Obama health bill hid $30 billion in Medicaid costs, critics say

Jon Ward | Contributor

Call it Doc Fix 2.0.

The federal government already has the “Doc Fix,” an annual shortfall of about $20 billion that must be paid to maintain current payment rates to physicians under Medicare.

Now, it looks like President Obama’s health-care bill created another funding cliff, costing an additional $5.5 billion or so each year.

Critics say the costs were hidden from view in the $940 billion health-care bill to lower the price tag by about $30 billion, and also as a way to gain the support of doctors and hospitals without angering governors.

The recently passed bill mandated that, starting in 2013, state governments must pay primary care physicians the same amount for Medicaid recipients, who are mostly poor, as it does for Medicare recipients, who are mostly elderly.

Low Medicaid reimbursement rates have cut down on the number of physicians that will even see poor and indigent recipients in the first place.

Some states pay doctors and hospitals about the same rates for Medicaid as they do for Medicare. But states with some of the largest Medicaid populations – New York, New Jersey and California – pay some of the lowest rates for Medicaid.

New York pays primary care doctors 36 percent of the Medicare rate for Medicaid, while New Jersey pays 41 percent and California pays 47 percent, according to the Kaiser Foundation’s statistics.

All three of these states already have enormous mid-year budget shortfalls at the moment: New York’s is $3.2 billion, New Jersey’s is $2.2 billion and California’s is $6.6 billion, according to the Center on Budget and Policy Priorities, and are facing even larger deficits in the 2011 fiscal year that begins in July (New York is alone in that its fiscal year begins on April Fool’s Day).

And Medicaid already costs enormous amounts of money: in Fiscal 2007 (the most recent year available on the Kaiser Foundation’s Web site) New York spent $22 billion of what is now an $80 billion budget on the program, New Jersey spent $4.5 billion out of what is now a $32 billion budget on it, and California spent $18 billion out of what is now an $87 billion budget on Medicaid.

The health bill says that the federal government will pay the extra cost of paying higher rates for Medicaid patients. But only for two years: 2013 and 2014.

The cost for those two years of federal spending is $8 billion, according to the Congressional Budget Office.

So in 2015, the federal government will either step in and pay the extra charges, as they’ve done with the Doc Fix, or they will force states to take on the extra costs.

“It’s hard to say which is worse: intentionally hiding $29 B of spending, or intentionally creating a funding cliff. I’ll call it a tie,” said Keith Hennessey, former director of the White House National Economic Council under President George W. Bush, in a recent blog post.

Hennessey calculated, based on a November 2009 CBO estimate, that the cost of the higher Medicaid payments would be about $5.5 billion a year.

State officials in Indiana and Louisiana — which pay 61 percent and 90 percent of Medicare rates for Medicaid, respectively — have complained about the new provision.

Health officials in the state governments of New York, New Jersey and California either did not respond to a request for comment Wednesday or said they were unable to respond in just a few hours to questions about such a complicated issue.

The White House also did not respond to numerous requests for comment on why the increased Medicaid obligations were funded for only two years in the health bill.

“The political brilliance of this is that when the move comes to extend it, I assume the governors will be on board because it doesn’t cost them anything,” Hennessey said in an interview. “They figured out a way to reward the doctors without upsetting the governors.”

Governors were given the ability in the 1990s to set Medicaid payment rates themselves, around the same time that President Bill Clinton and a Republican-controlled Congress passed legislation cutting Medicare payments to doctors.

Those Medicare payment cuts have created the “Doc Fix” problem. Fearing that Medicare patients would face the same problems finding care that Medicaid patients have encountered, and under pressure from the American Medical Association, Congress has repeatedly authorized annual legislation that pays back the cuts to keep the doctors happy.

The cost of the Doc Fix over the next 10 years is $208 billion, according to the CBO.

Republicans such as Rep. Paul Ryan, of Wisconsin, argued that the Doc Fix should be included in the cost of the health bill, which was scored by the CBO as reducing the deficit by $143 billion over the first 10 years.

The GOP also came under fire after it distributed a memo that purported to be from Democratic congressional leadership and spoke of a deal between the White House and the AMA to approve another Doc Fix this spring in return for the AMA’s support for the health bill, but could not then verify where it got the memo.

Democrats charged that the memo was a hoax.

Nonetheless, if Congress again approves Doc Fix again this year, it will guarantee that Medicaid payments will also need to raise to that same rate, guaranteeing the presence of Doc Fix 2.0 in 2015.

“For a lot of states section 1202 will not be a problem,” said Edmund Haislmaier of the Heritage Foundation in a blog post, “but for some — especially New York — it triggers a countdown to a state budget fight in five years.”

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