This month the U.S. House of Representatives Committee on Energy and Commerce presented a report offering the findings of an investigation into the practice of denying individual health insurance coverage to people with preexisting medical conditions. The committee, chaired by Representative Henry Waxman, the Democratic Congressman from of Los Angeles, reported:

From 2007 through 2009, the four largest for-profit health insurance companies…refused to issue health insurance coverage to more than 651,000 people based on their prior medical history. On average, the four companies denied coverage to one out of every seven applicants based on a preexisting condition.

The Wall Street Journal ran an article on the report titled “Insurers Denied Coverage to 1 in 7.” It came as no surprise to me that the congressional committee published a report critical of private health care insurance and supportive of the national health insurance overhaul passed by Congress in 2009 and signed into law this year, but I it was a bit surprised when I compared The Wall Street Journal to the report and found that the reporter, Janet Adamy, had repeated the committee’s claims without challenging them.

For example, the report equated “people” with “applicants,” but I am not convinced that the two were the same. Did anyone check with the committee to make sure there was no duplication of applicants between the four health insurance companies? The period of the study—three years—was certainly sufficient time for an individual denied health insurance coverage by one insurer to apply again and be denied by a different insurer.

It is possible—I would say likely—that 651,000 denials of coverage do not represent denial of coverage to 651,000 individuals. Since the committee studied four health insurance companies, there is a possibility that the number of denials is off by as much as a factor of four, if each person denied by one company reapplied to all of the others. Instead of 651,000 people denied coverage over three years, there might be as few as 162,750.

The possibility also exists that individuals denied by one company might have applied to the same company a second time in the three years. I have seen this happen in my own business: A person denied coverage because of weight, high blood pressure, high cholesterol, or other factors might make lifestyle changes and reapply to the same health insurance provider, sometimes for the same plan. That person could be denied a second time for one of the earlier factors or for something completely different. Any duplication of applicants decreases the final tally.

There is another possibility, along the lines of the example I just gave: The person who made lifestyle changes could be accepted upon reapplication. Their denial still shows up among the 651,000, but that individual is actually covered now.

Any journalist should be wary of partisan committee chairs wielding statistics. As the great American humorist and novelist Mark Twain observed, “There are three kinds of lies: lies, damned lies, and statistics.”

Another questionable aspect of the report relates to the time frame. Why were the number of denials grouped over three years? Not only does the time span allow for the possibility of duplication, but it also skews the magnitude of the problem vis a vis  the size of the general population. In other words, 651,000 people represents two-tenths of one percent of the population. However, that 651,000 is an accumulation over three years. On average, fewer than 220,000 people were denied coverage in any one year, according to the committee’s findings.

If you accept the possibility of duplication of applicants by a factor of four, then only 54,250 people were denied coverage per year—a truly miniscule number in a country with 310 million people, working out to less than two-one hundredths of one percent of the population.

It is clear to me that the authors of the congressional study grouped the three years to inflate the number. 220,000 is just not as impressive sounding as 651,000. What was the logical reason to group three years? Why not two years? Or four? Or fifteen?

There can be no doubt that the committee’s report, coming just three weeks before a national election, was politically motivated to make the highly unpopular health insurance reform legislation more appealing. The authors of the report wrote:

The insurance company practices described in this memorandum are those that exist in today’s market. In all likelihood, they would continue unabated in the absence of federal health reform legislation. One of the major benefits of the Affordable Care Act, which was signed into law on March 23, 2010, is a ban on the practice of denying coverage based on preexisting conditions.

The authors of the report tried to extend their findings beyond the four largest health insurance providers and into the general population, writing “approximately 15.7 million adults under 65 received their health care coverage through individual health insurance policies.”

As a side note, 15.7 million people sounds like a large number, but represents merely 5 percent of the total population of the United States. The other 95 percent of the population do not face denials based on preexisting conditions because the law prohibits group health insurance plans and governmental health insurance plans from denying coverage based on a preexisting condition.

Although the report references the 15.7 million Americans in the individual health insurance market, it does not state that all 15.7 million applied for health insurance coverage during the time frame of the report. In fact, it is a certainty that they did not. Yet the number of applicants nationwide is the crucial number to consider when analyzing health insurance denials. Only then can the number of people denied coverage be placed in context.

Instead, the report stated that on average approximately 1 out of 7 applicants was denied coverage. Since 651,000 people in the study were denied coverage, that would mean 4,557,000 people applied for coverage to the four major companies over three years (651,000 x 7).

We have already seen, however, that the number of people denied coverage could be four times smaller than the number of applicants, due to duplication of applications. Therefore, the more accurate statement would be that 1 in 28 applicants was denied coverage. Since not all people in the individual market applied for insurance in the last three years, but 4.5 million did apply to the largest health insurance companies, a reasonable estimate of the number of applicants over the past three years would be half of the market, or 7.6 million people. If 1 in 28 was denied coverage, that would total 271,428 individuals, or 90,474 per year. Even this is a minuscule portion of the population, just three-one hundredths of one percent of the population.

The compassionate thing might be for taxpayers to pay the medical bills of those who are  denied individual health insurance coverage. Perhaps they should be allowed to join Medicaid, or we could set aside a federal superfund to pay for their care. This would be much smarter than burdening the private health insurance industry with mandated coverage that is actuarially unsustainable, as the new health insurance reform law does.

In my previous blog post, I outlined an important change to health insurance coverage that the Patient Protection and Affordable Care Act mandated take effect on September 23, namely the removal of lifetime benefit caps for “essential” health services. The term “essential benefits” has yet to be defined by the Department of Health and Human Services (HHS), but it is believed to include ambulatory patient services, hospitalization, emergency services, chronic disease management, laboratory services, maternity and newborn care, preventive and wellness services, and prescription drugs.

September 23 also marked the deadline for several other health care insurance coverage mandates that could affect you or someone in your family:

No Annual Limits on Benefits
The Patient Protection and Affordable Care Act requires health insurance providers to phase out caps on annual benefits for plans sold or renewed between now and 2014.

Anti-Cancellation Rules
Health insurance providers no longer can retroactively cancel a policyholder’s coverage for medical reasons. Health insurance providers still are allowed to terminate coverage because of fraud or for nonpayment of premiums.

Required Coverage of Preventative Healthcare
Health care insurance plans now must provide full coverage—without cost-sharing (such as deductibles, co-payments, or co-insurance)—of preventative healthcare recommended by the CDC (Centers for Disease Control). For example, CDC-recommended immunizations must be covered in full by the insurance provider. Similarly, the health insurance company must bear the full cost of preventative healthcare for infants, children, adolescents, and women that is recommended by the Health Resources and Services Administration. Health plans created or sold before March 23, 2010, may be exempt from the preventative care requirements.

Coverage of Adult Dependents
Health plans that covered dependents are now required to extend the dependent coverage to children up to age 26.

No Exclusions for Preexisting Medical Conditions in Children
Health insurance coverage cannot be delayed or denied to children 19 and young because of their preexisting medical conditions. (Some older health insurance plans are exempt from this requirement.)

Ability to Select Primary Care Provider
Some health insurance plans require the plan member to select a Primary Care Provider (PCP), but limit those choices. Under the new law, the health insurance provider must allow a policyholder to select any participating PCP who is accepting new patients. When selecting a PCP for a newborn or child, the plan member can choose any participating physician who specializes in pediatrics. Female plan members can designate any OB-GYN participating in the plan as a PCP.

Emergency Medical Services Coverage
Health care insurance plans that cover emergency health services no longer can require policyholders to obtain prior authorization for emergency care. Health insurance plans also must provide the same amount of coverage for emergency care obtained outside a participating network as it does for care obtained from a participating provider.

New Appeals Process
Group health care insurance providers must provide policyholders with an appeals process that comports with U.S. Department of Labor standards. Individual health care insurance plans must provide policyholders with an appeals process that conforms to regulations created by the Secretary of the Departmetn of Health and Human Services (HHS). Both group health care insurance plans and individual health care insurance plans must provide an external appeals process that conforms to existing law or, at least, with the NAIC Uniform External Review Model Act.

I am encouraging all of my health insurance clients to fully understand and make the most any of these changes that apply to them or to members of their families. I must add, however, that I cannot see how at least some of these new benefits are sustainable over the long haul. Open-ended benefits do not conform to the realities of actuarial science. As I wrote last week, a single patient with a chronic disease could cost a plan millions of dollars over his or her lifetime. The Patient Protection and Affordable Care Act mandates benefits without providing a way to pay for them. Health insurance providers will have no choice but to raise premiums dramatically, and that still might not be enough. Benefit caps were not devised because health insurance executives are hard-hearted or greedy. They were established because, without them, the private health insurance model will not work. The harsh truth is that unlimited benefits are not sustainable without unlimited premiums to balance them out.

Health insurance companies are required by a provision of the Patient Protection and Affordable Care Act—the health insurance regulations passed by Congress and signed by President Obama in March—to eliminate lifetime benefit caps in all new health insurance policies they sell or renew, beginning September 23, 2010.

With the caps gone, people with chronic illnesses will not have to worry about their health care insurance benefits running out. But that is not the end of the story.

Most lifetime health insurance caps are set between $1 million and $2 million. The reason is simple: Paying millions of dollars in health insurance claims to one person would drive up costs for everyone else in the risk pool, making health insurance unaffordable to many.

If you find it hard to believe that one person could cost others millions of dollars, consider the case of Edward Burke, a resident of Palm Harbor, Florida, as described in a story on National Public Radio this week. Burke was diagnosed with hemophilia at an early age in 1960. In the early 1970s, drug companies created factor eight, a chemical that takes the place of the blood factor that enables normal clotting, which hemophiliacs do not have.

Burke describes factor eight as a miracle. With the drug, bruises that normally sent Burke to bed rest for up to five days would disappear within 24 hours. The wonder drug allows Burke and other hemophiliacs lead close to normal lives. Factor eight is not cheap, however. “It was easily about $900,000 a year for me to take factor eight prophylactically, as what we were told to do, to prevent bleeds from happening,” Burke told NPR.

At nearly a $1 million a year, Burke reached his lifetime health insurance caps in no time. To keep receiving the drug, Burke would leave one employer and move to another. “After two years, you’d have to leave the company you were with, or go on—if you had a spouse, go on theirs, because you capped out,” explained Burke. Burke has done this twice in the last seven years. He would have done it more often, but he has had the good fortune of working for companies that have been part of takeovers and mergers. “The companies kept changing names and being acquired,” Burke said, “so you started over again, or I would have capped out four or five times.” Not surprisingly, Burke is happy to see the era of benefit caps end. “The fact that they can’t cap me out is a huge blessing, if you ask me,” he said.

For Burke, it is a blessing, but what about for those picking up the tab, not just for his medication, but for all medication and care that normally would be capped? For example, it would take another 200 policyholders paying $4,500 a year in healthcare insurance premiums to cover the cost of Burke’s drugs. Realistically, it would even more—230 policyholders—because the health insurance providers must use some of their premiums to pay for overhead and earn a profit, an amount capped at just 15 percent of premiums (as explained in my previous post). Spreading the cost of Burke’s medication among 230 fellow policyholders is an example of shared risk, the economic foundation of insurance.

However, it will take many more than 230 people to absorb Burke’s costs. That’s because many if not all of those 230 people will have health insurance claims of their own over the course of a year. Unlike homeowner’s insurance or car insurance, where policyholders do everything they can to avoid losses, health care insurance is seen as a service that should be used. Whenever a person pays $4,500 or more per year for something, they will have a natural desire to get their money’s worth out of the deal. The vast majority of the 230 health insurance policyholders absorbing Burke’s cost will visit the doctor when they are ill and even when they are not, getting check-ups, tests, drugs, and other care, creating a higher per capita claim cost.

As the size of the pool required to cover Burke’s costs expands, so does the likelihood that another pool member will be hospitalized or otherwise file a large claim. As the pool expands to absorb that person’s costs, the chances of another pool member requiring large benefits increases, and so on.

According to actuarial science, the per capita claim amount for a certain period must equal the total amount of payments, divided by the number of insured persons:

C = P/L

where:

C = Average per capita claim

P = Total payments in a period

L = Number of insured persons

With insurance companies no longer allowed to limit lifetime benefits, the average per-capita claim is going to surge upward. Burke is just one of 20,000 hemophiliacs in the United States. If each hemophiliac requires $900,000 a year worth medication, that would add $18 billion a year to the claims side of the health insurance equation, bumping up the total payments, and thus the cost per policyholder. Nor is hemophilia the only costly chronic disease. Cancer, HIV AIDS, diabetes, reheumatoid arthritis, heart disease—the list of chronic conditions that can exceed lifetime caps is long.

Eliminating caps on lifetime health care insurance benefits truly is a blessing to Burke and many other people in his position. I feel for them, and I am happy for them. Unfortunately, the elimination of lifetime caps cannot be sustained, and that will affect everyone.

The more lifetime benefits rise, the more per capita claims will go up. To balance the equation, total payments will go up, increasing premiums for everyone. At some point—call it the tipping point—premiums will be so high that vast numbers of people will drop out of the market. With fewer people to share the risk, the cost of premiums will go even higher, driving even more people out of the market. It is an endless spiral that will destroy the private insurance model. At that point, the government will step in.

But even governments cannot defy actuarial reality. The costs of the system will require ever increasing taxes. When the taxpayer is tapped out, government will move to control costs by rationing care. Like the private companies that preceded it, the government will focus on the few who are driving up costs for the many: the Edward Burkes of the world. At that point, there will be no private insurance for anyone to turn to.

A new study published by Health Affairs reveals that nearly five million children in the United States who qualify for low-cost or free government health insurance, such as Medicaid or Children’s Health Insurance Program, are not enrolled in the programs.

More than 82% of the 25 million children eligible for these taxpayer-funded health care insurance plans participate in them. However, in five states—Florida and four western states—less than 70% of eligible children participate in the programs: Nevada (55.4%), Utah (66.2%), Colorado (68.9%), Montana (69.3%) and Florida (69.8%). The states with the highest participation rates were in the Northeast: Maine (92%), Vermont (94%), and Massachusetts (95%).

The authors of the study were surprised that low-income families used the government programs more than higher income families did: Families earning up to twice the federal poverty rate of $44,100 for a family of four had the lowest rate of participation in the government-subsidized health insurance programs.

I was not surprised, however. It has been my experience consulting with families seeking health insurance that many middle-to-high income families are not aware that they might be eligible. Even when they learn they are eligible, many prefer to buy private insurance to avoid the stigma of receiving government assistance.

In addition, many families prefer to have the entire family covered on a single plan they can afford, rather than splitting coverage between private and public insurance.

The National Association of Insurance Commissioners (NAIC), a group comprising health insurance regulators from the various states, agreed Tuesday on definitions of the kinds of health insurance expenditures that constitute patient care and quality improvements. These definitions are crucial, because the new health care insurance reform legislation signed into law by President Obama in March will penalize health insurance companies if they spend less than a certain percentage of the premiums they collect—known as the loss ratio—directly on patient care.

The Patient Protection and Affordable Care Act, the national health care insurance law, mandates that all health insurance providers must spend a minimum of 80% of premium receipts from an individual or small-group health plan on health care. Insurance companies must spend fully 85% of premiums from large group plan on patient care.

The decision of what types of spending count toward patient care and what is excluded was left to the NAIC. On Tuesday, the NAIC adopted a definition of care that everyone—consumers and health insurance industry professionals alike—consider to be narrow.

Ethan Rome, the executive director of Health Care for America Now (HCAN), a consumer advocacy group, lauded the NAIC’s action. “Today the NAIC took a step toward ending the health insurance companies’ stranglehold on our health care,” Rome declared. “The top state insurance regulators from across the nation voted to put patient care above insurance company profits.”

Insurance industry executives disagreed. Karen Ignagni, the president and CEO of America’s Health Insurance Plans (AHIP), said that the definitions are far too limited, excluding fraud detection and other measures that result in tangible benefits to the insured. The narrow definitions, Ignagni said, “could have the unintended consequence of turning-back-the-clock on efforts to improve patient safety, enhance the quality of care, and fight fraud.”

Prior to the vote, AHIP sent a letter to the NAIC, asking regulators to include several specific practices under the rubric of quality improvements: claim reviews, “a key tool in targeting the dangerous overutilization of services, falsification of medical records, and medical identity theft;” the adoption of new medical billing codes that would “improve the ability of health plans to share clinical data among clinicians for quality improvement and care coordination activities;” review of redundant procedures, such as medical imaging, which are widely overused; and wellness incentives, which health care insurance reform law itself calls for.

By forcing the insurers to pay for these programs as part of their operational expense, the NAIC is hamstringing innovation, says Ignagni. “Preserving patients’ access to high-quality health care services is essential if the key goals of health care reform are to be achieved.”

Needing to control their monthly costs in a down economy, more people than ever are turning to high-deductible health insurance plans that offer lower premiums.

The U.S. Centers for Disease Control and Prevention reports that 47 percent of people with individual health insurance and 20 percent of those with group health insurance through their employers have enrolled in high-deductible plans, taking on annual deductibles of $2,400 per family and $1,200 for individuals.

Other health care insurance consumers have accepted incremental increases to their deductibles to offset rising premiums.

Either way, people are paying more out-of-pocket medical expenses. What many people don’t realize is that they may be able to reduce those out-of-pocket costs simply by paying attention to their care and asking for discounts.

Speak Up

Saving money starts by making the healthcare provider aware that you—not your health care insurance company—will be paying for the care. Many doctors are practicing defensive medicine, erring on the side of caution, under the assumption that the insurer is picking up the bill. When you make it known that you are paying out of pocket, many doctors will reconsider those borderline tests and treatments.

For example, a doctor’s standard annual physical may cost $300, which in most cases will fall within an annual deductible. If you make it clear that you do not want any unnecessary tests, you might be able to eliminate one or two, shaving $100 or more off the bill.  

Here are some other tips for saving money on health care:

Offer Cash

Setting up payment plans, sending out bills, even processing credit cards—getting paid consumes a lot of time and attention in the medical office. By offering to pay cash, you are offering to cut down on the workload, and you often will be rewarded with a discount. “Some healthcare providers give anywhere from 10 percent to 60 percent off for paying cash,” says Carrie McLean, a consumer expert with online health care insurance broker eHealthInsurance.com.

Manage Your Care

As study by the Dartmouth Atlas Project reports that nearly a third of all medical care is not necessary. One way to cut down on the waste is to pay close attention to your care, looking to eliminate duplication of tests and procedures. If you remember a particular test being performed recently, speak up. Many offices are not aware of what has happened in other offices.

Compare Pricing

Your doctor will recommend that you visit a particular lab or imaging center, but that does not mean you are locked in. If you are paying out of pocket for the care, call around to see if a different facility offers a better price. Larger facilities, such as hospitals, often charge more than small ones, such as an ambulatory care center.

Learn the Lingo

Every medical test and procedure has been assigned a special code that is used to bill Medicare and private health insurance providers. This code is known as the Common Procedural Terminology code, or CPT. When asking for estimates of cost over the phone or online, communicate by using the CPT code. That way you can avoid confusion and zero in on the best price.

Document the Process

Negotiating lowers prices can be a fleeting experience—and easily forgotten by busy medical staff. If you are going for a discount, be sure to get the agreement in writing. Keep in mind that most medical offices use outside billing services to handle medical billing. As a result, the chances of miscommunication are great. If you have your discount in writing, you will have a much easier time correcting errors and paying less.

In my previous blog posting, I discussed how California responded to the federal government’s mandate to make high-risk health insurance available to Californians who have been unable to obtain private health care insurance because they have pre-existing health conditions.

While preparing that blog post, I visited the federal government’s health care insurance website at http://www.healthcare.gov and followed the steps that led to the California state government’s health insurance site. Once there, I signed up to get an email with details for the high-risk health care insurance pool. Today the following email came from the State of California:

Hello:

Thank you for your interest in California’s Pre-existing Conditions Insurance Plan (PCIP), also known as the temporary federal high risk pool.  Currently, we do not have applications available for the PCIP. The Managed Risk Medical Insurance Board (MRMIB) continues discussions on the specific rules for developing, implementing and operating the PCIP.

California’s goal for implementing the PCIP is to begin accepting applications in August 2010 with the first effective date of coverage beginning in September 2010.

To be eligible for the new PCIP, federal law sets out three requirements:

1. Be a US Citizen, US National or lawfully present individual;

2. Have a pre-existing medical condition that meets the guidelines set by the federal government; and

3. Have not had health insurance or public health coverage for at least six (6) months.

Applicants must have been uninsured for at least six months at the time they apply for the PCIP but the State high risk pool does not have such a requirement. You can access info on the CA Major Risk Medical Insurance Program at http://www.mrmib.ca.gov/MRMIB/MRMIP.shtml.

If you have included your name, address, telephone number, and email address, we will place your name on the list for a PCIP application when they are available in the next month or so.  If you have not included this information, please re-submit your request with that information.

We will be posting updates on MRMIB’s website under “What’s New” on the homepage at http://www.mrmib.ca.gov/.  Also, if you know others who want a PCIP application ask them to send us an email with their name, address, telephone number and email address to FHRP@mrmib.ca.gov.

Again, thank you for your interest in California’s PCIP

If you have been denied health insurance coverage because of pre-existing medical conditions, I hope you find this information useful.

In March 2010, President Obama signed into law the national health care insurance reform bill known as the Patient Protection and Affordable Care Act. The new law contains a provision that requires the states to establish high-risk health insurance pools no later than 90 days after the bill became law. The purpose of these pools is to provide health insurance to people who have been denied coverage due to pre-existing medical conditions.

This high-risk health insurance pools will be dissolved on December 31, 2013. Starting on January 1, 2014, all private health care insurance companies will be required by the new federal law to cover consumers with pre-existing medical conditions. (To read what I believe the effects of this law will be on private health insurance, please see my previous posts.) Secretary of the Department of Health and Human Services Kathleen Sebelius sent a letter to the governors of the states, requesting their plans for implementing the high-risk health insurance pools.

In April 2010, Governor Schwarzenegger notified Secretary Sebelius that California would operate the temporary high-risk health insurance program alongside the state’s existing high-risk pool, known as the Major Risk Medical Insurance Program (MRMIB). California’s MRMIB is a partnership between government and the private insurance industry that uses private vendors supervised by the MRMIB to offer California residents health insurance through various programs, including California’s Healthy Families Progra, or Health Insurance Program (CHIP).

The criteria for eligibility to enroll in the high-risk pools will be different than the requirements for existing programs. This is an overview of the high-risk health insurance program:

Eligibility. The high-risk pools are available to American citizens or resident aliens who have not had health insurance coverage for a minimum of six months because coverage was denied due to pre-existing medical condition. To demonstrate eligibility, applicants must provide a letter of denial of coverage from a private health care insurance company.

Cost. The MRMIB has not announced which vendor will provide the coverage for people with pre-existing conditions, so the actual costs are not yet know. Based on what other states are charging, however, it is likely that with federal subsidies, premiums will range from $400 a month to $1,200 per month, depending on gender, age, and other variables. Annual deductibles could be as high $3000 for an individual and $6000 for a family.

Funding. According to the Congressional Budget Office (CBO), the entire budget for the PPACA now exceeds $1.05 trillion for the first ten years, but the amount set aside for the high-risk pools is just $5 billion, or less than one half of one percent of the total budget. That money will be spent within two years, according to the CBO.

Enrollment. If you have been denied health insurance coverage because of a pre-existing condition, you can log-on to the U.S. government’s health care insurance Web portal at http://www.healthcare.gov. By completing the online fields and following the links, you will learn more about applying for this new, temporary coverage.

As I predicted in my previous post, Congress rushed through an amendment to the health insurance reform bill eliminating the scheduled 21% cut in fees paid to doctors treating patients insured through Medicare. The new law prevented bookkeeping nightmares by applying retroactively to June 1, 2010, the date that the previous stop-gap measure expired. This is the tenth time Congress has blocked such cuts in the last eight years, including four times since January of this year.

As I also predicted, Congress did not attempt to pass a permanent change in the way the Medicare health care insurance payments are calculated, causing President Obama to comment, “Kicking these cuts down the road just isn’t an adequate solution to the problem.” House Speaker Nancy Pelosi agreed, criticizing the bill as “totally inadequate.”

The reason Congress balked at a permanent fix, of course, is an election-year phobia about deficits. Fixing the Medicare payment structure would add $245 billion to the deficit over the next ten years. To avoid that prospect, Congress went for a 6-month fix. In addition, the short-term doc fix bill is paid for with new taxes on corporations, Medicare savings, and anti-fraud measures.

The so-called savings are a bit of a shell game. Two-thirds of the Medicare doc fix is paid for with $4.2 billion trimmed from Medicare payments to hospitals—in other words, taking from one pocket and putting it into another. Are the hospitals going to play along? Or are they going to demand a “hospital fix?”

The corporate tax hikes sounds like another tax on the “rich,” but that’s not exactly the case. The new law allows corporations to increase their profits by decreasing their contributions to pensions. The taxes that pay for the doc fix will come out of these added profits. In other words, the Medicare doctors benefit and the corporations benefit—only the pensioners are hurt. Yet the White House blog touts the doc fix law as “Protecting Seniors’ Care.”

In my previous post, I wrote about how the Congressional Budget Office (CBO) has revised its estimate of the cost of the Patient Protection and Affordable Care Act (PPACA)—the health insurance reform legislation passed by congressional Democrats earlier this year.

The CBO originally said that the bill’s $420 billion in new taxes would more than offset its new spending, reducing the federal deficit by $140 billion over ten years.

In March, the CBO revised its 10-year forecast for the cost of the health care insurance legislation upward by $152 billion, wiping out the projected savings and adding to the federal deficit. In May, the CBO added another $115 billion to the price tag to pay for the cost of implementing the program. Now President Obama is asking Congress to spend another $245 billion over ten years to eliminate the scheduled reductions in payments to doctors through Medicare Part B—also known as the “doc fix.”

The reductions in doctor payments were enacted by Congress in 1997 as part of an attempt to control the spiraling costs of Medicare. Congress linked physician payments to the Sustainable Growth Rate (SGR), a payment index that has not kept up with the Gross Domestic Product (GDP). The SGR would reduce Medicare payments, but Congress has not allowed that to happen. As the CBO wrote in its analysis of the cost of the new health reform legislation:

The sustainable growth rate mechanism governing Medicare’s payments to physicians has frequently been modified (either through legislation or administrative action) to avoid reductions in those payments, and legislation to do so again is currently under consideration by the Congress.

Indeed, the American Medical Association spent millions of dollars on an advertising blitz in May to make sure the “doc fix” legislation passes. Its ads chastised the U.S. Senate for going to its Memorial Day recess before “fixing a scheduled 21 percent cut to Medicare.”

At one point, Congress planned to fix the Medicare payment reductions as part of its comprehensive reform of healthcare. That idea was shelved, however, after the CBO announced that the cost of a permanent “doc fix” would cost $245 billion for the first ten years, pushing the cost of comprehensive health insurance reform into deficit spending. This is something the president did not want to see happen. In his address to a joint session of Congress on September 9, 2009, President Obama said:

I will not sign a plan that adds one dime to our deficits—either now or in the future.  (Applause.)  I will not sign it if it adds one dime to the deficit, now or in the future, period.  And to prove that I’m serious, there will be a provision in this plan that requires us to come forward with more spending cuts if the savings we promised don’t materialize. 

[Italics mine.]

To avoid the appearance of deficit spending, the Democratic leadership in Congress removed the “doc fix” provision from the health insurance reform bill, reducing the spending by $245 billion and leading the CBO to estimate the bill would reduce the deficit by $140 billion over the first ten years.

The deficit reduction came not from economies in health care reform, but from the fact that the bill would collect $420 billion in new taxes over the first ten years.

Nor was the “doc fix” the only assumption that seemed dubious at best. In fact, since the passage of the Patient Protection and Affordable Care Act, the CBO has revised its estimate of the bill’s cost upward by $267 billion (see previous post), not only wiping out the $140 billion in deficit reduction, but increasing the federal deficit by $127 billion during the next ten years. With the $245 billion “doc fix” added in, the deficit for federal healthcare spending over the next ten years will run to $372 billion.

The White House has yet to announce what spending cuts it will put forward to ensure that the Patient Protection and Affordable Care Act will not add “one dime”—let alone $372 billion—“to our deficits.”