The New York Times reported today that the cost of health plans for New Yorkers shopping in the exchange will fall 50%.  Yes, yes, there are some factors about New York that make it unique and contribute to this outcome (you can read about them here), but let’s stop for a minute to just think about the policy and rhetorical world we have entered.

The NY Times article contains the following quote:

“We’re seeing in New York what we’ve seen in other states like California and Oregon – that competition and transparency in the marketplace are leading to affordable new choices for families”  — Joanne Peters, spokeswoman for HHS.

That’s a Democrat at HHS championing the wonders of market competition for health care. If you go back just a decade, you’d be hard pressed to find such enthusiasm among Democrats for market competition in health care.  But what I find even more interesting is the fact that conservative critics like Avik Roy are trying to refute or downplay this report.  I can only imagine the excitement that would have accompanied a front page NY Times article in the pre-Obamacare days that seemed to point to the giant savings delivered by market competition in health care.  

What a political world Obamacare has created.

Humana Intraday Trading, April 1, 2013

CMS didn’t released final notice on Medicare Advantage rates until around 4:15pm. Stock JUMPS at 3:45. Some really smart people out there…?

So last week I wrote about the bipartisan effort to increase the Medicare Advantage payment rate for CY2014.  On February 15, CMS published its advance notice of the MA payment rates.  What they announced was a 2.3% reduction.  This raised some strong protests.

About an hour ago, CMS announced their final notice.  In this final notice, instead of seeing a decrease of 2.3%, the payment rates will increase by 2.96%.  That’s quite a swing.

So how’d it happen?

Let’s go back to a February 28 hearing before the Finance Committee. Testifying before the Committee that day was Jonathan Blum, Acting Principal Deputy Administrator and Director at CMS.  Sen. Hatch questioned Blum regarding the payment cuts called for in CMS’s advance notice of February 15th.  Hatch acknowledged that some of the cuts were governed by the statute, but also pointed out the CMS had considerable discretion over many of the policies that resulted in rate reductions.  Sen. Hatch’s specific question was whether Blum felt that it was within CMS’s discretion to assume that Congress would address the schedule physician payment cut.  Hatch remarked that assuming that Congress would fail to patch the scheduled physician payment cut – the “doc fix,” as it is known – has historically resulted in unrealistically low MA rates.

Blum responded to Sen. Hatch by saying that it is CMS’s long-term policy not to assume the cost of the Sustained Growth Rate (SGR) fix to the MA rate notice.  But he acknowledged that CMS had received comments asking them to take a second look.  And take a second look they did.

In CMS’s final rate notice it states that the “basis for the Growth Percentage for 2014 has been changed to incorporate an assumption that Congress will act to prevent the scheduled 25-percent reduction in Medicare physician payment rates from occurring.”  This reverses the long-term policy that Blum described to Sen. Hatch.  The rate notice goes on to say that the Office of the Actuary has been directed by the Secretary to use this assumption, but that “the assumption conflicts with the Office’s professional judgement that, as in all past years, the determination should be based on current law, not an assumed alternative.”

As reported by Politico’s Jennifer Haberkorn (I would link to it, but it’s behind a paywall), a group of more than 120 Democrats and Republicans followed Baucus and Hatch’s lead in lobbying CMS to to reconsider the rate cut announced in CMS’s advance notice.  The lobbying efforts by Congressmen and industry were successful in getting CMS to reverse its long-term position on rate setting, a move that CMS’s Office of the Actuary disagreed with, and alter the payment rate from a reduction of 2.3% to an increase of 2.96%. Bipartisanship!!

In his acceptance speech at the 2012 Democratic National Convention, President Obama stated clearly and concisely, “And I will never turn Medicare into a voucher.”  But what about Medicaid?

Developments in Arkansas, Ohio, and Florida provide evidence that the Obama administration’s hard stance against vouchers in Medicare doesn’t extend to Medicaid.  Christine Vestal at Stateline reported on Friday that the federal government appears likely to sign off on Ohio and Arkansas’ plan to place those persons made eligible for Medicaid by Obamacare (persons between 100-138% of poverty level) into health exchanges to buy private insurance.  (You can read my previous posts on that topic here and here, as well as other informative writing on Medicaid expansion here and here.)

Health News Florida also reports that the Obama administration signaled its receptiveness to Florida’s similar plan for Medicaid premium support.  (Read more on Florida here.)

The contrast between the Obama administration’s hard stance against Medicare vouchers and its demonstrated openness to offering vouchers for a portion of the Medicaid population provides an interesting window into the different politics of Medicare and Medicaid.  This episode illustrates why supporters of Medicare fight so hard against means-testing, for it is the health insurance program for the poor that seems more vulnerable to retrenchment than its companion program for the elderly.  This seems to validate the fear that if Medicare was fragmented by income group, it too would become vulnerable to cuts or reorganization.

The history of American social policy is dotted with examples of social policies that are perceived to disproportionately benefit the “undeserving” struggle for political support and stability. (For a fantastic read on this topic, see Theda Skocpol’s Protection Soldiers and Mothers, Harvard 1992.  In it, we see how the United States was a leader in providing social insurance among advanced industrial countries, but did so only for the “deserving,” women, children, veterans, and the elderly.)

Just think back to the rhetoric and energy that was prevalent in the discussions surrounding the Ryan Budget’s Medicare premium support/voucher proposal.  In the articles and discussion of the Arkansas/Ohio/Florida Medicaid expansion strategy, you would be hard pressed to see or hear anyone using the words premium support, let alone vouchers.  The contrasting level of political organization and reaction to introducing vouchers in these two programs is quite interesting – and a little sad.

When a strong public institution/policy cannot be dismantled or repealed through a frontal assault, opponents can find alternative means and strategies to achieve their ends.  Political scientists have identified a number of strategies by which “incremental” change can be pursued.  The one that seems relevant for our discussions of the recent Medicaid voucherization proposals is Layering (Schickler 2001; Streeck and Mahoney 2005; Thelen and Mahoney 2010).

If you can’t directly get rid of a massive entitlement program that has popularity and a large support constituency, layer a private alternative beside it, and let the private alternative eat into the support and continued viability of the public option. 

From Streeck and Thelen (2005; 23): “While the established public system may well be unassailable, faster growth of the new private system can effect profound change, among other things by draining off political support for the public sector.”

Dramatically increasing the availability of health insurance by covering those people between 100% and 138% of the poverty level is a fantastic achievement.  We must, however, be mindful that doing so in a way that fragments support for public health insurance makes the spending cuts that have been fought off in the past more likely to succeed in the future.

Streeck and Thelen continue to describe why layering can be such an effective tool in policy and institutional change: “Since layering is not seen as a direct assault on the existing program, they typically do not provoke counter mobilization by defenders of the status quo.”

Fundamental change in our entitlement programs will begin just as this Medicaid expansion did – relatively quietly and out of the direct public glare.  

Perhaps Democratic politics are changing, and the Obama administration has decided that they are willing to trade expanded coverage for a larger and fundamentally different role for private plans within our public health insurance programs.  Or perhaps the Obama administration just needs to re-read their copy of Streeck and Thelen. 


In a letter written last week to Acting Administrator Tavenner, Senators Baucus (D-MT) and Hatch (R-UT) expressed their support for Medicare Advantage and urged CMS to revise the rate notice issued on February 15, 2013 that would reduce Medicare Advantage payments.

“We support the participation and growth of high quality private plans in Medicare and believe they should continue to offer a diverse set of options for beneficiaries across the country.”

Witness the achievement of bipartisanship on healthcare spending – amazing.  Who said Washington was mired in gridlock?  The trick?  When it comes to spending lots of federal dollars on private insurance, and does so in a way that favors rural constituencies, bipartisanship can be achieved. [This is, of course, a simplification of a policy evolution that has been going on for four decades, but, in the last decade, Republicans have thrown aside goals of cost containment to embrace Medicare Advantage, and rural Democrats (e.g. Sens. Wyden, Cantwell, Baucus) have similarly become champions of a program that brings considerably more dollars to their states than traditional Fee-For-Service Medicare – thanks to rural floor payment rates.  In 2009, extra payments to rural floor counties was 13.9% of FFS.]

For the record, even with the cuts in CMS’s initial rate notice, payments to Medicare Advantage plans for 2013 will be 104% of spending on traditional Fee-For-Service Medicare – with the likelihood that payments would be higher when star-rating bonus payments are included.  Ah, the efficiency of market solutions.

Don’t get me wrong, I think there is a place for Medicare Advantage within the Medicare program, but it’s hard to deliver on the promises of market-oriented policies when the incentives for private plans to innovate and deliver superior care are skewed by overpayments.

Between 2004-2009, the first five years of Medicare Advantage, the program spent $44 billion dollars more on health coverage for seniors than if those seniors were enrolled in traditional Medicare.  It is a program that erodes the universality and original philosophy of a single-payer health insurance program for seniors.  Yet, here we are with bipartisan support for not only its continued expansion, but also for the continuation of extra payments.


The Democratic embrace of vouchers continues…

On Monday, a Florida Senate panel joined their colleagues in the House in rejecting Governor Scott’s Medicaid expansion.  Just as a reminder, Scott’s plan would have placed those beneficiaries made eligible for the Obamacare Medicaid expansion into Medicaid managed care plans.

Like the House, the Florida Senate is now working on a counter proposal that would introduce vouchers into Medicaid.  It’s not clear exactly how this would work, but it has been suggested that it could work in a similar manner to Florida Healthy Kids Corp., where parents pay co-pays and premiums based on their income (update: Sen. Negron puts forward a concrete plan.  So unlike the Arkansas model, the early stages of the Florida proposal would not have the added benefit of requiring the construction of an exchange.  The Florida model could operate in absence of an exchange.  This fact, would likely make the Obama administration less likely to go along, but the Florida Senate’s proposed plan is still important for the window into Republican and Democratic thinking it provides.

According to an AP report, Democrats in the Florida Senate met the Republican proposal with enthusiasm, saying that Republicans could call it whatever they wanted as long as they were willing to accept the estimated $51 billion from the federal government to expand health insurance to more Floridians.

Democrats are showing themselves open to accepting a role for vouchers if vouchers can serve as the carrot necessary to entice Republicans into expanding health spending.  The Florida Democrats are not the first to demonstrate such flexibility.  A trade of vouchers for Medicaid expansion was first tentatively agreed to three weeks ago by the Obama Administration and Gov. Mike Beebe of Arkansas.

Democratic willingness to move on vouchers shows that Republican intransigence is, indeed, having an impact on moving the policy debate to the right.  The policy pragmatism of the Democrats is understandable, and in many ways admirable in this time of partisan gridlock, but this policy pragmatism could prove to be a political and policy nightmare down the road for Democrats.