“Tweaking” Health Reform

Who pays the price for the changes?

Lost in MSM coverage of the president’s budget and hype over a government shutdown has been reportage about the various “tweaks” to the health reform law. Kudos to Merrill Goozner of the Fiscal Times, Megan McArdle at The Atlantic, and Timothy Jost writing for Kaiser Health News, for their enlightening commentaries. Who will pay the price for these changes? Why, it seems, some of the very people reform was design to help—the millions of currently uninsured people who are scheduled to receive government subsidies in a few years as a carrot to make them buy insurance.

The first health law provision to go is the requirement that small businesses file 1099 forms with the IRS. Too burdensome, businesses said, and the pols agreed. The requirement snuck into the law in the first place because the government needed money to pay for the subsidies without raising taxes, and the reporting requirement produced about $22 billion. Toss in another $3 billion that was to come from landlords, and voila, there was a good chunk of change that would help uninsured folks get their coverage. But when squeals from businessmen got louder, Congress and the president have decided to ditch the requirement—but they still had to find another $25 billion or so to make up for the loss.

What they did elevates the meaning of “give-backs” to a whole new level. Under the Dems’ “pay go” rules, and now the Republicans’ “cut and grow” rules, new revenue must be found if there is new spending or new tax breaks. Subsidies for the uninsured qualify as new spending, so Congress went on the hunt for new revenues. Lo and behold, they found it in the subsidies themselves. A family receives a subsidy in the form of a tax credit based on its income the year it needs the subsidy. But eligibility for the credit is determined according to the previous year’s tax return. That means if there are changes in income the year the family gets its subsidy—a family member gets a raise, for instance—the government may have overpaid the insurance company for the family’s premiums. The subsidy goes down. The IRS sends a bill for the overpayment. (The government pays the insurer on behalf of anyone getting a subsidy.)

Under a House bill, a family of four with an income of $45,000, roughly 200 percent of the poverty level, would have to repay as much as $1500; those with incomes more than 400 percent of poverty, or about $89,000, would have to return their entire credit, Jost explained. Families will be hoppin’ mad when they have to find an extra thousand dollars, or two or three, to pay off the U.S. Treasury.

As Jost points out, this arrangement, called a clawback, could spark a backlash. Who will buy insurance if they fear that a large repayment might be hanging over their heads?

Goozner and McArdle reported that the clawback remedy was also used to pay for the doctor fix at the end of last year. As Campaign Desk often reported, health reform did not settle things for the docs, who went along with Obama’s plan thinking that they were going to get a permanent reprieve from cuts in Medicare fees mandated by Congress back in 1997. That didn’t happen because the doctor fix was a budget buster; thanks to the constraints of “pay go” and the no new tax doctrine, there wasn’t much wiggle room.

In December, Congress gave doctors a one-year fix, holding reimbursements at the same level for another year. To pay for this, they clawed back money out of the subsidies, saving some $16 billion over ten years. As McArdle put it: “In other words, we paid for spending now by promising to spend less in 2014 and beyond.” Jost said that little fix could result in 200,000 people going without coverage. Kind of defeats the purpose of the law, doesn’t it?

The media has been too eager to pass along the woe-is-me stories planted by the local medical societies—the kind that say Doctor X will stop delivering babies or Doctor Y will turn away Medicare patients if the scheduled cuts in Medicare payments go into effect. Coverage of the latest doctor fix has been thin, and so has coverage of the latest money swap to fix the 1099 problem.

The House plans to debate the 1099 fix next week. Paying for subsidies for the uninsured has become a saga of “robbing Peter to pay Paul,” and the public needs to know that. Some explainers are in order.

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Trudy Lieberman is a longtime contributing editor to the Columbia Journalism Review. She is the lead writer for The Second Opinion, CJR's healthcare desk, which is part of our United States Project on the coverage of politics and policy. She also blogs for Health News Review. Follow her on Twitter @Trudy_Lieberman. Tags: , , , , ,