Unbelievable! Senator Hatch Cannot Find $30 Billion For Medical Device Excise Tax Repeal
(A version of this Health Alert was published by Forbes.)
Congress may be on the verge of repealing Obamacare’s medical device excise tax. I am all for repealing it, which will reduce funding for Obamacare by $24 billion over ten years. Of course, that means it will increase the deficit by $24 billion, which means Congress has to offset repeal by cutting spending by the same amount.
Can’t be done, says Senator Orrin Hatch, Chairman of the Senate Finance Committee: “It’s pretty hard to come up with a $30 billion offset,” (as reported by the Wall Street Journal’s Isaac Stanley-Becker). I am not sure how Senator Hatch rounded the figure up to $30 billion, but that does not really matter.
It should be as hard to find $24 billion or $30 billion of spending offsets as it is to find a cup of coffee at Starbucks. Here are some examples, plucked from the pages of President Obama’s budget proposals:
- Medicare bad debt. The president’s budget proposes $31 billion in savings over 10 years by reducing Medicare’s coverage of bad debts owed hospitals and other facilities. Currently, the federal government pays 65 percent of facilities’ bad debts. As far back as 2011, President Obama proposed reducing this to 30 percent. Doing so would not only reduce the burden on taxpayers, it would also force hospitals to be more transparent with respect to communicating prices and payment obligations to Medicare beneficiaries.
- Medigap plans. The president also proposes to increase deductibles for new Medicare beneficiaries, instituting a home-health deductible and adding a surcharge to Part B premiums for beneficiaries who buy Medigap (Medicare supplemental) plans. In his budget, these save $8.5 billion over 10 years. The problem with Medigap plans is that they fill in beneficiaries’ deductibles and copays, making them insensitive to the total cost of the Medicare services they consume. Discouraging beneficiaries from buying such plans will make them more cost conscious. Although a version of this was included in the Medicare Access and CHIP Reauthorization Act enacted in April 2015, it does not take effect until 2020. An earlier start would save taxpayers’ money faster.
- Medicare Part D exclusive pharmacies. The president has proposed allowing Medicare Part D drug plans to use more tools to reduce the abuse of prescription drugs by opioid addicts in Medicare Part D. This would reduce fraud, as described in an NCPA policy report.
- Medicaid provider taxes. In his February 2012 budget, President Obama proposed reforms to Medicaid provider taxes. “Provider taxes” are tricks used by hospitals and states to increase their dependence on federal Medicaid money. Hospitals agree to submit to a special “tax” by the state. However, this tax flows into the state Medicaid program, which uses it to get more federal dollars. Therefore, every dollar the hospital is “taxed” actually increases its revenue by more than the tax! If this abuse had been stopped when President Obama proposed his reforms, the savings would have been $22 billion over 10 years.
- Site-neutral payments. This refers to paying the same fee for a procedure, whether done in an ambulatory clinic or hospital. Currently, hospitals are overpaid. For example, a level II echocardiogram costs Medicare $453 in a hospital outpatient facility versus $189 in a freestanding physician office. A site-neutral payment rule would pay $189 to all facilities. President Obama’s budget proposes to phase this in starting in 2017, and estimates savings of $29.5 billion over 10 years as a result.
Mr. Stanley-Becker’s article even suggests that Congressional Republicans are refusing to find spending offsets because they want to make Obamacare officially increase the deficit. Obamacare is already fiscally irresponsible enough without deliberately making it worse.
Senator Elizabeth Warren (D-MA) says she will not vote to repeal the device tax unless there are spending offsets. In this situation, conservatives have found an unlikely ally.
These are all good ideas!
o Medicare bad debt
o Medigap plans
o Medicare “Lock-in” (also called Safe Pharmacies)
o Medicaid provider taxes
o Site-neutral payments
Another one Hatch and his GOP allies should consider is to implement:
o Medicare reference pricing
o Medicare selective contracting
The AZ legislature, with the Goldwater Institute, is challenging the constitutionality of the Medicaid Provider Tax enacted by former governor Jan Brewer. The AZ Supreme Court has found that the legislature has standing to sue. The tax is in conflict with the AZ Constitution which requires only the legislature can enact taxes.
Are you telling us that former Governor Brewer levied a tax without statutory authority? That is remarkable.
Here’s the explanation from the local press: “..What’s in question is whether a constitutional amendment that requires two-thirds of the Arizona Legislature to approve tax or fee increases was ignored. Arizona’s Medicaid expansion was funded by a hospital bed tax that was not approved by a super-majority of the Legislature…”
The legality of that tax is the subject of the suit.
http://www.bizjournals.com/phoenix/blog/health-care-daily/2014/12/arizonas-medicaid-expansion-tax-will-be-challenged.html
Thank you. It should be a simple thing to figure out. Of course, with anything related to health care post-Obamacare, the definition of “tax” is a little wobbly.
Good article, but (as I have said before) this blog is I think misinformed on the Medicare bad debt issue.
My understanding is that under a Medicare program called DSH, the government shuffles money to hospitals that have higher levels of bad debt from their overall patient mix.
This largely means urban and safety-net hospitals.
Medicare patients create very little bad debt. A Medicare patient only owes about $1200 for a hospital stay of less than 60 days, and of course most Medicare supplement plans pay the $1200.
The ACA assumed that more poor people would get Medicaid or subsidized insurance, and that therefore the DSH funding could be cut.
However, safety net hospitals still have to treat the uninsured and immigrants, and in addition the spread of high deductible health plans is creating more bad debt from insured patients also.
So I contest the assertion in this article that cutting the DSH funds will help taxpayers very much at all. I find nothing wrong in federal support for hospitals, which I put in the basic category of fire and police stations.
There are two ways to fund emergency services: one is to collect small amounts of money from all citizens like we do for fire and police; the other to collect (or try to collect_) huge amounts of money from the ‘users’ of services. I prefer the former method, for efficiency and plain humanity. The spectacle of a hospital hounding patients for charges is repulsive to me — repulsive enough that I would pay taxes to reduce or eliminate its occurence.
Thank you but the president’s budget item cited here refers to backstopping Medicare patients’ bad debts to hospitals, not DSH. DSH is paid for through Medicare but, as you note, has nothing really to do with Medicare.
I appreciate your fire and police comments. Please note that almost all fire and police are paid by municipalities, counties, or states, not federal government. If hospitals were funded likewise, I would not be so hostile.