Hart Health Strategies provides a comprehensive policy briefing on a weekly basis. This in-depth health policy briefing is sent out at the beginning of each week. The health policy briefing recaps the previous week and previews the week ahead. It alerts clients to upcoming congressional hearings, newly introduced bills, regulatory announcements, and implementation activity related to the Patient Protection and Affordable Care Act (PPACA) and other health laws.


Sequestration: It's the Rule

The $85.3 billion sequestration mandated by the Budget Control Act (BCA) was triggered last Friday and President Obama issued an executive order directing the discretionary and mandatory federal spending cuts that are to take place before the beginning of the next fiscal year. The Office of Management and Budget (OMB) also issued a 70-page report explaining the effect of the across-the-board cuts on federal agencies. In general, Medicare reimbursements would be cut by 2% beginning April 1 (excluding certain Part D low-income subsidies and risk adjustments); domestic discretionary spending would be cut by 5%; certain other domestic mandatory programs (other than Medicaid) would be cut by 5.1%; and a discretionary defense spending would be cut by 7.8%. OMB advised federal agencies to avoid as much as possible any cuts to core agency activities and to first halt the filling of vacant positions, giving employee bonuses and awards and spending on training, conferences and travel.

The Centers for Medicare and Medicaid Services (CMS) testified before the House Energy and Commerce Health Subcommittee that the cuts would adversely affect Medicare anti-fraud efforts. While the President said that the cuts would not likely trigger “Armageddon”, he said they were dumb, arbitrary and the result of the refusal of congressional Republicans to meet his demand that they be replaced by smart cuts and new revenues raised by closing tax loopholes. The President did not gain any leverage from a last-minute meeting he called on Friday with congressional majority and minority leaders. Senate Democrats could only muster 51 votes (short of the 60 needed) for S. 388, the $110 billion measure which would have delayed the sequester and replaced about one-half of the cuts with a surtax on high-income households, adding taxes on tar sands oil production, ending tax deductions for relocating U.S. businesses abroad and scaling back farm subsidies.

A Republican substitute, S. 16, garnered only 38 votes to force the President to propose alternative cuts by March 15th. The House has waited until this week to take up separate legislation to address the sequester, but which would only give the Veterans Administration and the Department of Defense greater discretion to prioritize the cuts under sequestration. The House is also expected to devise and take up another FY 2013 continuing resolution (CR) to continue federal spending at the BCA’s $1.043 trillion level, but with a provision to allow the sequester to go forward as described above (thus bringing discretionary spending below the $1 trillion mark that House Republican deficit hawks have demanded).

In the Senate, Appropriations Chair Barbara Mikulski has indicated she will take a different approach to the CR by pushing an omnibus bill totaling $1.043 trillion in spending as previously contained in the 12 FY 2013 appropriations bills taken up in her committee. The Senate omnibus effort is not likely to include the spending reductions mandated under the BCA. However, it is doubtful that the President would veto a CR passed by the House and Senate that contains the House sequestration language. OMB has already said the Administration will be seeking a $949 million increase in FY 2013 funding for CMS and will ask Congress to eliminate funding under the PPACA for state high-risk insurance pools. Quick congressional action on the FY 2013 CR before the scheduled Spring Recess on March 22nd would avoid a shutdown of the federal government on March 27th when the current CR expires. A resolution of FY 2013 funding will set the stage and baseline for the upcoming debate after the recess over federal spending in FY 2014 and later years. Both the House and Senate are expected to meet the April 15 deadline for passing a budget resolution for the next fiscal year and plan to mark up their budgets next week.

This week the House will also take up H.R. 668, legislation directing the President to provide an estimate of the cost per taxpayer of the federal deficit when he submits his FY 2014 budget plan later this month. A recent GAO report, discussed at a Senate Budget Committee hearing, contains budget simulations which foreshadow the hurdles legislators will confront as to future health spending. It concludes that the PPACA cost controls will be inadequate to prevent federal health care spending from continuing to grow faster than the economy over the next 75 years.

PPACA Final Risk Adjustment Rule

CMS issued a 483-page “Notice of Benefit and Payment Parameters for 2014” final rule spelling out the provisions of the permanent risk adjustment program, transitional reinsurance program (for 2014-16) and temporary risk corridor program (for 2014-16) included under the PPACA to adjust premiums and help keep insurers from avoiding high risk individuals. The rule, which applies to state-run exchanges without risk adjustment programs and to the default federally facilitated exchange (FFE), also spells out provisions relating to the payment of premium tax credits and to the cost-sharing reductions for individuals eligible to purchase health coverage under such exchanges. In addition, health insurers offering coverage under the FFE are directed to pay a 3.5% premium fee. A related interim final rule would allow insurers offering qualified health plans (QHP) to use an optional simplified means for calculating cost-sharing reductions during a transitional period.

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