Baucus White Paper on Financing Health “Reform”
Yesterday the Senate Finance Committee released its third white paper, this one outlining ways to finance comprehensive health reform. The document highlights various reimbursement cuts and health tax-related provisions that can be utilized to achieve some budgetary savings, but admits that these changes ”may not pay for all of health care reform on their own. Many proposals expected to reduce health spending in the long run may not produce sufficient savings in the short run to finance reform. For this reason, ”other options” — i.e., tax increases — “may need to be considered.”
The following constitute brief highlights of the proposals outlined in the white paper, a copy of which is attached.
Provider Adjustments: The white paper proposes many ways to achieve savings by cutting payments to various providers within the health care sector. The list of specific cuts includes:
- “Reducing or eliminating market basket updates in 2010 for any provider payment area recommended by MedPAC,” as well as lower differential updates for high-margin areas in future years;
- Potential “re-basing” of home health payments “to take into account the relative margins related to specific conditions and service areas,” as well as provider-specific caps on outlier payments that home health agencies can be reimbursed for;
- “Adjusting current GME and DSH payment levels to better reflect the actual costs hospitals currently incur in treating the low-income and uninsured and in training medical residents.” The paper also proposes reducing DSH payments “over time as the need for these resources decrease as more individuals become insured” — even though the coverage paper released last week admits that undocumented aliens would not be subject to an individual mandate to purchase coverage, and therefore would be likely to remain uninsured;
- “Options to make payments to [Medicare] Part B providers more rational through reforms that appropriately value services,” including a potential new expert panel to evaluate “potentially misvalued physician services;”
- Better payment accuracy for durable medical equipment — though DME competitive bidding is not discussed;
- Increasing the Medicaid drug rebate for brand-name drugs from 15.1% to 23.1%, and from 11% to 13% for generic drugs, while also extending the rebates that must be paid to Medicaid managed care organizations and new formulations of existing drugs;
- “Requiring annual market basket adjustments for certain fee-for-service providers to be adjusted by some or all of the expected productivity gains;”
- Reduction of variations in Medicare spending, either by imposing across-the-board reductions in Medicare Part A and B spending in high-spending areas, or more specific and targeted cuts to providers who exceed spending thresholds in high-spending areas.
Benefit Package: The white paper also discusses the beneficiary side of Medicare, including simplifying the Part A and B structure of benefits offered to seniors — i.e., an out-of-pocket maximum on beneficiary cost-sharing, a combined Part A and B deductible, and cost-sharing within Medigap plans. (Similar proposals have been discussed in CBO’s Budget Options book.) The white paper discusses an expansion of Medicare means-testing to Part D, but also proposes that this savings could be used to finance expanded coverage in the Part D doughnut hole or expanded low-income subsidies.
Health Tax Provisions: The white paper proposes various options for limiting the current tax-exclusion for employer-provided health insurance. Ideas include a cap based on the value of plan benefits received (e.g., amounts in excess of the FEHBP standard option would become taxable benefits), income (e.g., adjusted gross income above $200,000), or a combination of the two. Union-negotiated plans would be “grandfathered” for the length of any existing collective bargaining agreement under which current health benefits were negotiated. Interestingly, the paper also notes that “the exclusion could be reformulated as a tax credit” — the basis of John McCain’s proposal from last year.
The white paper also proposes several other health tax provisions, including possible elimination of (or increased thresholds for) the 7.5% itemized deduction for medical expenses, and repealing special deductions for Blue Cross and Blue Shield organizations. The paper also discusses codifying community benefit and other requirements related to the tax exemption for non-profit hospitals.
With respect to consumer-directed health options, the paper discusses limiting the maximum HSA contribution to an individual’s high deductible (effectively repealing the increase in the HSA maximum contribution limit enacted in December 2006), while also increasing the penalty for non-health withdrawals from 10% to 20%. For Flexible Spending and Health Reimbursement Arrangements, the paper proposes limiting the amount of FSA withdrawals — as well as HRA reimbursements — excludable from gross income, without specifying a limit on same. The paper also discusses restricting the definition of medical expenses allowable for use in FSAs and HRAs, such that (for instance) over-the-counter medications could not be reimbursed through either account.
Payroll Tax Provisions: The paper proposes restrictions on the current exemption from payroll taxes for most college and university students, such that students receiving more than $1,090 in earnings from a higher education institution would be subject to payroll taxes (and colleges would be required to pay the employer share of payroll tax contributions for the first time). The paper also discusses making Medicare payroll taxes mandatory for state and local government employees.
Food Taxes: The paper proposes raising alcohol taxes to $16 per proof gallon, while providing a tax credit for small manufacturers of both beer and wine. The paper discusses imposing a federal tax on “beverages sweetened with sugar, high-fructose corn syrup, or other similar sweeteners” — a level of tax was not specified, but “the tax would not apply to beverages sweetened with non-caloric sweeteners.”
Administration Offsets: The document concludes by including a list of the various tax increases and other revenue raisers the White House proposed in its budget, some or all of which could be used to fund health reform.