Health Care Reform Implementation Update – March 7, 2014

This week President Obama released his Fiscal Year 2015 Budget Proposal, which provides useful information on his priorities for the year but, as is normally the case, is not likely to gain much traction; the administration announced a two-year extension for individuals whose health insurance plans would have been canceled due to the Affordable Care Act (ACA); Ways and Means Chairman Dave Camp released a comprehensive tax reform plan, which also is more an indicator of his party’s priorities than of policies that will become law this year; the Obama administration announced a new delay for insurance plans that are not compliant with the ACA; and lawmakers and congressional staffers continue to work to prevent the upcoming cut to Medicare providers that results from the Sustainable Growth Rate (SGR) formula.


On March 4, President Obama released his Fiscal Year (FY) 2015 Budget Proposal (the Budget).  The Budget proposes $77.1 billion in discretionary funding to support the Department of Health and Human Services (HHS). This is a decrease in discretionary funding to HHS by $0.8 billion from the enacted FY 2014 funding level. Additionally, the Budget includes $402 billion in health savings over 10 years, more than $353 billion of which comes in the form of Medicare provider cuts. The Budget also includes $1.44 billion in funding for the Center for Medicare and Medicaid Innovation (CMMI) in FY 2015, an increase of $390 million above FY 2014. CMMI is tasked with improving and updating current payment and service delivery models.

Of particular note for providers is the Budget’s reduction of Medicare “bad debt” payments. Medicare currently reimburses hospitals, physicians and other providers 65 percent of bad debts. Bad debts are debts that result from Medicare patients failing to pay deductibles or coinsurance. President Obama’s Budget proposes decreasing the percentage paid to providers from 65 to 25 over a three-year period. This change was also proposed in the FY 2014 Budget but was never put into effect.

Another provision of the Budget that would affect providers were it to go into effect is its cut to teaching hospitals and graduate medical education payments, which would amount to a decrease of $960 million in Medicare payments in 2015 and $14.6 billion over the next decade.

The President’s Budget would affect the Independent Payment Advisory Board (IPAB) as well, the board created by the ACA charged with reducing Medicare spending if it exceeds a specified target rate. The Budget changes this target rate from Gross Domestic Product (GDP) + 1 percent to GDP + .5 percent, which in simpler terms means it would reduce the extent to which Medicare spending can grow before the IPAB may step in to make changes to reduce costs. This proposed change has the potential to affect all providers depending on the types of recommendations the IPAB ultimately would make.

On March 5, the Obama administration announced another delay of the ACA. Under this new extension, those whose health insurance plans were supposed to be canceled this year will now have until 2017 to keep them. This further extends the administration’s earlier extension of these plans by an additional two years and avoids plan cancellations around this year’s mid-term elections, which vulnerable Democrats were concerned would hurt them.


Gary Cohen is leaving his position at CMS as the Director of the Center for Consumer Information and Insurance Oversight (CCIIO).  In this position, Cohen led the development of the ACA insurance exchanges. Mandy Cohen (who is not related to Gary) will become the acting Director.

The Food and Drug Administration issued proposed rules to update Nutrition Facts labels for conventional foods and dietary supplements. The regulations would make calorie counts, serving sizes and percent daily value more prominent on the labels, and the serving sizes listed would be updated to reflect the amounts of food people actually consume, which tend to be larger than those listed on nutrition labels.

On February 25, the Internal Revenue Services (IRS) released a series of educational health care tax tips to help individuals understand how the ACA may affect their taxes. In the rules, the IRS guidance provides information on premium tax credits, the health care law for individuals and the health insurance marketplaces.

A new actuarial report from the Centers for Medicare and Medicaid Services (CMS) Office of the Actuary predicts that 65 percent of small businesses will see premiums increase under the ACA. The report evaluated employers with 50 or fewer full-time employees buying outside insurance policies for their employees.

CMS posted a notice titled “Medicaid Program; Preliminary Disproportionate Share Hospital Allotments (DSH) for Fiscal Year (FY) 2014 and the Preliminary Institutions for Mental Diseases Disproportionate Share Hospital Limits for FY 2014.” Disproportionate Share Hospital Allotments (DSH) payments refer to the federal law that requires state Medicaid programs to make payments to qualifying hospitals serving a large number of Medicaid and uninsured individuals. Under the ACA, DSH funds were to be cut this year; however, those cuts were delayed in December (2013) for two years. The preliminary allotments, which vary by state, total $11.7 billion.


Though congressional leaders have nearly dismissed the possibility of tax reform in 2014, House Ways and Means Chairman Dave Camp (R-Mich.), who put significant work into advancing tax reform with Former Senate Finance Chair Max Baucus last year, released a draft tax reform proposal this week. The plan would reduce the number of tax brackets from seven to two and lower the corporate income tax rate from 35 to 25 percent. With respect to the ACA, the plan would repeal: 1. the ACA’s tax on medical devices; 2. the law’s prohibition on using health spending accounts to buy over-the-counter medicine; 3. the ACA tax credit for small employers, which allows small businesses to claim a credit for up to two years if it pays at least half of employees’ health insurance premiums and purchases coverage through a state exchange; and 4. the ACA’s tax exemption for Consumer Operated and Oriented Plans (CO-OPs), which are entities that compete as nonprofits in the health insurance market.

On March 5, the House voted 250-160 to delay the individual mandate until 2015. Twenty-seven Democrats joined Republicans to vote for the delay.

On February 25, Sens. Mitch McConnell (R-Ky.), John Cornyn (R-Texas), John Thune (R-S.D.), John Barrasso (R-Wyo.), Jerry Moran (R-Kan.) and Roy Blunt (R-Mo.) sent a letter to HHS Secretary Sebelius expressing their concerns over the changes to Medicare Advantage and the Medicare Part D program (the Medicare drug benefit program) the Department is considering.

The Medicare Payment Advisory Commission (MedPAC), the independent body that advises Congress on issues affecting the Medicare program, is meeting on March 6 and 7. The meeting is broken into the following sessions: Site-neutral payments for select conditions treated in inpatient rehabilitation facilities and skilled nursing facilities, next steps in measuring quality across Medicare’s delivery systems, developing payment policy to promote use of services based on clinical evidence, per-beneficiary payment for primary care, synchronizing Medicare benchmarks across payment models, and improving risk-adjustment in the Medicare program.

The Medicaid and CHIP Payment and Access Commission (MACPAC), the non-partisan federal agency charged with providing policy and data analysis to the Congress on Medicaid and CHIP, is next scheduled to meet on April 10 and 11. We will provide further information on the agenda as it becomes available.


Pennsylvania Governor Tom Corbett agreed in a letter to Secretary Sebelius that he would back off the component of his Medicaid expansion proposal that would require able-bodied beneficiaries without full-time work to participate in an employment program as a condition of their health coverage. The Governor instead proposed a pilot program to encourage those who are able to work to participate in job training and work opportunities without making this a condition for eligibility. Participation in this voluntary program would lower participants’ premiums and cost sharing.

On March 4, the Arkansas state House voted to continue allowing the state to use Medicaid dollars to buy private health care insurance for poorer residents. This was the state House’s fifth attempt to pass such legislation, which as a spending bill requires a 75 percent supermajority to pass in Arkansas. The state Senate voted 27-8 last month approve the measure.

To view our compilation of recent health care reform implementation news, click here.

To view and search our library of Health Care Reform Implementation Updates, visit our Affordable Care Act Databook.

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