Ranking the Reforms at Risk in a Deficit Deal

by Dan Diamond, California Healthline Contributing Editor

It's tough to know who's more perplexed these days -- Americans confused by the debt ceiling crisis, or the rest of the world totally mystified by our political game of chicken.

As the Aug. 2 deadline for either raising the nation's debt limit or slicing spending inches ever closer, at least one prominent satirist is counting down to "armadebton." Other observers termed President Obama and House Speaker John Boehner's dueling speeches on Monday "the State of Disunion."

Gallows humor aside, we're in a state of flux.

Even professional lobbyists admit they're straining to stay informed. "I go to bed, and I wake up, and everything's changed," the CEO of one advocacy group told the Washington Post.

There have been at least six deficit-reduction plans in play across the past week. As of California Healthline press time on Wednesday, Boehner's plan had emerged as a shaky candidate for a deal, amid wavering Republican support and last-minute rewrites; Senate Majority Leader Harry Reid's alternate proposal lurks as a fall-back measure.

Despite the public rhetoric, the Boehner and Reid plans have much in common: Both would address the deficit in a two-step process, focusing on cuts to discretionary spending now and leaving harder decisions like Medicare reforms to a later date. Another option that could resurface is a bipartisan Senate framework that lets Obama incrementally raise the debt limit by $1.5 trillion.

Framing the discussions are the bruising health care battles of the past two years; neither political party wants to be tagged for touching politically sensitive entitlements, if possible. Meanwhile, some Republicans continue to hope the deficit negotiations will do what their earlier attempts couldn't: drastically weaken last year's health law.

Here's one attempt to decode the debate and figure out what a deficit-reduction deal -- any deal -- would mean for the health care sector and the Affordable Care Act, starting with the programs and initiatives that are most at risk.

Prevention Funds: High Risk

Preventive care's long-term, often difficult-to-prove benefits make it persistently tough for lawmakers to fund. It may get harder as legislators search for immediate savings in coming days.

The health law's $18 billion prevention program already has survived Republican accusations that it's a "slush fund" for HHS and a House GOP effort to repeal it. However, the fund seems unlikely to make it out of the deficit talks untouched. There's a growing expectation that the program's funding will be cut, maybe in half, and advocates are now honing their strategies to preserve the rest.

One approach: Stressing that the program has clear health and cost benefits, like curbing falls for seniors or improving diabetes management, and that doing away with the fund would lead to real consequences. Writing in The Hill this week about the nation's struggle with obesity, the Arkansas surgeon general warned that politicians seeking a "quick fix" by cutting the prevention fund would set in motion a "long-term nightmare" as obesity-related costs and complications only spiral higher.

Medicaid Eligibility and Funding Expansions: High Risk

Advocates have been girding for this battle for months. Their moment seems to have finally arrived.

Conservatives and some Democrats have attempted to roll back the health law's Medicaid expansion, citing concern that the law grows the nation's entitlement programs at a tenuous time. Under ACA, Medicaid would stretch to cover more than 16 million uninsured Americans through expanded eligibility requirements and federal support.

Before their negotiations ended acrimoniously last week, Obama and Boehner had settled on making some Medicaid cuts, although the scope and level were still up for debate. Democrats have a strong incentive to preserve the ACA's Medicaid expansion, as it's the law's key vehicle toward covering the nation's uninsured, but political observers say that the White House could compromise by trimming subsidies or scaling back the expansion, perhaps losing several million Americans from the program in the process.

In addition, the Obama administration appeared willing to standardize federal matching funds for Medicaid, under an outline that was leaked several weeks ago. This new blended rate would likely cut federal spending -- perhaps saving $100 billion across a decade -- but also pass more costs along to states and care providers, the Center on Budget and Policy Priorities noted.

Meanwhile, both Democrats and Republicans have introduced legislation to do away with a "glitch" that would have allowed middle-income early retirees to qualify for Medicaid. The Congressional Budget Office forecast that the measures would save $13 billion over the first 10 years and reduce the Medicaid expansion by fewer than one million Americans. The bipartisan support and CBO score make it more likely that the measure would be included in any deficit-reduction plan.

CLASS Act: Moderate Risk

The CLASS Act, a piece of last year's health reform law that establishes a long-term disability insurance program, would seem to appeal across party lines. It's voluntary and promotes personal independence, which reflects Republican principles. It has powerful supporters in the advocacy community and was a pet program of the late Sen. Edward Kennedy (D-Mass.), establishing its Democratic bona fides. As a bonus, CBO scored it as cutting the deficit by $83 billion across a decade. What's not to like?

For starters, conservatives aren't thrilled by the program's lack of long-term funding details. The legislation that set up CLASS didn't specify how HHS would ultimately sustain the program; instead, the agency has to devise potential benefit plans and a level of premiums that are actuarially sound across the next 75 years. Others say CLASS could be subject to adverse selection, as its voluntary nature may lead to only the sickest patients being enrolled.

Still, eyebrows were raised when the Senate's bipartisan Gang of Six positioned the repeal of CLASS as a key component of its deficit deal plan, signaling that the program could be a bargaining chip in deficit talks.

Yet some are optimistic that CLASS will survive upcoming deficit cuts. Howard Bedlin, vice president for public policy and advocacy at the National Council on Aging, told California Healthline that CBO's favorable scoring of CLASS "keeps it in the game." At this stage in deficit talks, "where else are you going to find $83 billion" in savings, he added.

Bedlin also pointed to a NCOA brief on the "top 10 reasons why conservatives should love the CLASS program," suggesting that Republicans would find the program more palatable upon closer review.

Individual Mandate: Low Risk

Another conservative stalking horse has been the health law's controversial individual mandate. In fact, White House officials say last week's talks between Boehner and Obama broke down in part because Republicans began pushing to strike the mandate. One potential, mutually painful trigger reportedly under discussion would have involved a tax hike on wealthy Americans and the mandate's repeal if the sides could not agree to tax reform in 2012.

However, the president and Democrats have fought so hard to preserve the mandate -- the crucial lever to driving the health law's coverage expansion -- that it is unlikely they would abandon it now. "There's no way that Obama would put his biggest accomplishment at risk, so I can't see this deal actually happening," conservative writer Philip Klein writes in the Washington Examiner. More likely, the greater threat to the mandate is the legal effort challenging its constitutionality.

Looking Ahead

Policy experts stress that many other programs and elements of health reform also are on the table, including plans to pare down Medigap coverage and efforts to rework Medicare's physician payment formula.

Most of these proposals are being hotly contested. For example, some have suggested making changes to hold down Medicare Part D's costs by using Medicaid-style rebates. However, the American Action Forum's Douglas Holtz-Eakin and Michael Ramlet warn that imposing mandatory prescription drug rebates would only raise senior premiums and "put the popular program at risk."

Should the Boehner or Reid bill move forward, the two-stage deficit cuts ensure months of additional battling over the government's health care programs, and California Healthline will continue to track the latest developments. In the meantime, here's a scan of other reform-related news from around the nation.

Administration Actions

  • Last week, HHS announced that it denied North Dakota's request for a medical-loss ratio waiver, making it the first time that the agency has rejected such a request. The waivers allow insurers in states to avoid a requirement in the federal health reform law that individual and small-group health plans spend a certain amount of premiums on care. HHS said it denied the waiver because North Dakota insurers are not at risk of leaving the market. Meanwhile, HHS partially approved similar waivers for Iowa and Kentucky (Pecquet, "Healthwatch," The Hill, 7/22).

Challenges to Reform

  • Last week, attorneys general from 21 states filed an amicus brief with the 8th U.S. Circuit Court of Appeals in support of a Missouri-based lawsuit challenging the constitutionality of the federal health reform law (Hammel, Omaha World-Herald, 7/20). The amicus brief -- which was filed by Paul Clement, a lawyer in the multistate challenge to the health reform law -- states that the overhaul "rests on unprecedented assertions of federal authority, pushing even the most expansive conception of the federal government's constitutional powers past the breaking point" (Norman, CQ HealthBeat, 7/19).

Effects on Families

  • A provision in the federal health reform law that denies government subsidies to workers whose employers offer affordable health coverage could inadvertently eliminate access to insurance for families. Under the provision, workers would qualify for federal subsidies to purchase health plans through state insurance exchanges if they have to contribute more than 9.5% of their income toward employer-sponsored health benefits. Many family health advocates believed the so-called "firewall" also applied to family coverage. However, advocates say the cost of buying insurance for the entire family could be too high for some workers without subsidies, which might force some families to go without coverage and face penalties under the reform law's individual mandate (Pecquet, "Healthwatch," The Hill, 7/21).

Eye on the Courts

  • Many small businesses are concerned that the federal health reform law will lead to higher taxes and more paperwork, without reducing costs or making employees healthier, according to a recent survey by the National Federation of Independent Business. The poll found that 87% of businesses with 50 or fewer workers that do not offer health benefits do not plan to do so any time in the near future. It also found that 20% of employers expect to change the benefits they offer workers, nearly all expect to increase cost sharing for employees or reduce benefits (Fox, National Journal, 7/25). However, proponents of the health reform law criticized the survey, citing a flaw in one of its questions (Baker, "Healthwatch," The Hill, 7/25).

On the Hill

  • A pair of bills introduced last week to fix a "glitch" in the federal health reform law allowing middle-income early retirees to qualify for Medicaid could save an estimated $13 billion over the next decade, according to a report from the Congressional Budget Office. Under the two bills (S 1376 and S 1378) -- which were introduced by Sens. Michael Enzi (R-Wyo.) and Ben Nelson (D-Neb.), respectively -- would include Social Security benefits when calculating eligibility for Medicaid and insurance subsidies under the overhaul. Last month, CMS Chief Actuary Richard Foster drew attention to the oversight and estimated that it would allow as many as three million middle-income early retirees to qualify for Medicaid in 2014 (Pecquet, "Healthwatch," The Hill, 7/25).

Spotlight on ACOs

  • Hiring physicians to join accountable care organizations is proving difficult for many hospitals that already are struggling to manage high costs and coordinate care. According to the Association of American Medical Colleges, the federal health reform law could lead to a shortage of about 63,000 doctors in 2015 because the law will help 32 million U.S. residents become insured. As a result, physicians have more bargaining power and can demand higher salaries and better benefits (McCarthy, National Journal, 7/21).

Vashti Winterburg
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