The Golden State’s deficit is nearing $16 billion. Lawmakers are counting on new taxes that may never come. The state’s obligations are enormous, even as public-sector cuts mean that social services are being stretched thin.
It’s a microcosm of the budget wrangling happening on a national level. But the fiscal debate in liberal-leaning California looks tame next to the arguments in Washington, D.C., where Republicans have pushed for austerity measures that would dramatically cut social programs favored by Democrats.
Those fights are again front-page news, after Mitt Romney this weekend added House Budget Committee Chair Paul Ryan — the architect of plans to reshape Medicare and Medicaid — to his presidential ticket.
As of press time on Wednesday, there had been a few days of frenzied discussion over the details of Ryan’s health proposals and where they differ from President Obama’s existing reforms.
But looking ahead to November’s election, the issue shouldn’t be who’s cutting Medicare more, Anthony Wright, director of Health Access, told California Healthline.
“It’s a debate over whether we want to control [health] costs or shift costs.”
Existing ACA Reforms Built Around Government Intervention
According to the White House, the Affordable Care Act falls squarely in the first camp: It’s a necessary reform to bring down health cost growth while simultaneously expanding coverage, the Obama administration says.
As designed, those cost controls are driven by a government-led approach. For example, the ACA’s mandate is intended to force more young, uninsured Americans to purchase health coverage, in hopes of cross-subsidizing the costs of expanding coverage to millions of older and sicker Americans, too. The federal government also cuts Medicare spending by more than $700 billion across a decade, through programs like the Independent Payment Advisory Board, while piloting initiatives that test new payment models like accountable care organizations.
Supporters of the ACA argue that its benefits to states are clear. Just look at its impact on California, they say: A 2011 Health Affairs study found that an additional 3.4 million state residents would gain coverage through its reforms, while a recent Bay Area Council Economic Institute report concluded the law would have created 100,000 jobs across California.
Yet many of the ACA’s pilot programs are untested. And there are real questions as to whether the U.S. recession has led to a temporary slowdown in health costs, with spending poised to spike again as the economy recovers and millions of Americans receive new health coverage through the ACA.
Ryan Approach More Focused on Consumer Decisions
Meanwhile, Ryan’s proposals focus more on cost-shifting health decisions to the consumer. Alain Enthoven — a Stanford professor and the author of the influential managed competition model, which took root in California — has defended Ryan’s reforms for trying to “give everyone an incentive to behave in a more economical way.”
For example, Ryan’s Medicare proposal involves transitioning the program into a “premium support” system, where beneficiaries could either purchase coverage on the private market or maintain traditional Medicare coverage.
Ryan also has advocated transforming Medicaid into a block-grant system, which would give states the power to design their own programs and decide on eligibility — in theory, allowing them more flexibility to care for residents and achieve cost savings. Both proposals have passed the Republican-controlled House, although they have stalled in the Senate.
There’s little indication that either of Ryan’s cost-cutting proposals would be successful in practice. Shifting more health costs to consumers may slow their health care utilization, as demonstrated by a well-known RAND study, but there’s no evidence that it would ultimately slow costs, as patients may put off routine care that could later manifest as expensive emergency conditions. And it’s unclear if block-granting state Medicaid programs offers any real benefit; a similar approach piloted by Rhode Island failed to demonstrate clear savings.
Critics of the Ryan plan, like Health Access’ Wright, also say it would have a devastating impact on California. For example, researchers from the Urban Institute in 2011 prepared a Kaiser Family Foundation brief that analyzed Ryan’s fiscal year 2012 proposal. The differences between Obama’s reforms and Ryan’s proposed cuts were stark, they found.
Compared to the ACA’s infusion of state funds, the authors projected that Ryan’s changes would cut federal spending on California’s Medicaid program by about one-third across a decade. The trickle-down effects would lead to 47% of Medi-Cal enrollees losing coverage between 2012 and 2021, researchers projected.
Getting to November
But Ryan’s past may not be prologue to what Republicans would do in the White House.
Regardless of what the Romney-Ryan ticket articulates on the budget, it likely won’t affect Californians’ vote. According to state polls, Obama has consistently held a double-digit lead on any Republican challenger since last year.
But whoever wins the White House this fall will decide whether billions of dollars in federal funds come to — or go away from — the Golden State.
Here’s what else’s is happening around the nation.
Rolling Out Reform
- Several provisions in the federal reform law and the 2009 economic stimulus package are designed to authorize Medicare and Medicaid officials to track and reject payment claims for unnecessary procedures, much like those detailed in a recent internal probe by the hospital group HCA. Under the ACA and the stimulus law, payment incentives will be revised and physicians will be encouraged to use electronic health records to restrict unnecessary medical testing. In addition, private insurers and the federal government will be able to collaborate and share data to identify trends in overused procedures (Kennedy, USA Today, 8/8).
- Although many U.S. residents received rebate checks from their health insurers last week under the ACA’s medical-loss ratio rule, millions of others whose employers received the funds are waiting to see how the money will be used. The ACA gives employers three months to decide how to spend the rebates, which must be used in a manner that benefits their employees’ health or health coverage (Bernstein, New York Times, 8/9).
- Although the “vast majority” of U.S. residents will not pay additional taxes because of the ACA, a “hodgepodge of smaller tax changes” will help finance the health reform law. Such “taxes, fees and shrunken tax breaks” will bring in $675 billion over the next 10 years. The “biggest chunk” of that money — $318 billion — will come from the 2% of U.S. residents with annual incomes over $200,000 for individuals and couples with annual incomes of more than $250,000 (Cass, AP/San Francisco Chronicle, 8/9).
- The Internal Revenue Services‘ ambiguous definition of “affordable” health coverage under the ACA could have “huge practical consequences” for millions of U.S. residents, who would not be able to afford family coverage but would not qualify for subsidies under the law. Critics say IRS should factor in the costs of covering dependents because family coverage typically costs more (Pear, New York Times, 8/11).
Challenges to Reform
- In a letter sent last week to HHS Secretary Kathleen Sebelius, two Republican leaders on the House Energy and Commerce Committee requested more information about a demonstration program under the federal reform law that provides quality bonus payments to Medicare Advantage plans. In the letter, the committee leaders — Rep. Fred Upton (R-Mich.), the committee’s chair, and Rep. Cliff Stearns (R-Fla.), chair of the subcommittee on oversight and investigations — said that they requested information about the demonstration program in March and have not yet received an adequate response from HHS (Baker, “Healthwatch,” The Hill, 8/9).
In the States
- Last week, CMS Deputy Director Cindy Mann said states can decide to participate in the ACA’s Medicaid expansion but drop out at a later time. Speaking at a National Conference of State Legislatures summit in Chicago, she clarified that the expansion “is voluntary with states.” Mann’s statements come after the U.S. Supreme Court in June ruled that states can opt out of the Medicaid expansion without any effect on current funding (AHA News, 8/7).