The Commonwealth Fund Critiques State Coverage Demonstration Projects

The Commonwealth Fund and Alliance for Health Reform co-hosted a roundtable discussion yesterday about the Institute of Medicine?s recommendations published last year regarding state coverage expansions. The IOM recommended that competing proposals to expand health insurance coverage be tested in state demonstration projects. The diverse group of policy experts in attendance disagreed on whether the scope of the projects should be incremental or fundamental, and whether the overall goal of the projects should be to truly pit various coverage expansion proposals against one another or simply garner the federal money that would be spent on this project to increase coverage.

Many different possible approaches to state coverage expansions were discussed during the meeting, including tax credits for use in the individual market or for employer-based coverage, employer and individual mandates, public program expansions, single-payer systems, and hybrids of all of these.

Jeanne Lambrew of The George Washington University discussed the challenges facing state health insurance demonstrations such as the fact that politics are as difficult at the state level as federally, state demonstrations may face barriers from Members of Congress who may oppose a certain approach in their state, and that different state approaches exacerbate geographic variations, making national reform more difficult. Several operational questions would have to be addressed, such as what level of insurance would be considered coverage, whether the programs would be funded with fixed-dollar allocations or as open-ended entitlements, and how states would be chosen for specific demonstration projects. Lambrew supported a large role for state participation in plan development where states would express their desire to try a new approach. Lambrew concluded that state reforms would require balancing state and federal powers and ideas from the right and left.

Stuart Butler of The Heritage Foundation supported a federalism approach where Congress would set broad goals and policy boundaries, and then have the state and federal governments negotiate specific demonstration details. Under Butler?s approach, an independent board would select which states would test different coverage approaches. Butler said the big question is whether a fair test of different competing approaches in such a politically charged environment would be possible.

Alan Weil of the Urban Institute talked about the importance of giving states the flexibility of having different approaches to covering their uninsured because of their varying goals, values, and priorities; but he was also skeptical of some who support the IOM recommendations. ?Is the demonstration to test models or to keep giving states more money to increase their insured population?? asked Weil.


The Heritage Foundation Says Principles Wrong in Medicare Legislation

Later in the day The Heritage Foundation held a Capitol Hill briefing in the Dirksen Senate Office Building to explain that some of the principles in the Medicare proposal currently being debated in the Senate deviate from market-based reforms.

Bob Moffit of Heritage explained how the current Senate Medicare proposal looks more like the poorly-performing Medicare + Choice program than the successful Federal Employees Health Benefits Program. For example: 1) The FEHBP has no standardized drug benefit; the Senate proposal describes the standard drug coverage in great detail and is an overly prescriptive approach. 2) The FEHBP has no administered pricing structure; the Senate compromise retains much of the Medicare fee-for-service pricing structure that doesn?t look anything like a market. 3) Regulation of the FEHBP is minimal; the Senate proposal would have many regulations and a big role for the CMS administrator.

Ed Haislmaier of Heritage explained how the complicated Medicare payment structure for private drug plans would lead to price controls on prescription drugs. Plans would get paid based on multiple risk adjustors and actual claims cost versus projected claims cost. If a private plan has paid what CMS considers too much for prescription drugs, they are penalized with lower reimbursement. If private plans pull out, or fail to sign up, the government fallback drug plan kicks in. Since the government collects data on every drug purchased, the government will inevitably target the highest cost and highest volume drugs for price and access control. ?Fundamentally, this is not about insurance, its about voting and elections,? said Haiselmaier.

?This drug benefit will only compound Medicare?s financial problems,? said Joe Antos of the American Enterprise Institute. He said there is no question that the proposal will cost at least $400 billion over the next decade. But the cost is really much more than that because the legislation does not sunset. Antos estimates the prescription drug benefit will add between $8 trillion and $13 trillion (current dollars) to Medicare?s liability.

Grace-Marie Turner of the Galen Institute said, ?An opportunity to improve traditional Medicare is being missed here.? She said the government fallback plan would inevitably lead to price controls and that instead we need a fallback plan that leads to true market competition. She was also concerned that the price of the drug benefit would be much higher than $400 billion because entitlements always cost more than expected. She proposed including a trigger mechanism that would send Congress back to the drawing board if we are blowing through the $400 billion too quickly.

–Joe Moser
Galen Institute

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The Commonwealth Fund and Alliance for Health Reform co-hosted a roundtable discussion yesterday about the Institute of Medicine?s recommendations published last year regarding state coverage expansions. The IOM recommended that competing proposals to expand health insurance coverage be tested in state demonstration projects. The diverse group of policy experts in attendance disagreed on whether the scope of the projects should be incremental or fundamental, and whether the overall goal of the projects should be to truly pit various coverage expansion proposals against one another or simply garner the federal money that would be spent on this project to increase coverage.

Many different possible approaches to state coverage expansions were discussed during the meeting, including tax credits for use in the individual market or for employer-based coverage, employer and individual mandates, public program expansions, single-payer systems, and hybrids of all of these.

Jeanne Lambrew of The George Washington University discussed the challenges facing state health insurance demonstrations such as the fact that politics are as difficult at the state level as federally, state demonstrations may face barriers from Members of Congress who may oppose a certain approach in their state, and that different state approaches exacerbate geographic variations, making national reform more difficult. Several operational questions would have to be addressed, such as what level of insurance would be considered coverage, whether the programs would be funded with fixed-dollar allocations or as open-ended entitlements, and how states would be chosen for specific demonstration projects. Lambrew supported a large role for state participation in plan development where states would express their desire to try a new approach. Lambrew concluded that state reforms would require balancing state and federal powers and ideas from the right and left.

Stuart Butler of The Heritage Foundation supported a federalism approach where Congress would set broad goals and policy boundaries, and then have the state and federal governments negotiate specific demonstration details. Under Butler?s approach, an independent board would select which states would test different coverage approaches. Butler said the big question is whether a fair test of different competing approaches in such a politically charged environment would be possible.

Alan Weil of the Urban Institute talked about the importance of giving states the flexibility of having different approaches to covering their uninsured because of their varying goals, values, and priorities; but he was also skeptical of some who support the IOM recommendations. ?Is the demonstration to test models or to keep giving states more money to increase their insured population?? asked Weil.


The Heritage Foundation Says Principles Wrong in Medicare Legislation

Later in the day The Heritage Foundation held a Capitol Hill briefing in the Dirksen Senate Office Building to explain that some of the principles in the Medicare proposal currently being debated in the Senate deviate from market-based reforms.

Bob Moffit of Heritage explained how the current Senate Medicare proposal looks more like the poorly-performing Medicare + Choice program than the successful Federal Employees Health Benefits Program. For example: 1) The FEHBP has no standardized drug benefit; the Senate proposal describes the standard drug coverage in great detail and is an overly prescriptive approach. 2) The FEHBP has no administered pricing structure; the Senate compromise retains much of the Medicare fee-for-service pricing structure that doesn?t look anything like a market. 3) Regulation of the FEHBP is minimal; the Senate proposal would have many regulations and a big role for the CMS administrator.

Ed Haislmaier of Heritage explained how the complicated Medicare payment structure for private drug plans would lead to price controls on prescription drugs. Plans would get paid based on multiple risk adjustors and actual claims cost versus projected claims cost. If a private plan has paid what CMS considers too much for prescription drugs, they are penalized with lower reimbursement. If private plans pull out, or fail to sign up, the government fallback drug plan kicks in. Since the government collects data on every drug purchased, the government will inevitably target the highest cost and highest volume drugs for price and access control. ?Fundamentally, this is not about insurance, its about voting and elections,? said Haiselmaier.

?This drug benefit will only compound Medicare?s financial problems,? said Joe Antos of the American Enterprise Institute. He said there is no question that the proposal will cost at least $400 billion over the next decade. But the cost is really much more than that because the legislation does not sunset. Antos estimates the prescription drug benefit will add between $8 trillion and $13 trillion (current dollars) to Medicare?s liability.

Grace-Marie Turner of the Galen Institute said, ?An opportunity to improve traditional Medicare is being missed here.? She said the government fallback plan would inevitably lead to price controls and that instead we need a fallback plan that leads to true market competition. She was also concerned that the price of the drug benefit would be much higher than $400 billion because entitlements always cost more than expected. She proposed including a trigger mechanism that would send Congress back to the drawing board if we are blowing through the $400 billion too quickly.

–Joe Moser
Galen Institute

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