Health Law and Policy Update: President's budget plan a balanced approach but contains troubling health-care provisions
This week's updates
- President's budget plan a balanced approach but contains troubling health-care provisions
- Colorado Health Benefit Exchange Board moves on key issues
- Exchange board to discuss conflict of interest policy Monday
- HealthONE deal will not result in substantially more money for grants
- Public hearings on the transaction next week
Headlines of the week
President's budget plan, a balanced approach but contains troubling health-care provisions
President Barack Obama released his plan for economic growth and deficit reduction this Monday; a fact sheet released by Kaiser Health News explains the details.
"The President's plan is a balanced and fair approach to deficit reduction," the Georgetown Center on Children and Families said in a blog post. "In releasing the package, he (Obama) sent a stern warning to Congress that he would not support a 'one-sided deal that hurts the folks that are the most vulnerable'. He emphasized that at least $1 of tax revenue would have to be included for every $2 in spending cuts."
The plan includes increases in revenue and reductions in federal spending. The President has threatened to veto any legislation that reduces spending on Medicare unless it includes increased taxes on corporations and the wealthiest Americans. However, the plan includes $320 billion in cuts to health care, with $248 billion coming from Medicare and $73 billion from Medicaid and other health programs.
Of concern is the plan's proposal to phase down, although not completely eliminate, the Medicaid provider fee. The fee is a mechanism that states, including Colorado, have used to draw down additional revenue to support their Medicaid programs. Colorado passed legislation establishing a hospital provider fee in 2009 (House Bill 09-1293). The fee is now generating revenue to provide a net benefit to hospitals of close to $200 million a year.
Those payments help hospitals make up for low Medicaid reimbursement rates and for providing care for people who lack health insurance. Colorado is also one of a few states that have used provider fees to expand Medicaid coverage. Today 32,462 low-income parents, and approximately 8,000 children and pregnant women are enrolled in Medicaid as a result of the provider fee. A breakdown of new adults covered by county is posted on the state government's website. Beginning in 2012, Colorado will also use fee revenue to finance Medicaid coverage for 10,000 adults without dependent children with incomes of less than 10 percent of the federal poverty level and working adults with disabilities.
The President's proposed reduction, detailed in a document posted on the White House website, is projected to save $26.3 billion over 10 years starting in 2015. The provider fee threshold, which is currently set at 6 percent, would be reduced under his proposal to 4.5 percent in 2015, 4 percent in 2016, and 3.5 percent in 2017. Currently, Colorado's hospital fee is 4.2 percent of net patient revenue. A reduction of the magnitude proposed by the President would reduce Colorado's flexibility to maintain and expand current fee levels directly impacting the state's ability to reimburse providers for care for those who remain uninsured after 2014. While populations newly covered by Colorado's provider fee today will be eligible for Medicaid or subsidized health insurance after 2014, Massachusetts Institute of Technology economist Jonathan Gruber recently projected 400,000 people would be uninsured in Colorado after health reform takes effect. The state and hospitals will be faced with many of the same issues that led to the establishment of the fee, including how to provide access to appropriate care, ensure adequate provider reimbursement and address cost shifting to the insured.
The President's plan also proposes a single blended matching rate for Medicaid and the Children's Health Insurance Program (Child Health Plan Plus or CHP+ in Colorado) beginning in 2017. Use of the blended rate is projected to save $14.9 billion over 10 years. Currently, Colorado and other states receive various federal match rates for their Medicaid and CHIP programs. Colorado gets a 50-50 match for Medicaid and about a one-third/two thirds match for CHP+. The Patient Protection and Affordable Care Act requires Colorado to expand Medicaid to cover all people whose incomes are less than 133 percent of the federal poverty level in 2014. The cost of that expansion is fully paid (100 percent match) by the federal government through 2016. After 2016, states are expected to begin picking up some of the cost but never more than 10 percent.
Under a blended match rate, all of those rates would be combined into a single blended rate. That means reduced funding for Colorado's Medicaid program, which would force the state to make cuts elsewhere in the budget or to the Medicaid program.
The blended rate has been criticized by groups such as the Center on Budget and Policy Priorities for failing to reduce Medicaid costs or improve the program's efficiency, instead simply passing costs on to states. Ron Pollack, the executive director of FamiliesUSA, condemned the use of the blended rate in the President's proposal, saying "The cuts to the Medicaid program in the president's proposal - which shifts the burden to states and ultimately onto the shoulders of seniors, people with disabilities, and low-income families who depend on the program as their lifeline - would be harmful."
While the Colorado Center on Law and Policy supports a balanced approach to deficit reduction, the Congressional Joint Select Committee on Deficit Reduction, the "Super Committee," should reject proposals for a blended Medicaid rate or a reduction in the Medicaid provider fee, as they could have severely negative consequences for the state budget and the Colorado Medicaid population.
Other health care related items in the President's budget may prove problematic but require further analysis including: reducing the prevention and public health prevention fund by $3.5 billion over 10 years, and amending the Modified Adjusted Gross Income (MAGI) definition to include Social Security benefits for purposes of determining subsidy and public program eligibility through the health insurance exchange, thus making it harder for families to qualify for Medicaid and affecting affordability thresholds for tax credits and cost sharing subsidies in the exchange.
The MAGI changes are highly likely to be adopted, but the issue is whether resulting savings are used to pay for programs or counted as a Medicaid contribution towards deficit reduction. Congress should count the money toward deficit reduction. Otherwise, Medicaid is likely to be tapped again for the savings.
More resources on the President's proposal are available from the Center on Budget.
Colorado Health Benefit Exchange Board moves on key issues
Colorado Health Benefit Exchange Board members last week decided to hire the state Attorney General's Office to advise them at least through the early phase of their existence about decisions about by-laws, conflict of interest policies and other organizational matters.
Board members also discussed the process for hiring outside counsel to provide advice long-term. Cynthia Coffman, chief deputy attorney general, explained to the board she will not be providing direct representation to the board but will assign attorneys to assist the board. She introduced a number of attorneys from her office, including former state legislator and Secretary of State Bernie Buescher. Coffman addressed the issue of potential conflict given Attorney General John Suthers role in one of the federal cases challenging the constitutionality of the Patient Protection and Affordable Care Act. She updated the board on the status of the litigation, but she said she is not involved with the case. Coffman is married to Colorado Congressman Mike Coffman.
The board approved and later posted a job description for the position of Chief Executive Officer. There was some discussion about the salary scale - the CEO's proposed salary will be approximately $200,000 a year. An article in the Pueblo Chieftain questioned the proposed staff salaries, and the issue was also raised by board member Michael Fallon. The board concluded the salary is appropriate if the exchange seeks to be competitive.
The board agreed to take up issues of conflict of interest at its next meeting, scheduled for Monday, and noted the difficulty of voting on substantive issues prior to adopting a conflict policy. At the next meeting, the board must finalize its comments on proposed federal rules (issued in July) and approve a grant application for submission (due Sept. 30). Meeting the grant deadline is important in order to maintain continuous funding, particularly as a search for the executive director begins.
Massachusetts Institute of Technology economist Jonathan Gruber offered a presentation on Colorado's insurance landscape with and without health reform. He projects 30,000 fewer people will be covered under an employer-sponsored health plan following full implementation of the Affordable Care Act, just over a 1 percent decline in employer sponsored insurance attributable to the ACA.
At the same time, about 400,000 people in Colorado will remain without health insurance in 2016, Gruber projects. That's less than half the 850,000 people lacking insurance now, but it makes clear Colorado needs to consider strategies for covering the remaining uninsured, particularly given the discussion in Washington about potential reductions in federal funding mechanisms.
Also striking was Gruber's analysis of the household budget effect of health reform -- he projects that the net average effect of the law's coverage expansions is a gain of $840 per household over the status quo, with families at incomes under 500 percent of the federal poverty level "winners' and those over 500 percent "losers." Among the factors that influence the winner and loser calculation is the availability of federal tax credits for people under 400 percent of poverty, expanded public coverage and the fact that health insurance costs in the individual market for some are likely to increase when companies can no longer exclude people with pre-existing health conditions and high risk pools merge with the individual market.
Exchange board to discuss conflict of interest policy Monday
The exchange board will discuss its conflict of interest policies Monday. How the board handles conflicts of interest will effect people's level of confidence in the exchange. Information about the board, including the draft conflict of interest policy, is posted online.
The board will meet 9:30 a.m. to 1:30 p.m. Monday in the Mile High Room of COPIC, 7351 E. Lowry Blvd, Denver.
HealthONE deal will not result in substantially more money for grants
A deal to divest the Colorado Health Foundation's interest in the HealthONE hospital system would be unlikely to yield substantially more money the foundation could use to increase community grants. But the transaction, scheduled to be discussed at two public hearings next week, would have the economic advantage of enabling the foundation to diversify its investment portfolio.
The Colorado Center on Law and Policy has reviewed the proposed transaction and submitted comments about it to Attorney General John Suthers. CCLP's review has focused on legal and structural aspects of the deal, rather than financial elements. Still, some public discussion of the economic consequences of the proposed transaction appear to overestimate the likely result, if the transaction is consummated, on the amount giving by the Colorado Health Foundation. The foundation likely will be planning on a base for grants either equal to its historical base, or even less than its current planning base.
The health foundation awarded about $94 million in 2009, the most recent year listed on its website. That level of giving is supported by earnings on the foundation's $600 million-plus stock portfolio plus about $120 million in annual cash flow from the foundation's ownership interest in HealthONE. If the foundation sells its interest in HealthONE as proposed for $1.45 billion, the portfolio would increase to about $2.1 billion. However, if the foundation uses 5 percent of the value of the portfolio, after the transaction, on grants and administrative expenses, the total amount available for grants and expenses would not be substantially greater than the foundation's current annual awards.
The economic advantage to the health foundation is it would be able to diversify its portfolio away from one health care provider to a diversified set of investments. Unlike the current arrangement, that would help assure a down market in hospitals, or health care, would not jeopardize the foundation's ability to make future grants.
Financial dimensions of the transaction are likely to be just part of the discussion at public hearings on the proposed sale set for Monday at Rose Hospital in Denver and Tuesday at Sky Ridge Medical Center in Lone Tree. CCLP favors the transaction if it's adjusted in some key respects:
- The deal should not preclude the Colorado Health Foundation from competing with the HealthONE system, or funding research that might result in less or shorter hospital admissions.
- HealthONE has agreed to continue its community-benefit functions, including providing charity care for people who can't afford a hospital bill, at the same level they're provided now. That provision should be changed to ensure the value of the community benefit is adjusted each year to account for inflation in the price of medical goods and services.
- The deal should prohibit the closure of any of the nine HealthONE hospitals that are part of the transaction for at least 10 years.
- A board is designated to assure that the community benefit obligations of the HealthONE system are met for ten years. That board should be required to composed 6-2 of foundation-appointed members, with HealthONE selecting two. The chair should come from the community. This replaces the current proposal for equal membership and HealthONE selection of the chair, which unfairly gives HealthONE a veto over effective action by the board to fulfill its responsibilities.
Public hearings on the transaction next week
The hearings, which will be open to the public, are scheduled to be held:
- 6 to 9 p.m. Monday at Rose Medical Center, 4567 E 9th Ave. in Denver
- 9 a.m. to noon Tuesday at Skyridge Medical Center, 10101 Ridgegate Parkway in Lone Tree
Members of the public who cannot attend one of the meetings but would like to contribute comments to the Attorney General's Office concerning the hospital transfer may do so via hospitaltransfer@state.co.us or by sending a letter to 1525 Sherman St., 7th floor, Denver, CO 80203.
Health Law and Policy Update is issued weekly by the health staff of the Colorado Center on Law and Policy. Subscribe by e-mail or read previous editions.
Health Care Director
Elisabeth Arenales
Health Care Attorney
Adela Flores-Brennan
Special Counsel
Ed Kahn
Rice Fellow
Danny Rheiner
Communications Director
Perry Swanson
Released Sept. 23, 2011