President Obama signed into effect.

Arguably, that should be the end of the debate. The language is clear and direct, and it is repeated several times. There isn’t really another plausible interpretation of the text in question.

That’s not just common sense. It’s also the conclusion of the Congressional Research Service, which wrote in a July 2012 report that “a strictly textual analysis of the plain meaning of the provision would likely lead to the conclusion that IRS’s authority to issue the premium tax credits is limited only to situations in which the taxpayer is enrolled in a state-established exchange.”

SOURCE: Peter Suderman, Reason


THE TRUTH ABOUT MEDICARE’S FINANCES

When Vox says the trust fund will last another four years, that’s a reference to the Part A Hospital Trust Fund. Under the so-called “projected baseline” used in the Trustees’ report, the trust fund will indeed last until 2030. But that baseline portends cuts in hospital payment rates so drastic that ...

- Hospital payments for both Medicare and Medicaid will be 38% lower than the amounts paid by private health insurers by the year 2030.

- Eventually, payment reductions to hospitals will mean they are paid 59 percent less by Medicare and Medicaid than by private health insurers!

Indeed, the cuts in Medicare payments that were included in Obamacare are so draconian, the Medicare actuaries have estimated that “by 2019 up to 5 percent more hospitals would experience negative total facility margins relative to 2012. Additionally, 5-10 percent of hospitals would experience negative Medicare margins by 2019. By 2040, approximately half of hospitals, two-thirds of skilled nursing facilities, and 90 percent of home health agencies would have negative total facility margins.”

In short, the rosy picture for Medicare will come true if and only if we’re willing to tolerate devastating reductions in access to care for seniors and others who rely on facilities dependent on Medicare revenues (read: virtually all U.S. hospitals).

SOURCE: Chris Conover, Forbes

Benjamin Domenech

Benjamin Domenech (bdomenech@heartland.org) is a senior fellow at The Heartland Institute. Domenech... (read full bio)