Sen. Max Baucus, D-Mont. Photo: WDCpix

It happens in every recession: Medicaid enrollment leaps at precisely the same time that states are least able to afford the additional costs. The structural flaw has left state lawmakers threatening program cuts, Congress scrambling to find emergency funds to prevent a coverage crisis, and children’s health advocates urging an overhaul in the way Medicaid is funded.

Trouble is, the Democrats’ health reform proposals do nothing to address the problem.

Despite the Medicaid expansion at the center of both the House and Senate bills, neither chamber takes aim at the underlying funding flaws of the program, which is bankrolled by a combination of state and federal money. That decision, policy experts warn, leaves some of the poorest folks in the country vulnerable to losing health care coverage during economic downturns when they’re likely to need it most.

“From time to time, we’re going to have these economic downturns,” Stan Dorn, senior health policy researcher at the Urban Institute, said last week during a kids’ health forum on Capitol Hill. “Rather than react in the same panicked way every single time, is there a way we can rethink how we structure the underlying program?”

The answer is yes — and lawmakers are well aware of it — but Congress isn’t acting on it. Indeed, last November, just days after the Democrats won the White House, Senate Finance Committee Chairman Max Baucus (D-Mont.) proposed to create a trigger that would automatically hike the federal share of Medicaid funding when states, which are required by law to balance their budgets, hit tough times.

“Medicaid must be strong and stable so that eligible individuals can rely on it, especially in times of economic distress,” the Baucus paper explained.

Dorn endorsed that approach, arguing that such a mechanism would “provide automatic counter-cyclical relief so that when state conditions decline, federal help is forthcoming, and when state conditions improve, federal help retracts.”

“Not only would that help states,” Dorn added, “it would mean that federal dollars, which are in short supply, … would be much more closely targeted to need.”

Yet less than a year later, when Baucus unveiled his health reform proposal — legislation featuring a Medicaid expansion up to 133 percent of the federal poverty level — the funding trigger was noticeably absent. Baucus’ office did not respond to requests for comment Tuesday, but some health policy observers say it’s likely that cost concerns kept that provision out of the final bill.

Without such a trigger, Congress has been forced to step in twice in the last decade to help states weather recessions without dumping thousands of Medicaid patients. Between 2001 and 2002, for example, Medicaid enrollment jumped 8.6 percent, while tax revenues fell 7.5 percent, according to the Government Accountability Office. The trend led Congress in 2003 to provide $20 billion in emergency funding to stabilize program enrollment.

More recently, the economic stimulus bill contained $87 billion to provide a 6.2 percent increase in federal Medicaid funds, with additional help going to those states with the highest unemployment. The money was conditional: states accepting it could not restrict their eligibility requirements. All complied — with good reason. The Kaiser Family Foundation reported last month that state Medicaid enrollment jumped by an average of 5.4 percent in the year that ended July 1.

But that extra funding expires at the end of 2010, leaving kids’ health care advocates concerned about the future — particularly in high-unemployment states like Michigan, Nevada, Rhode Island and California, where Medicaid rolls are mostly likely to swell most rapidly.

“We could fully expect major cuts in Medicaid if there isn’t some continuation of that fiscal relief,” said Jocelyn Guyer, co-executive director at Georgetown University’s Center for Children and Families.

Some lawmakers have the problem on their radar. The House health reform bill, for example, would extend the additional Medicaid funding through June of 2011 – a provision the Congressional Budget Office estimates will cost $23.5 billion.

Meanwhile, however, the legislative uncertainty is forcing state health officials to craft their budgets as if the funds will expire Dec. 31, 2010 — just halfway through most state budget calendars.

Nate Checketts, head of Utah’s Children’s Health Insurance Program, described the potential effect that expiration would have on the state. Before the stimulus bill became law in February, he said on Friday, state lawmakers had worked out all the details of a plan to cut adults, including medically needy folks, from the Medicaid rolls. The stimulus bill prevented that step, but with the enhanced funding set to expire, “those items are back on the table again,” Checketts said.

The current Medicaid funding scheme also creates dilemmas of moral hazard. Checketts noted that, before the stimulus bill passed, Utah had considered creating an emergency Medicaid fund, to be fed in the good years and tapped in the lean ones. “When the stimulus funds continue to come in the bad years,” Checketts said, “it sort-of undercuts that concept of needing to have a Medicaid rainy-day fund.”

“States are beginning to act as if these funds may always come,” he added. “There needs to be a decision about whether that’s really going to happen [in the future]. If not, states need to change their behaviors.”

The saga highlights the central dilemma facing Democratic leaders as they push forward with their sweeping health reform proposals: how to cover tens-of-millions of uninsured Americans while keeping new federal costs to a minimum. The expansion of Medicaid, an essential component of both the House and Senate bills, has been an attractive way to extend that coverage precisely because it’s cheaper than other alternatives. But the low cost comes at a price.

Indeed, according to a September survey conducted by the Center for Studying Health System Change, only about 40 percent of physicians accept all new Medicaid patients — versus 58 percent for Medicare patients — and roughly 28 percent don’t accept any new Medicaid patients at all. For dental care, the figures are even worse. Less than 27 percent of dentists surveyed by the American Dental Association in 2007 said they treat Medicaid-insured patients, leading to severe access problems surrounding oral health. The trends have raised questions about the value of an insurance program that few providers accept.

The House bill tackles the reimbursement issue head on, increasing Medicaid rates for primary care services to 100 percent of Medicare rates by 2012. Initially, the federal government would pay for the entire rate hike, though states would assume 9 percent of the increase beginning in 2015. The reform doesn’t come cheap. That provision alone would cost taxpayers $28.7 billion over the next five years and $57 billion over the next 10, the CBO estimates.

In the eyes of many experts and advocates, even if the House reimbursement changes don’t pass as part of the final bill, the expansion of Medicaid represents a step in the right direction. “As bad as Medicaid reimbursement is, it’s better than zero,” Dorn said. “For low-income folks, it will certainly be better than being uninsured.”

Yet Checketts said that Utah health officials — like those in many states — are wary of the expansion, which they estimate could double Utah’s Medicaid population.

“I don’t think [doctors and dentists] would be able to handle that with the current reimbursement rates,” Checketts said. “Some sort of change will have to be made.”

Under the proposed 50/50 formula, utilities that are more coal dependent will need to purchase even more allowances than they would have if all allowances were allocated based on emissions.

Well, yeah. And under the current proposed 50/50 formula, the coal burners would also have to purchase more allowances than if Congress did nothing at all. But the whole point of the bill is to discourage the use of high-emission energies like coal by making them less affordable than cleaner alternatives. Sheppard explains further why the lawmakers’ argument makes little sense in the context of the global warming debate:

Of course, this would work against the entire logic of the proposed scheme, which is to offer utilities financial incentives to switch to lower-carbon fuel sources. [...]

Right now, the climate bill needs all the votes it can get from Democrats. So enviros worry that concessions to this bloc could ultimately result in a deal in which coal plants suffer no real penalties for the carbon they pump into the atmosphere. “Dirty coal polluters know their days are numbered and are lobbying for the largest piece of the pie they can get,” said Jason Kowalski, policy coordinator at 1Sky. “It goes against the spirit of this legislation to reward the polluters that caused this problem in the first place.”

In addition to Klobuchar and Franken, other Democratic senators signing on to the letter were Carl Levin (Mich.), Debbie Stabenow (Mich.), Russ Feingold (Wis.), Herb Kohl (Wis.), Tom Harkin (Iowa), Byron Dorgan (N.D.), Kent Conrad (N.D.), Roland Burris (Ill.), Sherrod Brown (Ohio), Michael Bennet (Colo.), Mark Udall (Colo.) and Robert Byrd (W.Va.).

Speaker of the House Nancy Pelosi. Photo: WDCpix

WASHINGTON, D.C.  – How effectively will the House health care bill cover children? Turns out, it depends on where they live.

The $894 billion health reform bill working its way toward a House vote this week would repeal the Children’s Health Insurance Program, shifting some low-income kids into Medicaid and others into private plans that would both cost more and guarantee fewer benefits. Which program the youngsters tumble into hinges, not on need, but on the state where they live – a design some advocates call “the lottery of geography.”

“Much of the House bill is good, but on CHIP they only did half a loaf,” said Bruce Lesley, president of First Focus, a children’s health advocacy group. “They protected kids in some of the states, but not in the others.”

CHIP would end in 2014

Created in 1997, the state-federal CHIP partnership was designed to cover kids in families too wealthy to qualify for Medicaid but not wealthy enough to afford private insurance. States were granted broad discretion to fashion the program to fit their needs, with some carving out a separate CHIP program, some using CHIP funds to expand Medicaid eligibility, and still others opting for some combination of the two.

The House bill, which would eliminate CHIP in 2014, approaches those models very differently. While it expands Medicaid eligibility to 150 percent of poverty and shifts all kids living above that level to private plans contained on a proposed insurance marketplace, or exchange, the proposal also carves out an exception in states which augmented Medicaid in lieu of creating a separate CHIP program. In those cases, the youngsters would remain in Medicaid.

The distinction carries both coverage and cost implications. Under current law, all state Medicaid programs are required to offer a blanket system of preventative care known as the early periodic screening, diagnosis and treatment program, or EPSDT. The exchange plans, on the other hand, don’t have the same mandate. (Although states with stand-alone CHIP programs are not bound to cover EPSDT services, some of them do.)

And because states have vastly different income-eligibility levels for Medicaid and CHIP, the House bill offers no guarantee that the most vulnerable kids would receive the most robust benefits. In New Jersey, for example, Medicaid covers youngsters up to 200 percent of poverty, at which point CHIP takes over and covers kids up to 350 percent. Minnesota, by contrast, covers kids up to 275 percent of poverty under Medicaid but has no stand-alone CHIP plan.

The result? Children living at 275 percent of poverty in Minnesota would, under the House bill, still pay almost nothing for care under Medicaid — including EPSDT coverage — while families living at the same income level in New Jersey will be responsible for 22 percent (pdf) of the cost of their exchange plans, without the assurance of EPSDT services.

The patchwork has led some state health departments to support the House proposal and others to oppose it.

“My members are split,” said Ann Kohler, director of the National Association of State Medicaid Directors.

More New Jerseys than Minnesotas

Still, there are more New Jerseys out there than Minnesotas. Currently, about 5.3 million (or 72 percent) of the 7.4 million CHIP kids live in states with stand-alone CHIP programs, according to Georgetown University’s Center for Children and Families (pdf).

“They’re going to be paying a lot more out of their pockets and getting fewer benefits,” warned Alison Buist, director of child health at the Children’s Defense Fund.

Supporters of the shuffle from CHIP to private plans argue that it will increase enrollment by allowing entire families to gain coverage under the same plan. They also point out that CHIP must be reauthorized every few years, leaving the very existence of the program to the fancy of Congress. Still, the proposal to repeal CHIP has put Democrats in the uncomfortable spot of defending the elimination of a program they spent much of the last two years fighting to preserve.

Then there’s the cost issue. A recent report conducted by Watson Wyatt Worldwide, a financial consulting firm, found that most CHIP enrollees living at 175 percent of poverty pay nothing at all for their health services, while those living at 225 percent pay about 2 percent of costs. Shifted into private plans on the exchange, the researchers found, those same families would pay between 5 percent and 35 percent of health costs, respectively — a situation “greatly increasing their financial burden and leaving low-income children worse off as a result of health reform.”

Indeed, examining a similar CHIP repeal offered in the Senate, Congressional Budget Office Director Douglas Elmendorf recently noted that “some of those children would be eligible for subsidized coverage in the exchanges but would not be enrolled in an exchange plan (owing at least in part to the higher premiums and higher out-of-pocket costs that they would typically face in such a plan).”

Fixes have mixed success

Some House lawmakers recognize the potential problems. During the markup of health reform legislation in the Education and Labor Committee, for example, lawmakers passed an amendment — offered by Rep. Bobby Scott (D-Va.) — requiring that all exchange plans offer EPSDT services. That proposal, however, was stripped out in the final bill.

Another amendment, offered by Rep. Diana DeGette (D-Col.), would have prevented the shift from CHIP to private plans unless the White House provided certification that the private plans offered comparable benefits. That proposal passed the Energy and Commerce Committee, but was also removed in the final bill.

DeGette’s office said earlier this week that the certification language was removed “to reflect some budgetary constraints.”

Not that the end of CHIP is final. In the Senate, members of the Finance Committee last month passed an amendment to reauthorize CHIP through 2019. The sponsor of that amendment, Sen. Jay Rockefeller (D-W.Va.), is already vowing to fight for that provision all the way to the White House.

“We need to make sure children can keep their CHIP coverage and not be forced into untested private coverage,” Rockefeller said in a statement this week. “Health care reform should improve the coverage children have — not take their coverage away.”

Treasury Secretary Timothy Geithner. Photo: WDCpix

WASHINGTON — Appearing before a House panel on Thursday, Treasury Secretary Tim Geithner made his best pitch for legislation granting the White House broad new powers to seize Wall Street firms when their collapse might torpedo others in the industry.

It didn’t go so well.

A number of Democrats on the House Financial Services Committee unfurled a laundry list of charges against the proposal, including the prominent concern that the bill would empower the president — and future presidents –with unlimited bailout authority to prop up “too-big-to-fail” institutions at the expense of taxpayers.

“Mr. Secretary, I’m not a man that fears this administration or you,” Rep. Paul Kanjorski (D-Pa.) told Geithner. “But I do fear the accumulation of power exercised by someone in the future that can be extraordinary.”

Rep. Brad Sherman (D-Calif.) echoed those concerns, arguing that the bill represents “the most unprecedented transfer of power to the executive branch to make decisions about both spending and taxes in history — all without congressional approval.”

The tone of the comments could foreshadow a tough road ahead, not only for the White House, but for Financial Services Chairman Barney Frank (D-Mass.), who introduced legislation this week that grants the Treasury’s request to broaden the president’s “resolution authority.” The bill is one of the final pieces of the finance-reform puzzle that Frank has been putting together all year. But by conceding most of the administration’s requests, the Massachusetts Democrat — who asked no questions of Geithner Thursday — has riled others on his panel, who want to see more taxpayer protections in the bill.

Frank’s proposal would create an oversight commission to monitor and regulate Wall Street’s investment houses and other non-bank institutions to ensure that they’re on solid footing. Federal regulators could, for example, force companies to increase capital reserves or decrease the amount of debt they’re holding, if the scenario was deemed a threat to topple the firm.

The bill would also empower the White House to swoop in and dismantle failing Wall Street institutions in order to minimize the impact on the finance system as a whole — a strategy modeled on the authority of the Federal Deposit Insurance Corporation to intervene when commercial banks are threatening to fall.

To protect taxpayers, Frank’s bill aims to have failed-company shareholders and creditors cover the cost of the government help. If more money is needed, taxpayers would initially pick up the tab, to be reimbursed later by an after-the-fact tax levied against other large Wall Street institutions that would presumably benefit from the stabilizing effects of the government intervention.

Supporters maintain that the proposal does not empower bailouts at all, but would simply allow the government to control the deaths of failed companies so they don’t drag down the financial system with them — a kind-of controlled euthanasia designed to protect consumers from the hubris of the finance industry.

“If we do have to step in, it will be very painful for those companies” Frank told MSNBC Thursday. “They will be put out of business. The CEOs will be fired. Shareholders will be wiped out. We are not going to have a situation where people can expect to be bailed out and live happily ever after.”

Geithner, for his part, denied that the proposal authorizes the White House to tap federal coffers at all. Asked by Rep. Maxine Waters (D-Calif.) if the bill grants “the authority to spend the taxpayers’ money to bail them out if you deem that to be a good way of handling that situation,” the Treasury secretary answered with one word: “No.”

Yet the House bill empowers the administration to make loans, buy assets, and invest in failing institutions if regulators determine those steps are required to prevent “serious adverse effects on financial stability or economic conditions in the United States.” To do so, of course, the White House would use taxpayer funds. And no monetary limits are specified.
And while the bill aims to recover the taxpayer dollars within 60 months of the bailout, Sherman notes that the White House would also have the authority to extend that deadline indefinitely.

“It could be 60 years,” he said.

That these bailout protections are limited only to those institutions whose failure is deemed a system-wide threat is another source of criticism on Capitol Hill. Many lawmakers and finance experts contend that that stipulation creates an unfair advantage for big firms over their smaller competitors. For example, they could access capital at lower rates if lenders know they have access to some level of federal lifeline. That dynamic, critics argue, would act to promote “too-big-to-fail” institutions, rather than reining them in.

“Why should the American people have to sit out there and see us creating mammoth organizations that nobody says we have the authority to control or limit, but we have the authority to help them when they get into trouble?” asked Kanjorski.

There are still other concerns. For example, some lawmakers are attacking the proposed bailout tax on large institutions, arguing that it should be collected beforehand as a type of insurance fund, rather than imposed after a competitor went under.

“No more TARP. No more bailouts,” said Rep. Luis Gutierrez (D-Ill.). “Let them [the companies] create the fund, the systemic risk fund, that will guarantee that the American taxpayer will no longer have to be involved should they cause such a crisis ever again.”

Geithner responded that such a system would encourage even more risky behavior from the largest companies. “If you create a fund in advance, there’s a risk you’re going to create more moral hazard,” Geithner siad. “People will live the expectation where the government will come in and protect them. We don’t want to create that expectation. That’s why we think it’s better to do it after the fact.”

Meanwhile, conservatives and representatives in the finance industry are blasting the notion that solvent companies should be forced to pay to bail out the mistakes of competitors. “Should Ford bear the costs of compensating the taxpayer for what happened to G.M. and Chrysler?” asked Rep. Jeb Hensarling (R-Texas.).

Gutierrez pointed out yet another concern: Placing such broad new powers in the hands of Treasury leaders – who often arrive directly to the job from previous positions of power on Wall Street – creates the impression of the fox guarding the hen house.

“How do we know the next secretary of the Treasury won’t be the former CEO of Goldman Sachs as they have been in the past?” he asked. “They seem to be interwoven, and that’s what the American public sees.

“They see the interconnectedness in terms of their power, their influence and always to their benefit.”

Senate Minority Leader Mitch McConnell. Photo: WDCpix

WASHINGTON — A protracted and very partisan Senate skirmish has left hundreds of thousands of jobless Americans without unemployment benefits — an impasse that Democrats leaders are hoping to break this week.

They have their work cut out.

Almost five weeks after the House passed legislation to extend insurance benefits to the growing rolls of the long-term unemployed, upper-chamber leaders continue to haggle over Republican amendments. Not only do GOP leaders want to alter the way the bill is funded, but they’re insisting that a handful of politically charged amendments also get consideration, including provisions to de-fund ACORN and keep illegal immigrants out of the workplace. Since the start of the deadlock, more than 125,000 Americans have lost their unemployment insurance benefits.

The stalemate has frustrated Democratic leaders, who twice this month have attempted to pass the extension, only to be rebuffed by Republicans on the Senate floor. It’s also left a growing number of jobless Americans and their advocates indignant that lawmakers would make political hay out of their misfortunes in the middle of the worst employment crisis in a generation.

“Unemployed workers across the country are devastated and dismayed by the failure of the U.S. Senate to extend their lifeline,” Christine Owens, executive director of the National Employment Law Project, said in a statement. “It’s shameful and callous.”

The deadlock has been something of a surprise. When the House brought up an unemployment insurance extension bill last month — a proposal granting an additional 13 months of benefits to high-unemployment states — it passed with overwhelming bipartisan support. The vote was 331 to 83.

Senate Democrats are pushing a more generous bill, extending benefits by 14 weeks nationwide, with an additional six weeks for those in states where unemployment rates have topped 8.5 percent. The bill applies only to the future, meaning those whose benefits expired before passage would not be eligible for backpay. The Senate is scheduled to vote Tuesday afternoon on a procedural move to begin consideration of the bill.

Standing in their way, however, are GOP leaders who want to attach a series of controversial — some say unrelated — amendments. Sens. David Vitter (R-La.) and Mike Johanns (R-Neb.), for example, are pushing separate provisions to ensure that ACORN doesn’t receive federal funds. Sens. John Thune (R-S.D.) and Bob Corker (R-Tenn.) have offered amendments related to the Wall Street bailout. And Sen. Jeff Sessions (R-Ala.) wants to make permanent the controversial E-Verify program, which screens newly hired workers in order to weed out illegal immigrants.

The offices of Corker, Thune, Vitter and Johanns did not respond to requests for comment. A Sessions aide said Friday that the E-Verify amendment is definitely still a part of the discussion.

Whether those provisions have any place beside the underlying bill depends on which side you ask.

An aide for Senate Majority Leader Harry Reid (D-Nev.) said the amendments are intended to delay the process, just as Republicans tried to do earlier in the year when they offered similar provisions alongside, for example, the economic stimulus bill. “It’s kind of from the same playbook,” the aide said. “If they were seriously trying to do this, they wouldn’t be trying to add unrelated amendments.”

Yet GOP leaders dispute that claim, arguing that the primary sticking point is the proposed funding mechanism, not the underlying push to extend benefits.

To pay for their $2.4 billion legislation, Democrats are proposing to extend a small portion of the federal unemployment tax that employers pay on behalf of workers. That tax — currently eight-tenths of 1 percent of the first $7,000 employers pay for each worker — is slated to drop to six-tenths of 1 percent at the end of the year. The Democrats’ proposal would keep the current rate in place through June of 2011, effectively costing employers $14 per employee annually — or $21 per worker over the life of the bill.

An aide for Senate Majority Leader Mitch McConnell (R-Ky.) said the additional tax would prevent small businesses from hiring new workers, effectively undermining the purpose of the bill at the expense of the unemployed folks it’s designed to help. The Republicans want to fund the extension using unspent stimulus money instead.

Complicating the picture for Democrats, Sen. Johnny Isakson (R-Ga.) has offered an amendment to extend the popular $8,000 tax credit for first-time homebuyers through next June, while also expanding eligibility to include folks with higher incomes. Additionally, the Isakson wants to apply the credit to all homebuyers, not just first-timers.

Faced with record budget deficits, the Obama administration has been wary of extending the tax credit. As a result, Democrats have offered a counter-offer to Isakson: a four-month extension of the $8,000 credit, followed by incremental decreases — $2,000 a pop — for each of the three subsequent trimesters. Like the existing benefit, only first-time homebuyers would qualify.

The Reid aide said Friday that no agreement has been reached.

The delay has consequences. Each day the Senate idles, another 7,000 Americans lose their unemployment insurance benefits, according to figures released by the National Employment Law Project this month. By year’s end, the group estimates, roughly 1.3 million people will have exhausted their benefits unless Congress steps in.

In light of the congressional inaction, some states have taken it upon themselves to extend unemployment insurance using emergency state funds. Oregon, for example, tapped into a surplus earlier this month in announcing a 13-week extension. The funds are expected to benefit 6,000 state residents.

Faced with budget crises of their own, however, most states don’t have the luxury of extending these benefits. It’s up to Washington, advocates say, to fill in the gap.

“It’s time for the Senate to do right by the families hardest hit by the recession,” Owens said. “The Senate needs to do whatever it takes, working weekends included, to make this happen.”

Sen. Debbie Stabenow (D-Mich.). Photo: WDCpix

WASHINGTON — With the nation’s insurers having dropped their support for the health reforms moving through Congress, Senate Democrats are taking daring steps to rally the backing of another powerful medical lobby: doctors.

The Senate this week is set to take up a $245 billion proposal, introduced hastily just a week ago by Sen. Debbie Stabenow (D-Mich.), to prevent scheduled pay cuts for doctors who treat Medicare patients – a long-term fix to the physician pay quandary that dwarfs the one-year patch contained in the Senate Finance Committee’s reform bill. The proposal has long been advocated by the American Medical Association, the nation’s largest physicians lobby, which has so far declined to endorse the broader Senate health bill. Although the group is also fighting Democrats over malpractice reform, the Stabenow bill would go a long way toward getting the doctors to support the top domestic priority of the Obama administration this year.

Despite the allure of getting the AMA on board, however, the Democrats’ move is not without its pitfalls. For months, party leaders in Congress and the White House have vowed to keep the cost of health reform below $900 billion over 10 years, while also promising that the legislation won’t add “one dime” to the nation’s debt. The Stabenow bill, however, is not paid for, leaving Democrats in the uncomfortable position of claiming that a complete overhaul of the way doctors are paid under Medicare is somehow not a part of health care reform. That pickle has created an urgency: the faster Democrats can pass the physician pay measure, the better chance they have of distancing it from the broader reform effort.

Robert Blendon, professor of health policy at Harvard University, said the Democrats’ success in forging that divide likely “depends on the visibility of the issue.”

“So much attention is on putting the [Finance and HELP committee health reform] bills together that this could go under the radar,” said Blendon, an expert on the Clinton administration’s failed attempt to pass comprehensive health care reform in 1993. “[But] if it gets a lot of media attention, it’s going to be clear to anyone who reads the story that the additional $250 billion is in fact related to health reform.”

At issue is the so-called sustainable growth rate (SGR), a complex, 12-year-old formula designed to prevent Medicare doctor payments from bankrupting the program by indexing reimbursements to the growth of the economy. Because health care inflation has risen much faster than GDP in recent years, the SGR has called for physician cuts every year since 2002. Congress, however, has usually stepped in with temporary patches to prevent those cuts, which the AMA says would force doctors to drop Medicare patients.

Years of kicking the can down the road, though, has caused the cuts to compound. Indeed, next year, the SGR calls for a 21.5 percent reduction in physicians’ Medicare payments, with an additional 5.5 percent cut in each of the four years thereafter. The Finance bill provides roughly $11 billion to address 2010, but lends no long-term relief — a dance that sidesteps one of the most sensitive and expensive problems facing the entire health delivery system.

Enter the Stabenow bill — all 18 lines long — which scraps the SGR altogether, erases the accumulated cuts and provides a 0 percent pay update “for 2010 and each subsequent year.” That means in perpetuity. The idea is to have the broader health reform bill complement Stabenow’s proposal by creating a new physician payment formula that better reflects the true costs of treating Medicare patients.

Calls to AMA were not returned, but the group has launched an enormous ad campaign in support of the strategy.

That this fix costs roughly a quarter of a trillion dollars hasn’t dissuaded Democratic leaders. Instead they’re hoping that, by considering the doc-fix bill on a separate track, they can divorce it from the broader issue of health reform. Last Friday, Sen. Tom Harkin (D-Iowa), chairman of the Health, Education, Labor and Pensions Committee, told reporters just that.

“We’re doing the doc fix first so as not to get it confused with health care reform,” Harkin said. “We’re going to try to pass it as an emergency-type of spending so that it doesn’t … connect to the health care reform bill and figure in as a cost of it.”

Republicans, though, aren’t buying it. Although they acknowledge that the SGR is seriously flawed, they also want to cover the costs of fixing it. Sen. Charles Grassley (Iowa), the senior Republican on the finance panel, told The New York Times last week that Stabenow’s bill “undermines the president’s commitment to making sure health care reform won’t add a dime to the deficit when one of the most expensive problems in the Medicare program is removed from overall reform legislation.”

Republicans are not alone. Moderate Democrats are also criticizing the proposal for lacking offsets. Sens. Kent Conrad (N.D.) and Evan Bayh (Ind.), for example, have already indicated that they plan to vote against the measure. And in the House, Speaker Nancy Pelosi (D-Calif.) last week reiterated her previous vow to support an SGR fix this year only if the bill follows pay-as-you-go rules.

The criticisms haven’t been lost on Senate Democratic leaders. Last Thursday, Senate Majority Leader Harry Reid (D-Nev.) scheduled a Monday cloture vote on the Stabenow bill, only to scrap that plan a day later for lack of support. GOP leaders, meanwhile, want to amend the bill by attaching offsets as well as provisions addressing medical malpractice reform.

The stalemate over the SGR fix comes as no surprise to health policy experts. “People have known for many, many years that this was a screwed up policy – that it doesn’t work at all,” said Leighton Ku, public health policy professor at George Washington University. The sticking point has not been whether to fix it, Ku added, but how to pay for it.

That the Democrats have chosen not to offset the Stabenow proposal means the bill likely won’t pass the Senate, according to Julius Hobson, former AMA lobbyist and now a senior policy analyst at the Washington law firm Bryan Cave. Hobson said the bill should get plenty of floor time, but probably won’t get the 60 votes likely needed to waive the Budget Act — a vote required to allow the unfunded proposal to proceed.

Asked about attaching offsets during the floor debate, Hobson pointed out that the broader health reform bill has already plucked the low-hanging fruit. “When you look at the Medicare bill,” Hobson said, “what offsets are left?”

WASHINGTON — Earlier this month, Anthem Blue Cross Blue Shield of Maine raised eyebrows when it sued the state for refusing to grant an 18.5 percent premium hike on 12,000 individual policy holders — an increase that would have generated a 3 percent profit margin for the company. Instead, Maine’s insurance superintendent granted a 10.9 percent hike — effective last July — which nets the company no profit on those policies. Reportedly, the superintendent reasoned that Anthem, a subsidiary of Wellpoint Inc., had profited enough in recent years — and paid out enough huge executive pay packages — that it could afford to break even for 12 months while patients struggle in the down economy.

Yesterday, as the Senate Judiciary Committee was examining an antitrust exemption enjoyed by private insurers, Sen. Al Franken pointed to the Anthem lawsuit as yet another in a growing list of reasons for Congress to inject some additional competition into the ever-consolidating health insurance industry.

“I’m not aware of any industry that is entitled to any guaranteed margin of profit, are you?” Franken asked Christine Varney, assistant attorney general in the Justice Department’s antitrust division.

“No, I’m not,” Varney replied.

The Minnesota Democrat is supporting not only a proposal to repeal the industry’s antitrust exemptions, but also another to create a public insurance option to compete with private companies.

Statistics provide the basis for Franken’s concern. Wellpoint is by far the largest private insurer in Maine, representing 78 percent of the marketplace, according to a 2007 survey conducted by the American Medical Association. When Aetna plans are considered in the equation, only 12 percent of the state’s private insurance market is left under the control of other competitors.

Industry representatives say that high market concentration is no sign of depleted competition. University of Arkansas professor Lawrence Powell told lawmakers Wednesday that such concentration “is not necessarily by itself indicative of a lack of competition. It could also be a sign of efficiency.”

Powell, testifying before the Judiciary Committee on behalf of the Physician Insurers Association of America, maintained that if one company controlled 90 percent of a regional market, “then somebody else is controlling 10 percent. And there’s hundreds of other companies that could come in and take a share if they could do a better job.”

Yet there is also evidence that market dominance has allowed companies to hike prices without much fear of being low-balled by competitors, which hardly exist. In Maine, for example, individual insurance premiums jumped nearly 88 percent in the eight years between 2000 and 2007, according to a 2008 report from Families USA, a consumer health care group. Meanwhile, median earnings increased by less than 17 percent over that same span, Families found.

Returning to the topic of Anthem’s lawsuit against the state, Franken asked Varney whether market consolidation “has fostered this company’s, I guess, brazen behavior at the expense of beneficiaries’ pocketbooks.”

“When you don’t have to compete,” Varney replied, “you can get pretty big profit margins.”

House Minority Leader John Boehner. Photo: WDCpix

When the Labor Department last week revealed that the economy shed more than 260,000 jobs in September, Republicans knew exactly where to place the blame.

House Minority Leader John Boehner (R-Ohio) said the figures indicate that the “tax-and-spend policies” of the Democrats “are completely out-of-step” with the country’s challenges. Minority Whip Eric Cantor (R-Va.) blasted the White House for “a massive disconnect” between Americans’ struggles “and the president’s claims of success.” And Rep. Tom Price (R-Ga.), chairman of the Republican Study Committee, claimed the “failed economic policy” of the Obama administration is directly “crippling” more and more families with each passing month.

“All we have to show for the president’s archaic policies is rising unemployment and skyrocketing debt,” Price said.

The accusations offer a glimpse at what voters can expect to hear during next year’s campaign season. But, many experts say, they also ignore the simple economic reality that job creation has trailed almost every other indicator of economic recovery in the wake of recessions going back at least 20 years. The reasons are varied — ranging from employers’ fears of hiring before the downturn ends, to the reemergence of idle workers who had stopped looking for jobs altogether. But the result, in each case, has been to delay the post-recession recovery of the labor market. And this time around, economists are warning, will be no different.

“Unemployment is typically a real lagger,” said Chad Stone, chief economist at the Center on Budget and Policy Priorities, a liberal policy analysis group. “No one expected there to be job growth at this point.”

Desmond Lachman, economist at the conservative American Enterprise Institute, echoed that sentiment, arguing that the labor market recoveries of recent decades haven’t occurred before “a quarter or two after the economy has bottomed.”

“That’s the normal pattern,” Lachman said.

The comments arrive in the wake of government figures revealing that the nation’s employers let go of 263,000 more folks last month than they hired, hiking the unemployment rate from 9.7 percent to 9.8 percent — the highest level in 26 years. And, despite some indication that production is slowly on the rise, experts expect unemployment to get worse before it gets better. Indeed, economists of all stripes are predicting jobless rates to flirt with 10.5 percent in 2010, and remain elevated through the entire year — a trend that threatens Democrats in the next election.

It wasn’t supposed to happen this way. When the Democrats passed their $787 billion economic stimulus bill in February, White House officials said the bill would keep unemployment below 8 percent. In the House, not one Republican voted for the measure, leaving GOP leaders plenty of room to exploit the issue straight into next year’s mid-term elections. All signs indicate that they’re perfectly willing to do so.

“With roughly three million private sector jobs lost since the ‘stimulus’ was enacted, Americans can’t be blamed for asking, ‘Where are the jobs?’” Boehner said in a statement last week.

Yet many economists say the jobs are right were they should be considering the degree to which the economy sank in the past 21 months. Heidi Shierholz, economist at the liberal Economic Policy Institute, estimates that the stimulus bill is saving or creating between 200,000 and 250,000 jobs each month. “This is exactly what we would expect given the magnitude of the losses,” Shierholz said of the recent unemployment figures.

There are a number of reasons that job creation is slow to take hold in the wake of a recession. For one, despite the assurances of Federal Reserve Chairman Ben Bernanke, employers are still wary that the recession might not be over. Rather than jumping the gun on new hires, “they’d rather squeeze extra time out of their existing workforce,” said John Schmitt, senior economist at the liberal Center for Economic and Policy Research.

Also, employers have cut back hours, leaving plenty of room to meet an increased demand for production without bringing on new employees. Indeed, though the unemployment rate is 9.8 percent, that number jumps to nearly 17 percent when the Labor Department includes part-time workers who wish to work full time.

Additionally, a number of people typically quit searching for jobs in down economies, effectively dropping out of the labor market, which means they’re not counted in the government’s jobless tallies. When the economy begins to recover, many of those folks will likely reenter the labor pool, thereby swelling unemployment figures even though their individual employment situation remains unchanged.

Jagadeesh Gokhale, economist at the libertarian Cato Institute, described another trend delaying the labor market recovery. In normal economic times, Gokhale said, companies tend to hold on to even unproductive workers because the cost to hire and train new employees exceeds that to keep the others. But when demand drops in a recession, and profits fall along with it, then it becomes more cost-effective for employers to shed those ineffective workers. The practice bumps up unemployment numbers without reducing production significantly. “That’s pretty much the standard pattern,” Gokhale said.

The consequences of these trends speak for themselves. Following the 1990 recession, for example, it took 15 months after the economy hit bottom before employment figures moved into positive territory. In 2001 the labor market recovery was even slower, requiring 19 months before job creation began to nibble away at unemployment rates.

That economic reality, however, has not prevented some liberals from going after the White House for doing too little to control the rising tide of unemployment. New York Times columnist Bob Herbert, for example, argued this week that if the economy doesn’t generate jobs on its own, “then the government needs to step in.”

“Faced with the relentless monthly costs of housing, transportation, food, clothing, education and so forth,” Herbert wrote, “[the unemployed] have precious little time to wait for this lagging indicator to come creeping across the finish line.”

Many experts on the left had argued in February that the $787 billion package was too small to address a problem so large — and they feel vindicated in that position today. “The stimulus is the thing that brought us back from the abyss,” Shierholz said Tuesday. “But it wasn’t big enough. We have an enormous hole to fill.”

Lachman pointed to another flaw in the original bill: It was designed, he said, so that too much of the spending won’t occur until 2010 and beyond. Indeed, since the bill passed, the government has spent less than $200 billion on projects and tax cuts designed to stimulate job creation. “The size was right,” Lachman said, “but they back-loaded it, which allowed unemployment to go up at a much faster rate than was necessary.”

Economists on both sides of the divide are arguing for more stimulus spending, including funding to help states survive severe budget crunches. Increases in federal dollars for Medicaid and COBRA, for example, were included in the first stimulus bill, but those increases in funds expire at the end of the year.

Another stimulus bill, though, won’t be an easy sell on Capitol Hill, where Republicans and even many Democrats have grown wary of enormous deficits — even before the debate over a $900 billion health reform proposal began.

Cato’s Gokhale, who didn’t support even the original bill, points out that the slow-spending of the stimulus money means that there’s plenty left over for 2010 — a situation precluding the need for another influx of cash.

And will that funding help stem the continued rise in unemployment?

“It all depends,” Gokhale said, “on the rate at which they can spend the money.”

Sen. Max Baucus (D-Mont.), WDCpix

WASHINGTON — For Erinn Ackley, it was her father’s insurance company denying claim after claim for a bone marrow transplant to treat the leukemia that eventually killed him. For Mark Gendernalik, it was his insurer’s agent refusing referrals for diagnostic tests for his three-month-old daughter, who was suffering seizures. And for pediatrician Mel Stern, it’s been a decades-long scuffle with insurers over claims payments — a battle that’s forced him to stock his office with folks dedicated solely to the task of paperwork-shuffling and claims-haggling.

As conservatives — including Minnesota’s Michele Bachmann — continue to warn that the Democrats’ health reform plans would stick government bureaucrats between doctors and patients, a number of consumers, physicians and former insurance industry employees told lawmakers Wednesday that such bureaucrats are already in place: they’re called private insurance companies. And, bound to shareholders above patients, the witnesses said, these companies are playing a sometimes-deadly game of withholding payments for doctor-prescribed services simply to inflate profits.

“The status quo for most Americans is that health insurance bureaucrats stand between them and their doctors right now, and maximizing profit is the mandate that has simply overtaken this industry,” Wendell Potter, former head of communications at insurance giant CIGNA, said during a hearing of the House Oversight and Government Reform subcommittee on domestic policy, led by Rep. Dennis Kucinich (D-Ohio). “The bureaucracy of private health insurance is a labyrinth of deliberately misleading terms of art designed to help companies minimize the coverage provided and maximize profits to appease Wall Street and investors.”

That status quo, according to many lawmakers, medical experts and consumer groups, provides plenty of reason for Congress to create a non-profit, government-backed health insurance plan to compete with the private companies. Such a public option, Potter argued, is “absolutely vital” in order to protect patients from the “duplicitous” practices of the insurance industry.

Kucinich agrees, arguing that “private health insurance bureaucrats play with the lives of people … when they are at their most vulnerable.”

The comments arrive on the same day that the Senate Finance Committee, led by Montana Democrat Max Baucus, unveiled a long-awaited proposal to overhaul the nation’s dysfunctional health care system — a plan that excludes the public option in favor of non-profit health cooperatives. The co-op model was chosen in an effort to lure the support of Republicans, notably Sen. Charles Grassley (R-Iowa), the ranking member of the Finance Committee, who has said repeatedly that the public option would create a system of government bureaucrats “infringing on the doctor-patient relationship.”

The Baucus bill, however, faces a tough road ahead. Not only are conservatives blasting away at the bill as an expansion of government that will steal services and choices from patients, but liberals are railing against the absence of a public plan to keep insurance companies honest.

Sen. John Rockefeller (D-W.V.), who chairs the Finance Committee’s health subpanel, told reporters Tuesday that there’s “no way” he’ll vote for the Baucus bill as it stands. He pointed to tales of insurance companies denying claims and dropping patients over trivialities — like customers failing to include acne as a prior condition — as reason for lawmakers to push hard for the public option.

“It sounds impossible,” Rockefeller said of the industry’s strategy, “but it happens on a routine basis.”

Linda Peeno provided further testimony that the routine is real. A former review physician for Humana, Peeno said she was evaluated — and rewarded financially — based on claims denials and other tactics that would save the company money. Private insurers, she said, even go so far as to hire outside companies to draft proprietarily protected coverage criteria whose “basic purpose is to deny or limit care.”

“This has never been a more deadly time for patients,” Peeno said.

Conservatives tend not to agree. Micheal Cannon, director of health policy studies at the Cato Institute, told lawmakers Wednesday that the private insurance industry represents a “marvel” of the free market working to benefit consumers. “Health insurance harnesses the self interest of millions of strangers to produce an unquestionably compassionate result,” Cannon said.

Republicans on Capitol Hill are near universal in their opposition to the public option. Rep. Jim Jordan (Ohio), senior Republican on the domestic policy subpanel, used Wednesday’s hearing to promote alternative reforms being pushed by GOP leaders, including health savings accounts and malpractice reform. The public option, Jordan argued, would decrease competition by crowding out private companies.

“I believe Americans trust their health care professionals more than they trust politicians and federal government bureaucrats,” Jordan said.

Yet public plan supporters are quick to point out that insurance companies aren’t health professionals interested in patient care, they’re businesses interested in wrangling profits. And the more claims they delay or deny, the more money they pull in. Indeed, a recent study from the California Nurses Association found that the state’s six largest private insurers have denied more than 20 percent of all claims over the last seven years.

No one has to convince Mark Gendernalik. A schoolteacher in West Hills, Calif., Gendernalik told lawmakers of a series of nightmares his family faced after his three-month-old daughter began having seizures. A refused referral led to an initial misdiagnosis; a neurologist authorized to provide a second opinion was later denied authority to conduct the diagnostic tests; and the expensive drug required for treatment was refused for seven-days while his daughter’s degenerative condition worsened, he told lawmakers.

“Consumers should not have to endure this type of life- and health-threatening hassle,” Gendernalik said.

Providing a physician’s standpoint, Mel Stern, a Maryland-based pediatrician, testified Wednesday that, as a solo practitioner in 1975, he needed only two others to run his office: a nurse “exclusively involved in direct patient care,” and a receptionist to tackle billing, scheduling and claims. Thirty-four years later, he needs four employees to haggle with insurers over claims, coverage and referrals, while he alone delivers patient care.

“Despite the tripling in the ratio of non-clinical support staff,” he said, “I have not noted a significant improvement in the delivery of medical care.”

Erinn Ackley, of Red Lodge, Mont., warned of the potentially tragic effects of such barriers to care. When her father’s doctor OKed a bone marrow transplant in April 2006, she told lawmakers, it was initially denied by his insurer, setting off “an agonizing and bureaucratic appeals process” that ran on for four months. In August of that year, she said, her father finally received his transplant, but he was never able to leave the hospital. William Ackley died in January 2007. He was 59.

“Would there have been a different end to my dad’s story if he had been given approval of the first transplant request in April 2006,” Ackley asked. “We don’t know.”

But 126 days of denials and delays, she added, sure didn’t help.

Mike Lillis is Congress reporter for the Washington Independent.

Sens. Max Baucus (D-Mont.) and Charles Grassley (R-Iowa). Photo: WDCpix

Democrats pushing for a government-backed insurance option as part of their health reform strategy are finding out the hard way that, by taking single payer health care off the table early, they have little leverage now to force a strong public plan.

Unlike the Republicans, who adopted the strong conservative position of resisting almost every Democratic reform proposal from the start, Democratic leaders ruled out the liberal single-payer proposal early in the debate. Now in search of a centrist compromise, GOP leaders have plenty of room to maneuver, while Democrats are left facing proposals that either dilute the public option or eliminate it outright. Indeed, the Senate Finance Committee is expected on Tuesday to unveil long-awaited reform promoting the creation of private health cooperatives, not a public plan.

For many health reform and patient advocates, the developments have been a disappointment. After gaining both the White House and large majorities in Congress this year, the Democrats have made comprehensive health reform their top domestic priority. On the campaign trail last year, then-Sen. Obama came out in enthusiastic support of a strong public insurance option to compete with private insurers as a way to control premium costs, which are skyrocketing. In Congress, Democratic leaders in both chambers also gave clear endorsements to the public option. Even conservative Democratic Sen. Max Baucus (D-Mont.), who chairs the Senate Finance panel, promoted such of plan in a November 2008 policy paper detailing his “vision for health care reform.”

Republicans have adamantly opposed such a plan. But they’ve also had the advantage of knowing for months that Democrats wouldn’t push for anything more liberal. In August of 2008, for example, Obama said that the best option for health reform might indeed be single payer — which would eliminate private insurers in favor of government-backed, Medicare-style insurance designed to provide universal coverage. But he also conceded that it would be too difficult to launch quickly.

“People don’t have time to wait,” he said.

In May, the White House’s top health official told lawmakers that single payer coverage “is not something that the president supports.”

In the House, Democratic leaders held just one hearing this year on single payer, almost as an afterthought. And Baucus, for his part, ignored single-payer supporters until June, when Sen. Bernie Sanders (I-Vt.), the only upper-chamber lawmaker to support single-payer health care, set up a meeting between advocates and the Finance chairman.

The message to Republicans was clear: Single-payer health care would be off the table from the start.

By choosing the public option — not single payer — as the left-most negotiating point, Democrats left themselves with few places to go but toward more conservative proposals for insurance reform, experts say, including the co-op model and a system of triggering public plans only if private insurers fail to meet certain cost and coverage targets. In the blood sport of congressional negotiating — which dictates that you over-ask, and then move toward your goal during the subsequent bartering — Democrats were asking merely for the public plan they wanted in the final bill. The move, some experts say, provided Republicans with greater leverage to fight the public option. Sen. Kent Conrad (D-N.D.), a lead negotiator for the Finance proposal, has said bluntly that a public plan can’t pass the Senate. Even Obama, in a speech on Capitol Hill last week, walked back his support for the proposal by not insisting that it be included in the final reform bill.

Quentin Young, national coordinator with the Physicians for a National Health Program, a single-payer advocate, said greater congressional support for single-payer coverage early on would have given Democrats greater sway to press their public option proposal now in the face of Republican opposition fueled by August’s town-hall protests.

Not that all Democrats are resigned to defeat. House leaders have promised a floor vote on a single payer bill, introduced by Rep. John Conyers (D-Mich.), which has 86 co-sponsors. Young said the vote, the first of its kind, “in a way legitimizes single payer,” which has never had a vote in the chamber despite decades-worth of proposals endorsing it. Young also theorized that Democrats were forcing the single payer vote in order to “put something up to the left of the administration with hopes of pulling some Republicans to the center.”

Julius Hobson, former lobbyist for the American Medical Association and now a senior policy analyst at the Washington law firm Bryan Cave, pointed to another reason that the single-payer vote is significant: It might rally support from some liberal Democrats who are threatening to oppose the final bill if they deem it to be not progressive enough. The vote, Hobson said, “doesn’t allow any of the various factions to say they didn’t get a shot on the floor.”

The comments arrive as the so-called Gang of Six, a bipartisan group of Senate Finance Committee members, continue their slow negotiations in search of a bill that can win support on both sides of the aisle. Baucus told reporters Monday that he expects to unveil the legislation Tuesday. Last week, Baucus released an 18-page draft summary of the bill, which proposed the creation of regional health cooperatives, but no pubic option. Tuesday’s proposal is expected to offer the same.

Some key Republicans, however, are already voicing doubts that the Baucus bill will attract any GOP support.

There remains the possibility that Democrats could somehow ram a public option provision through the Senate. Indeed, Sen. Tom Harkin (D-Iowa), who was recently named to replace the late Sen. Edward Kennedy (D-Mass.) atop the Senate Health, Education, Labor and Pensions Committee, vowed over the weekend that the Democrats’ final bill would include a public option.

“Mark my word — I’m the chairman — it’s going to have a strong public option,” said Harkin, who as recently as this summer reiterated his long-time support for a single-payer system.

Still, following Kennedy’s death, the Democratic majority in the Senate fell to 59, meaning that party leaders will need to entice at least one Republican to defeat an almost certain GOP filibuster. All eyes are on moderate Sen. Olympia Snowe (Maine) as perhaps the most likely Republican to stray from the party line on health reform. Yet over the weekend, Snowe reiterated her opposition to the public option, telling CBS’ “Face the Nation” that “there’s no way to pass a plan that includes the public option.”

Neither single payer nor the public plan are as unpopular among the public as some on Capitol Hill and K Street like to portray. Indeed, a 2007 poll conducted by The Associated Press and Yahoo found that 65 percent of Americans support adoption of “a universal health insurance program in which everyone is covered under a program like Medicare that is run by the government and financed by taxpayers.” A more recent poll, conducted by the Kaiser Family Foundation in July, found that 24 percent of the public “strongly favors” single payer, with another 27 percent “somewhat” favoring the proposal.

Furthermore, a study released Monday by researchers at Mount Sinai School of Medicine found that 63 percent of doctors support the public option, while another 10 percent favor a single payer system that would eliminate private insurers altogether.

Young, who practiced medicine for 61 years before joining Physicians for a National Health Program in 2007, said his group sides squarely with the 10 percent. The public plan wouldn’t accomplish the Democrats’ coverage and cost-containment goals, he said, because it would leave in place the private insurers who “account for virtually all the problems we’re confronting.”

“It’s funny that both the conservative critics and the liberal supporters [of the public option] argue that it’s a stepping stone [to single payer],” he said. “We don’t believe it.”

Mike Lillis is Congress reporter for the Washington Independent.