How Dem Health Care Bill Could Quadruple the Payroll Tax

Senate Majority Leader Harry Reid is expected to emerge early this week with a composite version of a health care bill that increases penalties on employers and includes a government plan, the Wall Street Journal reports.

Unlike the other Democratic bills, the Senate Finance Committee bill did not include a strict mandate requiring that all employers provide health insurance, but it did include a provision that would fine employers who did not offer insurance to workers who ended up purchasing insurance using a government subsidy. This is sometimes referred to as the “free rider” provision. The Finance Committee bill devised a complicated mechanism in which businesses with more than 50 employees have a choice to pay the lesser of the following: the cost of any subsidies paid by the government to any employees, as determined each year by the Secretary of Health and Human Services, or a dollar fine on every employee at the firm, regardless of how many of those employees qualify for subsidies.

If you’re confused, the draft of the bill described it pretty clearly. While the basic structure would remain inact in the new negotiated version if reports are correct, the fine per employee would rise to $750 from $400:

“For example, Employer A, who does not offer health coverage, has 100 employees, 30 of whom receive a tax credit for enrolling in a state exchange offered plan. If the flat dollar amount set by the Secretary of HHS for that year is $3,000, Employer A should owe $90,000. Since the maximum amount an employer must pay per year is limited to $400 multiplied by the total number of employees (for Employer A, 100), however, Employer A must pay only $40,000 (the lesser of the $40,000 maximum and the $90,000 calculated fee).”

The fines would in effect represent a substantial increase in the payroll tax, the magnitude of which would be determined by the mix of low-income workers at a given business. But let’s just use an example of a worker earning between 150% and 200% of the federal poverty level, or an income of about $20,600. That person could qualify for government subsidies of up to $4,400, according to analysis by the Congressional Budget Office. If the employer were forced to reimburse the government for those costs, it would raise the price tag of employing that worker by 21 percent. Given that businesses currently pay a 6.2 percent payroll tax on every worker, the new fines could bring the effective employer share of the payroll tax to about 27 percent for low-income workers, or more than quadruple what it is today.

The major problem wiith this disastrous proposal should be obvious to anybody with an inkling of understanding of economics. If you make it more costly for businesses to higher lower-income workers, they won’t hire as many. Simply put, if the federal government set out to create a program designed to increase the unemployment rate among the working poor, it would be hard to come up with anything better than this.

“60 Minutes” to Take on Medicare/Medicaid Fraud

On the main site today, I have a piece up about how the rampant fraud in Medicare and Medicaid undermines the Democrats’ argument that we need a new government-run health program to increase efficiency. This Sunday, “60 Minutes” will tackle the issue, according to the CBS site:

MEDICARE/MEDICAID FRAUD – Medicare and Medicaid fraudsters are cheating U.S. taxpayers out of an estimated $90 billion a year using a billing scam that is surprisingly easy to execute. Steve Kroft investigates. Ira Rosen and Joel Bach are the producers.

Medi-Fraud for Everyone

Guillermo Denis Gonzalez was released from prison in Florida in 2004 after serving 12 years for murder. By the end of 2006, he owned a health care business officially licensed by Medicare.

This August, the Miami Herald reported that Gonzalez pled guilty to filing $586,953 in phony Medicare claims for supplies that were never given to any actual patients — but this was only after he was arrested for murdering and dismembering another victim, to which he also confessed.

While it’s shocking that government policing efforts are so lax for Medicare that even a convicted murderer can be granted a license to sell equipment and file claims, Gonzalez is actually a small player compared to other cheats. Last June, for instance, the Washington Post ran a story about a high school dropout who scammed $105 million from the federal government by filing 140,000 fraudulent Medicare claims, buying herself a Mercedes-Benz and two condominiums with a portion of the proceeds.

The rampant fraud in existing government health care programs is nothing new, but the problem warrants increased attention given recent reports of growing momentum behind Democrats’ push to create a new government-run program modeled after Medicare.

Earlier this week, the Hill reported that House Democrats were discussing rebranding their so-called “public option” as “Medicare Part E,” or “Medicare for Everyone,” in hopes that it would be an easier sell. And on Thursday, ABC News cited sources who said that Senate Majority Leader Harry Reid planned to include some form of a government plan in Senate legislation.

“I thought the government plan was dead,” Republican Sen. John Thune said during a Wednesday conference call with bloggers. “I don’t think that anymore.”

Proponents of creating a new government plan argue that Medicare is much more efficient than private insurance and boast that it has administrative costs of just two percent. The number is highly misleading in that it doesn’t include many expenses that would be considered when calculating administrative costs in the private sector, because those expenses show up elsewhere in the federal budget. Examples include the cost of tax collection, office space, and staff salaries. The true administrative cost of Medicare is more like 6 percent to 8 percent, according to a 2006 report by the Council for Affordable Health Insurance. But to the extent that Medicare does have lower administrative costs than private insurance, the programs’ defenders ignore one of the consequences: lax oversight of claims that leads to widespread fraud.

Ironically, President Obama has insisted that he will cut several hundred billion dollars out of Medicare’s budget without affecting benefits simply by eliminating waste, fraud, and abuse — yet he simultaneously makes the case that creating a new government plan is necessary to improve efficiency in the health care system.

“He’s kind of put himself in a box,” said Jim Frogue of the Center for Health Transformation, editor of the book Stop Paying the Crooks: Solutions to End the Fraud That Threatens Your Healthcare. Obama’s argument, Frogue said, is “yes, there’s tons of fraud in these programs — massive amounts — but let’s create another one just like it. Now that’s a very tough position to make sense out of.”

There are tremendous difficulties in measuring precisely how much of money is lost to fraud in Medicare and Medicaid. Some estimates put the number at around $60 billion, while Sen. Tom Coburn has argued that it’s at least $100 billion, perhaps even double or triple that. Coburn based his figures on an estimate from health care fraud expert Malcolm Sparrow of Harvard University, who has said — at the low end — 10 percent of the roughly $1 trillion in spending on government health care programs may be lost to fraud.

“By taking the fraud and abuse problem seriously this administration might be able to save 10 percent or even 20 percent from Medicare and Medicaid budgets,” Sparrow said in May testimony before the Senate Judiciary Committee. But to accomplish this, Sparrow explained, the government would have to boost anti-fraud spending to as high as 2 percent of the cost of the programs from the roughly 0.1 percent now dedicated to the task.

At least anecdotally, accounts of massive fraud cases appear regularly in the news, and they are staggering.

In 2006, the Los Angeles Daily News wrote about the indictment of a Russian-Armenian crime syndicate “that gutted Medicare of more than $20 million using a network of clinics, paid kickbacks to marketers for patient referrals and billed Medicare for tests that were unnecessary or went undelivered.” And the Associated Press recently found that the mafia is increasingly resorting to Medicare fraud as a substitute for dealing drugs.

“Building a Medicare fraud scam is far safer than dealing in crack or dealing in stolen cars, and it’s far more lucrative,” the AP story quoted Lewis Morris, a lawyer the Department of Health and Human Services, as saying. There’s also a lower likelihood of getting caught, and even if caught, the penalties are much lighter.

Scam artists often file fake claims by paying people for their Medicare numbers or somehow acquiring lists of beneficiaries. In some cases claims have been filed by dead doctors, or on behalf of patients who were dead or deported at the time of the claim. In his testimony, Sparrow noted a July 2008 study by the Senate Permanent Subcommittee on Investigations that found from 2000 to 2007 “between $60 million to $92 million was paid for medical services or equipment that had been ordered or prescribed by dead doctors.” 

By contrast, only about 1.5 percent of private health care claims are lost to fraud, because private insurers are more aggressive about policing claims, Merrill and Meredith Matthews write in a chapter of Stop Paying the Crooks.

Frogue said that Medicare and Medicaid fraud can’t be addressed by law enforcement, because it’s too expensive to prosecute and imprison the cheats, and by the time they get caught the stolen money has likely disappeared. Instead, he said that the government had to do a better job at the front end, through such measures as thorough background checks before licensing Medicare vendors. He also suggested that the government should flag the top half-percent of Medicare spenders to make sure their claims are legitimate. As evidence that it’s possible to police for fraud, Frogue pointed out that the credit card industry handles about $2 trillion in transactions a year — about the same as the health care sector — yet card fraud is less than 1 percent.  

Unfortunately, despite Obama’s talk about eliminating fraud in government health care programs, legislation currently making its way through Congress does very little to address the problem.

“They’re not even close to scratching the surface,” Frogue lamented.

Instead, Democrats are pushing for the creation of a massive new government health care plan that will be a magnet for criminals everywhere.

AARP Also “Deeply Disappointed” By Defeat of “Doc Fix”

The AARP, which allied with the American Medical Association to push for the $247 billion bill to prevent scheduled cuts to doctor’s payments, also expressed disappointment at today’s failed cloture vote:

“On behalf of our 40 million members, AARP is deeply disappointed that legislation to preserve seniors’ access to their doctors was blocked in the U.S. Senate today, proving once again Washington lawmakers would rather play political games than protect the needs of seniors.

“The Senate’s failure to fix the flawed doctor payment system means that payment rates for doctors in Medicare could be cut by 21.5 percent in just a few months.  Short-term patches to preserve physician pay make the access problem worse by undermining doctors’ confidence in the Medicare program.

 “AARP supported this bill because it would have given Medicare patients the certainty they deserve in knowing that access to their doctors would be preserved.  Despite today’s setback, AARP will keep fighting for a legislative solution that will protect seniors’ access to their doctors and ensure they can get the care they need to stay healthy.”

Don’t Get Too Excited

Conservatives celebrating today’s defeat of Harry Reid’s push for a separate $247 billion health care bill should keep things in perspective.

While a cloture vote on proposed legislation that would have prevented scheduled cuts to Medicare doctors’ payments over the next 10 years failed badly — with 13 Democrats joining all 40 Republicans — ultimately, the money is likely to be spent down the road anyway.

Even before the vote, Reid indicated that Democrats would proceed with a provision already in the Senate Finance Committee bill that would prevent the scheduled cuts from happening for one more year, and then revisit a more permanent “doctor fix” next year, by which time they already expect to have passed the broader health care legislation.

And if he can’t get a permanent bill passed next year, then Congress will most likely continue to vote each year to avoid scheduled cuts, as they have done every year since 2003. Remember, even Republicans are for spending this money, but their only objection was about the need to find offsetting spending cuts.

The bottom line is that one way or another, these scheduled cuts are not going to happen, and hundreds of billions of dollars will be spent.

The way that this vote could end up affecting the overall health care debate is if it means that the AMA, which said it was “deeply disappointed” by the outcome, ultimately comes out against the final health care legislation, or if it’s predictive of Democrats’ lack of party unity on health care in general.

AMA “Deeply Disappointed” By Failed “Doc Fix” Vote

The American Medical Association, which lobbied hard for the $247 billion health care bill, released the following statement in reaction to the failed cloture vote. It’s unclear how this will affect their overall support for health care legislation, but it’s worth noting that the statement does emphasize that, “Permanent repeal of the Medicare physician payment formula is essential to comprehensive health system reform.”

Here’s the full statement, attributed to AMA President J. James Rohack:

“The AMA is deeply disappointed that the Senate today blocked consideration of S. 1776, legislation to preserve access to health care for America’s seniors, baby boomers and military families. Senator Stabenow is a long-time champion for patients and physicians, and the AMA, AARP and MOAA strongly supported her bill that would have laid the foundation to permanently fix the Medicare physician payment formula and keep Medicare strong as millions of baby boomers enter the program in just two years.

 “As we work to improve the health system, permanent repeal of the payment formula is essential to ensuring the security and stability of Medicare. On January first, Medicare physician payments are scheduled to be cut by 21 percent, with more cuts in years to come. Nearly 90 percent of people age 50 and older are concerned that the current Medicare physician payment formula threatens their access to care.

 “While short-term fixes have temporarily averted widespread access problems, they have also grown the size of the problem — and the cost of reform. The AMA is committed to fixing the Medicare payment problem once and for all for seniors, baby boomers and the physicians who care for them.

“There is widespread agreement among Republicans and Democrats that the formula is broken and needs to be repealed. Congress created the Medicare physician payment system, and Congress needs to fix this problem once and for all to fulfill its obligation to seniors, baby boomers and military families.  Permanent repeal of the Medicare physician payment formula is essential to comprehensive health system reform.”

Colture Vote Fails on “Doc Fix” Bill, 47 to 53

Senator Harry Reid’s attempt to move $247 billion in health care spending to a separate bill has failed, as he came far short of the 60 votes needed to cut off debate and proceed to vote.

In fact, the cloture vote on the bill to prevent scheduled cuts to Medicare doctors’ payments without offsetting spending cuts or new tax revenue did not even get a simple majority, with just 47 Senators voting to cut of debate, and 53 Senators voting against the measure.

While I don’t yet have a full roll call, among the Democrats voting against were Sens. Kent Conrad, Byron Dorgan, Russ Feingold, Joe Lieberman, Claire McCaskill, Mark Warner, Jim Webb and Ron Wyden.

Thune: Government Plan Isn’t Dead

Sen. John Thune said on a Wednesday conference call that there is growing momentum behind including a government-run plan in final health care legislation.

“I thought the government plan was dead,” Thune said. “I don’t think that anymore.”

Thune said there was momentum on the Democratic side of the aisle for some form of a government plan. So far, various ideas have included a “trigger” mechanism that would create a government plan if private insurers don’t meet certain targets, and another proposal that would allow states to opt out of the plan.

Thune also said that if Democrats have trouble passing a bill through normal means, they may split it into two parts, passing the purely tax and spending measures (such as the expansion of Medicaid) through the reconciliation process where they would only need 51 votes, and the regulatory changes (such as coverage of preexisting conditions) through the traditional process that would require 60. However, he said that such a move would be a last resort if they don’t even have the votes to pass something along the lines of the Senate Finance Committee bill, and that they likely couldn’t get a government plan through this method.

Thune: Cloture Vote Scheduled for this Afternoon on “Doc Fix”

Sen. John Thune said on a conference call that Senate Majority Leader Harry Reid has scheduled a cloture vote for this afternoon on the Democrats’ plans to shift $247 billion in costs of health care legislation to a separate bill without offsetting spending cuts.

Thune said the vote to prevent scheduled cuts to Medicare doctors’ payments could show that not only all Republicans, but several Democrats object to this approach.

As far as the larger health care bill, Thune said that he expects Democratic negotiators will emerge from closed door negotiations either next week or the week after with a bill that they’ll bring to the Senate floor.

Reid’s $247 Bln “Doc Fix” Faces Resistance From Senate Dems

Senate Majority Leader Harry Reid’s scheme to divert $247 billion in costs of health care legislation to a separate bill has encountered resistance among five Senate Democrats who have said they want the new spending to be offset with spending cuts or tax increases, the Hill reports.

The key thing to keep in mind though is that Democrats could still pass a bill with a lower price tag that prevents scheduled cuts to Medicare doctors’ payments for a year, and then revisit the issue a year from now. The problem with that approach, however, is they risk losing support of the American Medical Association.