Through words and action, President Obama set expectations that he was going to make “hard choices” on the federal budget — and health care spending was in his sights.

The president’s deficit commission last year called for dramatic changes to the Medicare and Medicaid programs. At his State of the Union address last month, Obama pledged to reduce entitlement spending.

However, the president’s fiscal year 2012 budget request largely leaves health care spending untouched. Despite a “striking” cut to HHS — the agency’s first spending reduction in its 30-year history — the proposal generally signals that Obama is pushing forward on health care reform despite efforts to strike down the law in federal court and on the House floor.

Meanwhile, White House opponents are seizing on a particularly garish figure — $1 trillion — which represents two potential weak points for the Obama administration. Under the president’s proposal, the federal budget would run a deficit at least that large for the fourth straight year. Updated 10-year spending projections on the federal health reform law also may push the deficit beyond that threshold, prompting more criticism of the overhaul’s spending.

Overhaul Efforts Largely Protected

The president’s proposal allots $79.9 billion for HHS, about $1.4 billion less than its estimated 2011 spending and $400 million less than Obama’s budget request last year. Many health-related agencies within the department saw budget freezes or cuts, but efforts to carry out the federal health reform law remain well-funded.

About $465 million of the HHS budget is tied to implementing the overhaul, with specific funding for:

• CMS: More than $300 million is earmarked for this agency, which is adding about 650 employees as it staffs up to implement the health reform law.
• Internal Revenue Service: The proposal would direct $119 million to allow the agency to hire hundreds of staff to enforce the law’s tax elements.
• HHS’ assistant secretary for public affairs: This office would roughly double from 24 to 46 full-time employees — and quadruple its budget from $4.8 million to $19.9 million — in an effort “to help Americans understand and access their benefits and information under the law,” according to an HHS budget justification. The public affairs office has become central to the White House’s effort to defend the health law in the face of Republican criticism, The Hill reports.

Other aspects of Obama’s proposal also take their origins from the health reform debate. The budget ramps up medical malpractice reform efforts by directing $250 million to the Department of Justice for supporting state-level overhauls. In comparison, the health reform law allocated just $25 million in grants to malpractice-reform pilot programs.

In one of the more controversial elements of his proposal, Obama would freeze Medicare payment cuts to physicians, after legislators failed to include a “doc fix” in the health reform law.

The proposal also scales back — but does not completely eliminate — the 1099 tax-reporting requirement in the health reform law. Under the proposal, businesses, not-for-profit groups and government offices would have to file 1099 forms with the Internal Revenue Service only when they purchase $600 or more in services from another business in a given year. In contrast, the health reform law requires businesses to file the forms for both goods and services over $600. Both parties previously pledged to strike the 1099 requirement from the health law, although efforts to repeal the provision have stalled in Congress.

Meanwhile, the estimated cost of the reform law, which the Congressional Budget Office projected to be less than $1 trillion across a decade, is bound to increase this year, as analysts account for another year of the law’s full operation.

Reaction Mixed in Health Care, Political Sectors

Beyond the immediate reaction by lobbyists and industry sectors — with health care groups applauding or decrying the budget based on how it allocates funds to their causes — conservative critics like James Capretta, a fellow with the Ethics and Public Policy Center, suggest that the plan is a “profoundly unserious budget” that doesn’t make necessary changes to rein in entitlement spending or improve health care.

For example, the IRS proposal has come under fire from Sen. John Barrasso (R-Wyo.), who says that more funding for the tax agency won’t “make care better or more available for anyone.” The decision to again push off addressing Medicare physician pay has renewed criticism that legislators will fail to make tough spending decisions that are needed to fund the health reform law. Writing in The Atlantic, Megan McArdle describes the delayed doctor payment cuts as “ever-more desperate health care budget gimmicks.”

In response, The New Republic Senior Editor Jonathan Cohn defends Obama’s proposal by suggesting that the most feasible plan to control health costs would spread the pain while seeking to encourage higher-quality care and lower costs — or “basically what the [current] health law does.”

What Comes Next

House Republicans now craft their own version of the budget, which is expected in April. GOP leaders reiterated this week that their plan will include entitlement reforms; House Budget Committee Chair Paul Ryan (R-Wisc.) has floated transformative proposals, like converting Medicare into a voucher program.

However, political reality may intrude. Major changes to Medicare or Social Security tend to prompt senior citizens to near revolt, and a dramatic overhaul of entitlements could be untenable for the GOP. A broad split between the parties could lead Congress to never enact a FY 2012 budget — just like last year, which laid the groundwork for a potential government shutdown this year.

Meanwhile, Obama’s proposal may just be an “opening bid” for White House-GOP negotiations on health care later this year, against the backdrop of a larger battle over federal funding. Leaders of both parties this week said they were open to a “serious conversation” on key budget concerns. Alice Rivlin, a former Federal Reserve official and member of Obama’s debt commission, expects Obama to use the lack of changes to entitlement programs as a “tactical move” to seek compromise.

Upcoming issues of California Healthline will continue to track the budget battle and how it affects the federal health reform law. Meanwhile, here’s a quick look at other stories making news around the nation.

In the Courts

• The multiple lawsuits challenging the constitutionality of the federal health reform law will “travel slowly” to the U.S. Supreme Court, according to Supreme Court Justice Ruth Bader Ginsburg (Moos, “Woman Up,” Politics Daily, 2/13). Ginsburg’s comments come as Virginia Attorney General Ken Cuccinelli (R) filed a formal petition last week asking the Supreme Court to quickly review his state’s lawsuit against the reform law (Kirkland, United Press International, 2/13). The U.S. Department of Justice opposes Cuccinelli’s efforts to fast-track the case, and legal experts have said that petitions for a writ of certiorari in federal cases rarely are granted if they have not first been adjudicated in a U.S. Court of Appeals (Jones, “Law Blog,” Wall Street Journal, 2/9).
• Last week, a group of 28 Republican governors sent a letter to President Obama asking for the federal government’s support in seeking an expedited review by the Supreme Court of the constitutionality of the federal health reform law’s individual mandate. They wrote that a prompt review in the high court would “help prevent the states and the private sector from undertaking potentially unnecessary measures and expenses” should the law be overturned (Bravin, Wall Street Journal, 2/9).
• Meanwhile, 73 House Democrats recently signed a letter asking Supreme Court Justice Clarence Thomas to recuse himself from any reviews of the federal health reform law because his wife had ties to lobbying efforts against the overhaul. In the letter, which was organized by Rep. Anthony Weiner (D-N.Y.), the Democrats wrote that the “appearance of a conflict of interest merits recusal under federal law,” adding, “From what we have already seen, the line between your impartiality and you and your wife’s financial stake in the overturn of health care reform is blurred” (Haberkorn, Politico, 2/9).
  In related news, Senate Finance Committee ranking member Orrin Hatch (R-Utah) recently suggested that Justice Elena Kagan also recuse herself from similar court considerations of the federal health reform law. During an interview with Fox News, Hatch noted that Kagan had served as solicitor general in the Obama administration while the overhaul was debated and enacted (Sonmez, “44,” Washington Post, 2/9).
• Last week, the Sixth U.S. Circuit Court of Appeals approved a request for an expedited review of an October 2010 ruling by a district court judge that the federal health reform law does not violate the Constitution (Sack, New York Times, 2/8). The appeals court will review a ruling by U.S. District Court Judge George Steeh in a lawsuit filed by the Ann Arbor, Mich.-based Thomas More Law Center in March 2010 (Norman, CQ HealthBeat, 2/8). The court will hear oral arguments sometime during its next session, which runs between May 30 and June 10 (Schoenberg/Harris, Bloomberg, 2/8).

On the Hill

• On Monday, Republicans on the House Rules Committee decided against allowing an amendment to the 2011 continuing resolution (HR 1) that would prevent mandatory spending of $105 billion over 10 years for the health reform law. The panel determined that the measure violates House rules that prohibit legislating on appropriations bills (Hooper, “Healthwatch,” The Hill, 2/14). Rep. Steve King (R-Iowa) said he likely will not push for a vote on the amendment on the House floor (Goldfarb, CQ Today, 2/14).
• Last week, Congressional Budget Office Director Douglas Elmendorf told the House Budget Committee that the federal health reform law would cause the national employment rate to decline by about 0.5% by 2021 because fewer people would have to work to obtain health coverage. Elmendorf cited an August 2010 CBO report, saying, “That means that if the reduction in the labor used was workers working the average number of hours in the economy and earning the average wage, that there would be a reduction of 800,000 workers” (Feder/Nocera, Politico, 2/10).

In the States

• The future of Connecticut’s SustiNet health reform law is in doubt because of the state’s large budget deficit and SustiNet’s overlapping provisions with the federal health reform law. Supporters of the program note that it will result in an estimated savings of $250 million annually through the enactment of medical homes and other reforms. Opponents say the mandates included in the program will drive up insurance costs and make the state unfavorable to businesses. The future of the program could be clearer after the state Legislature takes up the program in the next few weeks and Gov. Dan Malloy (D) releases his budget (Buck, Hartford Courant, 2/9).
• Last week, Vermont Gov. Peter Shumlin (D) introduced a bill (H 202) to abolish most forms of private health insurance and move state residents into a publicly funded insurance pool. The so-called single-payer system would provide residents with health benefits regardless of income or employment. The plan seeks to acquire federal resources that will become available in 2014 under the federal health reform law. However, Shumlin plans to seek a waiver to opt out of the overhaul’s requirements before 2017 because the state by then will have built its own exchange infrastructure. The governor’s office has not yet indicated how it will pay for the exchange, but it estimates that it will save the state $500 million in the first year (Miles, Kaiser Health News, 2/8).
• Meanwhile, about one dozen states are considering bills that would seek to nullify the health reform law. The movement has met resistance by some who are fighting the law in court and believe nullification legislation cannot supersede federal rule. Previous attempts to establish nullification laws have been dismissed or denied by U.S. presidents and the Supreme Court (Ames, Politics Daily, 2/13).

Implementing the Overhaul

• Last week, HHS proposed a new rule to ensure that all student health plans offered by colleges comply with regulations in the federal health reform law (Abelson, “Prescriptions,” New York Times, 2/9). The new rule would prohibit insurance companies from imposing lifetime cost limits on health benefits, dropping coverage because of an illness or a mistake on an application and denying coverage to students younger than age 19 because of a pre-existing health condition (Vesely, Modern Healthcare, 2/9).

 

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