$285B switch might remove health hurdle

House Democrats are considering a budget maneuver that would reduce the headline cost of restructuring healthcare by $285 billion.

The move would not reduce the amount taxpayers would pay for a healthcare bill, but would make the cost of the legislation more palatable. It also could draw support for the bill from the powerful American Medical Association, which lobbies for doctors.

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The savings would come by permanently raising Medicare payments to doctors, which are poised to drastically decline in future years because of flaws in the complex formula that calculates them. Congress has repeatedly passed legislation on an annual basis to make the fix.

The healthcare reform bill House Democrats introduced last week would create a new formula to give doctors yearly raises. On its own, the permanent fix would add hundreds of billions of dollars of new spending to the bill, which is expected to exceed $1 trillion.

But House Democrats are eyeing budgetary maneuvers that would erase the cost of the Medicare physician payment increases by making the change but not having it be subject to pay-as-you-go budgeting rules that would require the spending increase to be offset with tax hikes or other cuts.

In an interview televised Sunday on C-SPAN, Rep. Pete Stark (D-Calif.), who chairs the Ways and Means Committee’s Health subcommittee, said Democrats need to take care of the doctor payment issue without following pay-go rules.

“There’s an issue of physician reimbursement that we have to take off the table, and then we go pay-go from there on,” Stark said. “It’s one of those things that has been postponed and put off every year.”

Stark, who previously has offered support for waiving pay-go to pay for healthcare reform, said the cost of the permanent payment fix would be $285 billion, meaning the maneuver would reduce the score of healthcare reform by that much. The White House Office of Management and Budget (OMB) has estimated the cost of the permanent fix at $329 billion.

Congress can alter pay-as-you-go standards at any time, either through changing its internal rules or through a new law, explained Douglas Holtz-Eakin, a former CBO director who advised Sen. John McCain’s (R-Ariz.) presidential campaign.

“The baseline is constructed according to rules laid out in previous legislation,” he said. “If they decide to modify those rules, CBO must reconstruct the baseline.”

President Obama has proposed a change. He wants to elevate the congressional pay-go rules to that status of federal law, but he explicitly said the permanent fix to Medicare physician payments would be exempted from those requirements.

That would allow Congress to avoid finding offsetting tax hikes or spending cuts to pay for the fix — and to make sure the cost of this new policy would not be factored into the price of the big healthcare reform bill.

The House Democrats’ bill would “rebase” the physician payment formula to assume that Medicare spending over the next 10 years would include the new policy and the hundreds of billions of dollars in additional spending.

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That would result in a CBO score of the healthcare reform bill significantly lower than one using the old, lower baseline as a starting point, since the higher Medicare payments would no longer be included in the cost assumptions.

Nevertheless, more money would be spent than under current law, and that spending would not be explicitly offset, according to Holtz-Eakin. “The bottom line is, it is perfectly straightforward to say we’re spending this money on doctors. It is not perfectly straightforward to say this is deficit-neutral,” he said.

On the other hand, no one in the Obama or Bush administrations or in either party on Capitol Hill ever expected the physician pay cuts to take effect, making the current baseline “totally unrealistic,” explained Rudolph Penner, a fellow at the Urban Institute and former CBO director.

Rebasing the budget for Medicare physician payments adds to the deficit only “to the extent that people believe the previous baseline,” Penner said. If Congress enacts a better policy for paying physicians and a budget that more realistically projects future spending, “exempting it from a pay-go rule isn’t the worst thing that could happen,” he said.

The $285 billion in savings only goes so far. Democrats would still face huge challenges in completing a healthcare bill that does not increase the deficit but offers coverage to the estimated 47 million people without health insurance and makes reforms to lower the long-term growth in healthcare spending.

The political downside is clear: By adding an asterisk to their promises that healthcare reform will not add to the deficit, Democrats open themselves to charges of insincerity.

A spokeswoman for House Energy and Commerce Committee Chairman Henry Waxman (D-Calif.) insisted that if Congress took this route, it would still pay for a healthcare bill under CBO’s rules, which are the final arbiter on Capitol Hill of how much legislation costs.

House Democrats are looking to the Obama administration to bring down the price tag even further, Stark said.
Lawmakers and the physician lobby have tried for years to convince the Department of Health and Human Services to make technical changes to its regulations that would make a legislative fix cost substantially less under congressional budget rules.

One specific administrative change under consideration is worth as much as $87.5 billion over 10 years, according to one CBO estimate.

Currently, the formula used to set physician fees includes the cost of prescription drugs doctors administer in their offices. House Democrats — and the physician lobby — want to remove that factor from the computation, which would result in small projected future cuts and therefore less new spending to prevent them.

“The administration’s looking at a number of options we have under current authority to facilitate such reforms,” OMB spokesman Tom Gavin said.