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White House Releases FY 2019 Federal Budget with Significant Health Care Proposals

February 12, 2018

 The Washington Monument reflecting in the Tidal Basin, Washington, DC.

On February 12, President Trump proposed a $4.4 trillion federal budget for Fiscal Year 2019, a plan Congress is expected to all but ignore, that would slash entitlement and domestic spending in favor of higher spending on the military and immigration enforcement.

 

The budget includes a 13 percent increase ($80 billion) for the Department of Defense, in addition to $18 billion over the next two years to build a wall on the U.S. border with Mexico. Entitlement programs would see a $1.7 trillion cut over a decade, including $237 billion from Medicare.

The budget document indicates that the 2019 deficit has nearly doubled from projections last year, to $984 billion. If enacted, the proposed budget would add an additional $7.1 trillion in debt over the next decade, bringing the total national debt to nearly $30 trillion. Moreover, the budget would not be any closer to being balanced. The budget proposal is not expected to go anywhere in Congress, in part because of the bipartisan two-year budget deal that increased caps for both domestic and defense spending.

There are a number of health care related proposals, including:

  • 21 percent cut to HHS budget compared to 2017 spending levels
  • $17 billion to combat the opioid epidemic
  • Establishing a new Medicaid demonstration to allow up to five states to develop and test a new structure, coverage options, and financing for prescription drugs
  • Creating a Medicare Part D beneficiary out-of-pocket spending cap
  • Eliminating cost-sharing for generic drugs for beneficiaries who receive the Medicare part D low-income subsidy
  • Requiring Medicare Part D plans to share the rebates they receive from manufacturers with beneficiaries
  • Giving Medicare Part D plans more flexibility to set drug formularies
  • Allowing certain drugs to be moved from Medicare Part B to Medicare Part D
  • Providing the Food and Drug Administration (FDA) greater ability to bring generics to market faster by incentivizing more competition among generic manufacturers
  • Denying Medicaid benefits to people who cannot prove immigration status
  • Increasing Medicaid beneficiaries’ copayments for improper use of emergency services
  • Allowing asset testing, in addition to income, as a test of Medicaid eligibility

The budget plan again calls for repealing the Affordable Care Act (ACA) and outlines a two-part approach, starting with enactment of legislation modeled closely after the Graham-Cassidy bill. The bill, introduced last summer but never brought forward for a floor vote because of some concerns about projected costs and coverage losses, would have converted much of the ACA’s federal funding for Medicaid expansion and premium subsidies into block grants for states to create their own health care programs. The bill would also have overhauled Medicaid with a per-person spending cap. The Congressional Budget Office (CBO) was projected to lead to 20 million fewer Americans having health insurance in 2026, and a $215 billion cut to federal health care spending over 10 years.

The budget proposes over $90 billion in savings over 10 years if the policies in the Graham-Cassidy bill were enacted. Combined with other provisions like Medicaid changes, the White House projects there would be nearly $675 billion in savings over a decade tied to repealing the ACA.

President Signs Continuing Resolution to End Brief Government Shutdown

After a brief federal government shutdown in the overnight hours of February 9, Congress passed and the President signed into law the Bipartisan Budget Act of 2018 (HR 1892). The Senate voted 71-28 and the House voted 240-186 to approve the bill, which extends stopgap funding through March 23 to keep the federal government fully operating and to give Congress time to enact full-year appropriations bills. The bill ratifies a two-year budget agreement that increases budget caps, resulting in approximately $300 billion in additional federal spending. The agreement increases both defense and domestic spending, suspends the federal debt ceiling until March 2019, and funds hurricane and wildfire disaster relief, among other programs.

The bill also extends and modifies dozens of health care programs. Some of the key health care provisions include:

  • Extending funding for the Children’s Health Insurance Plan (CHIP) for an additional four years (a previous spending bill extended authorization from 2018 to 2024)
  • Accelerating the closing of the “donut hole” in Medicare drug coverage from 2020 to 2019
  • Repealing the controversial Independent Payment Advisory Board (IPAB)
  • Providing $6 billion to combat the opioid crisis and treatment of mental health issues
  • Providing $2 billion for National Institutes of Health research
  • Easing requirements for providers on implementing electronic health records.

The agreement did not include reinsurance or cost-sharing reduction payment funds, which some lawmakers pursued in an effort to stabilize ACA exchange markets. Senators Alexander (R-TN) and Murray (D-WA) are continuing to tweak their bill to stabilize the markets, though the urgency has waned somewhat with the passage of the tax reform legislation in December that essentially abolished the individual mandate. Meanwhile Senators Collins (R-ME) and Sen. Bill Nelson (D-FL) have introduced legislation to give states $10 billion over two years to set up a reinsurance program to cover the highest medical claims from Obamacare insurers. The bills could be included in the appropriations legislation that must pass by March 23.

White House Economic Advisers Release Drug Pricing Proposals

On February 9, the White House’s Council of Economic Advisers issued a 30-page report outlining a number of policy changes designed to lower drug prices while stimulating innovation in the pharmaceutical industry.

The White House strategy recommends:

  • Working with states to revise Medicaid rules so manufacturers don’t have an incentive to set artificially high prices due to the rebates they provide
  • Moving Medicare Part B drug coverage for some expensive medications into Medicare Part D so the government doesn’t reimburse based on a fixed percentage of a drug’s cost
  • Changing a requirement that Medicare Part D drug plans cover at least two different medications in each broad class of drugs
  • changing how pricing data is reported to increase transparency
  • Requiring insurers to share drug manufacturer rebates with patients. Copayments are typically based on the full price of the drug, before rebates, which remains a major source of contention between drug companies and insurers.
  • Revising the Food and Drug Administration’s drug review and approval process to promote competition
  • Providing some generic drugs free for Medicare enrollees

What is conspicuously absent from the paper is any recommendation allowing CMS to negotiate Medicare drug prices directly with pharmaceutical manufacturers. The president himself advocated such a policy approach as a candidate, but has since eased off on calling for it since taking office as it’s a largely unpopular proposal with congressional Republicans.

While some of the proposed reforms outlined by the White House could be enacted through guidance or rulemaking, many of the larger policy changes would require congressional action. Some of the recommendations were included in the president’s FY 2019 budget proposal, but it’s unclear if Congress is interested in pursuing such contentious legislation in an election year. So, it is likely that the administration will pursue formal rulemaking later this year to serve as the catalyst for drug pricing reforms.

2018 Exchange Enrollment Figures Remain Stable Despite Political Uncertainty

Affordable Care Act enrollment for the 2018 plan year remained generally stable despite political uncertainty stoked by the repeal debate in Congress, according to new data from the National Academy for State Health Policy.

Approximately 11.8 million consumers selected plans, down 3.7 percent from the 12.2 million consumers who signed up a year in 2017. States that operated their own marketplaces or used the federal platform to manage their exchanges showed a modest increase (two-tenths of one percent) over last year, while states that relied solely on HealthCare.gov registered a 5.3 percent decrease in enrollment.

The new enrollment numbers — which include totals from California and other states that operate their own exchange, as well as states that rely on the federally facilitated exchanges — offer the most detailed picture to date of the exchange markets. Florida, which uses HealthCare.gov, and California continue to lead all states with 1.7 million and 1.5 million enrollees, respectively.

The annual enrollment figures remain a relatively crude metric that does not accurately account for what kind of consumers are signing up for coverage. Regardless, total enrollments have become an important political barometer of the law, and the numbers have been closely watched every year as policymakers have debated whether to roll back the law, particularly projected losses of coverage.

House GOP Discussing Repeal of Employer Mandate with HHS Secretary

According to a report from The Hill newspaper, House Ways and Means Committee Chair Kevin Brady (R-TX) has said that he has discussed the idea of repealing or further delaying the employer mandate with recently appointed Health and Human Services Secretary Alex Azar, as well as other members of the committee. Employer penalties took effect in 2015, but the IRS did not begin enforcing them right away. In November, the agency announced that it would begin to assess financial penalties. According to a 2014 CBO estimate, companies would owe about $139 billion in penalties from fiscal 2016 to 2024.

With more sweeping ACA repeal efforts appearing unrealistic in an election year following last year’s failed attempts, congressional Republicans are signaling that they will attempt to chip away at certain parts of the law. House Speaker Paul Ryan (R-WI) recently called for an “incremental” approach to health-care reform.

The GOP repeal effort comes at the same time as the Internal Revenue Service (IRS) has begun enforcing the employer mandate by sending out tax penalty notices (IRS Letter 226J) with applicable penalties for the 2015 tax year, some reportedly in the millions of dollars.

CMS: National Healthcare Spending Reaches $3.5 Trillion, Expected 5 Percent Growth Rate Over Next Decade

According to new estimates by the independent CMS Office of the Actuary released on February 14, national health spending grew by 4.6 percent in 2017, reaching $3.5 trillion, up slightly from the 4.3 percent increase in 2016’s growth rate as a result of accelerated growth in Medicare spending, growth in prices for healthcare goods and services, and increases in premiums for exchange plans. Health spending is expected to increase 5.5 percent annually over the next decade – 1 percent faster than the GDP – reaching a total of $5.7 trillion by 2026.

Specifically, spending on physician and clinical services grew by an estimated 5 percent in 2017, to $698.3 billion, a decline from 5.4 percent in 2016. In addition, prices for physician and clinical services grew moderately in 2017, at 2.4 percent, but are expected to increase slightly faster in 2018, at a rate of 2.8 percent.

Other key findings:

  • Healthcare’s share of GDP is projected to rise from 17.9 percent in 2016 to 19.7 percent by 2026
  • By 2026, federal, state, and local governments are projected to account for 47 percent of national health spending, up slightly from 45 percent in 2016
  • Medicare growth is expected to increase in the 2021-2026 timeframe in terms of payments to physicians and clinics, “in part related to incentive payments for MACRA
  • The insured share of the population is expected to decline slightly over time, from 91.1 percent in 2016 to 89.3 percent by 2026, in part because the ACA’s individual mandate was essentially eliminated in the tax reform bill passed last year
  • Private health insurance spending on medical benefits grew relatively slowly in 2017, a result of several factors, including the proliferation of high-deductible plans, efforts by employers to better manage costs, and the aging of Baby Boomers into Medicare
  • Hospital spending reached $1.1 trillion in 2017 (up 4.6 percent from 2016) and is expected to grow at 5.5 percent annually over the decade
  • Spending on prescription drugs is expected to increase an average of 6.3 percent annually from 2017 to 2026

CMS attributes economic and demographic trends for projected spending growth, including trends in disposable personal income, increases in prices for medical goods and services, and shifts in enrollment from private health insurance to Medicare as a result of the continued aging of the baby-boom generation into Medicare eligibility.

Record Number of House Committee Chairs Announce Retirement

A record number of House committee chairmen have announced their retirement, with nine leaving office after 2018. With the exception of Representative Diane Black, who is running for Tennessee governor, all are retiring from public office entirely. Republican Committee chairs who have announced their retirement include:

Diane Black (TN-06) Budget Committee

Rodney Frelinghuysen (NJ-11) Appropriations

Bob Goodlatte (VA-06) Judiciary Committee

Trey Gowdy (SC-04) Oversight and Government Reform

Gregg Harper (MS-03) House Administration

Jeb Hensarling (TX-05) Financial Services

Ed Royce (CA-39) Foreign Affairs

Bill Shuster (PA-09) Transportation & Infrastructure

Lamar Smith (TX-21) Science, Space, and Technology

To date, 34 Republicans and 14 Democrats have announced they intend to leave the House after the 115th Congress.

The Week Ahead

The House and Senate are in recess until February 26.