Decoding HHS Secretary Price's spin on the American Health Care Act
Health and Human Services Secretary Tom Price. (Joshua Roberts/Reuters)
By Glenn Kessler
"The fact of the matter is that Medicaid spending under the proposal and under the budget goes up every single year."
"We have got 20 million folks out there across this land who have told the federal government, 'Phooey, nonsense. I'm not going to participate in your program because it doesn't do what I need done.' So, they are paying a penalty."
— Health and Human Services Secretary Tom Price, interview on CNN's "State of the Union," May 7
Price defended the American Health Care Act, the House GOP plan to overhaul the health-care system, in an interview with CNN. We're going to focus on two statements in particular because they are rather misleading.
Medicaid spending
When challenged by CNN's Jake Tapper over reductions in Medicaid spending — $839 billion over 10 years, according to a Congressional Budget Office estimate in late March — Price responded with some Washington double-talk about funding for the health-care program for the poor. (An earlier CBO estimate had pegged the reduction at $880 billion, which is the number Tapper used in the interview.)
"Well, remember what the $880 billion is off of. It's off what is called a baseline, which is what the federal government, what the Congressional Budget Office says we would spend if we just continued current law. The fact of the matter is that Medicaid spending under the proposal and under the budget goes up every single year. And it goes up by a factor that is great — that is equal to the cost of medical care."
Debates over a baseline are an old Washington tradition. The CBO calculates what would be necessary to maintain current services over a 10-year period, accounting for inflation, population growth and so forth. One dollar in 2026 will not go as far as a dollar in 2016.
Here's our favorite example of this phenomenon: Defense spending technically remained constant from 1987 to 1994 — $282 billion a year. But look what happened to the military during those seven years: The number of troops fell from 2.2 million to 1.6 million, the number of Army divisions was reduced from 28 to 20, Air Force fighter wings dropped from 36 to 22 and Navy fighting ships declined from 568 to 387. That's because inflation over time ate away at the value of those dollars. By most measures, defense spending was trimmed in that period, although in theory, not a penny was cut.
Price, having been chairman of the House Budget Committee, certainly understands this concept. Yet he declared "there are no cuts to the Medicaid program. There are increases in spending."
The proposed changes to the Medicaid budget would reduce spending by nearly 25 percent over 10 years and cover 14 million fewer people than anticipated by 2026. But Price is also wrong to claim that "Medicaid spending under the proposal and under the budget goes up every single year."
The CBO did not publish these figures, but when you adjust the CBO's March 2016 baseline for the reductions in outlays in its most recent CBO estimate of the legislation, here's what happens to annual Medicaid spending:
2017: $390 billion
Notice that when the major part of the Medicaid changes take effect in fiscal 2020, actual spending decreases year over year. In fact, not until 2023 does spending even get back above the level of 2019. So never mind "the baseline" — spending year over year declines in 2020. (HHS did not dispute our calculations.)
What happens in 2020? Currently, the federal government pays for a portion of the cost of Medicaid, at least $1 in matching money for every $1 a state spends on Medicaid, with 90 percent of the costs if a state expanded Medicaid under President Barack Obama's Affordable Care Act.
But, under the AHCA, financing would be set per enrollee in a state, using 2016 as a base year. Then, increases in spending in each subsequent year would be limited to the medical care component of the consumer price index for all urban consumers (CPI-U Medical), with a higher rate set for the elderly, the blind and the otherwise disabled starting in 2020. (In other words, the base rate is locked in for four years even for the elderly, the blind and the disabled, so that lower baseline would be permanently baked into future calculations even for a group requiring extra resources.)
Price said that spending would increase "equal to the cost of medical care," but the CBO projected that Medicaid spending per enrollee would grow faster than the medical inflation rate, so it's clear that less money every year would be available to serve this population. In any case, it's all but impossible to predict how much pressure the aging of the baby boom generation would place on Medicaid. (About 25 percent of Medicaid spending goes to nursing home and long-term care.)
At one point, Price assured Tapper that it was "absolutely not" true that people would lose Medicaid as a result of the spending reductions. This is a misleading talking point we have dissected before, but simple math explains why this is false. People cycle on and off Medicaid on a regular basis. If they try to return to the program once the AHCA takes effect, they will have lost their grandfathered status.
Paying a penalty
Price flatly said that "20 million folks" choose to pay a penalty because they wanted nothing to do with Obamacare, although if you listened carefully you might have noticed a small caveat at the end of his spiel.
"We have got 20 million folks out there across this land who have told the federal government, 'Phooey, nonsense, I'm not going to participate in your program because it doesn't do what I need done.' So, they are paying a penalty. They're paying the IRS a fine or a penalty because the federal government is dictating to them what they don't want to do, or they are saying, give me a waiver."
But this is wildly inflated. According to a Jan. 9, 2017, letter from IRS Commissioner John Koskinen to Congress, only 6.5 million taxpayers paid the "shared responsibility" payments in 2015. That's actually a decrease from 2014, when 8 million taxpayers made a payment. The payments in 2015 totaled about $3 billion, with the average payment about $470.
Many people probably paid a penalty for only some months, not an entire year. The Congressional Budget Office estimates that, on average, about 3 million people will pay the penalty for being uninsured in any given month in 2016.
Notice how Price slipped in the word "waiver" at the end? He gets to 20 million by adding in people who received an exemption; that totaled 12.7 million taxpayers. But Price framed this as some sort of mass protest against the law ("phooey, nonsense"). When you dig into the data, that's not the reason.
Exemptions are granted for a number of reasons, but the most common one is that a person has income below a certain threshold and lives in a state that did not expand the eligibility for Medicaid. (The law offered Medicaid to nearly all low-income people with incomes at or below 138 percent of poverty, or $27,821 for a family of three in 2016). In other words, this is the result of the Republican governor or legislature refusing to accept the expansion.
The second most common exemption is if a citizen lives outside the United States. People also do not need to pay a penalty if they would have had to pay more than 8.13 percent of their income (in 2016) to obtain health insurance.
President Trump engaged in similar gamesmanship with this figure and administration officials really need to start citing the data accurately.
HHS response
Alleigh Marré, HHS national spokeswoman, provided the following response for this fact check:
"The Washington habit of measuring the success of a program by how much money is spent is one of the reasons the Medicaid program is in dire need of reform. The plain text of the AHCA is clear — spending on Medicaid goes up every year by at least the same rate as average medical expenses. The AHCA is focused on outcomes, who's actually getting access to quality care, and how can states have the flexibility to tailor their programs to meet the unique needs of the vulnerable populations that Medicaid was created to help. Also, no matter how you slice it, the fact that 20 million Americans paid a penalty or got a waiver from Obamacare is a clear indictment of the law. That's 20 million Americans our current system has basically written off."
The Pinocchio Test
Price flatly stated that Medicaid spending will go up year after year in the budget, but that's false. It actually declines in raw dollars after the switch in funding is implemented. Although HHS suggests he was saying that spending would go up by the rate set in the law, that's still misleading. That's a fixed amount untethered to the actual expenses of patients, so if the money falls short, states will either have to make up the difference or cut expenses by limiting enrollment or reimbursements.
Price is similarly misleading when he declares that 20 million people have rejected the Affordable Care Act by paying a penalty. He slipped in the word "waiver" at the end, but that's still misleading because most of the exemptions granted have little to do with "a clear indictment of the law." It's disturbing that Price's spokeswoman would double down on the claim even after we pointed out the facts. People who live in non-expansion states or overseas are not writing off the law; in fact, the number of people paying a penalty actually declined by nearly 20 percent from 2014 to 2015, indicating greater acceptance of Obamacare.
We wavered between Three and Four Pinocchios but ultimately tipped toward Four. When you are reducing spending by more than $800 billion over 10 years, you can't pretend you are boosting spending "every single year."
Four Pinocchios
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Secretary of Health and Human Services
in a interview on CNN's "State of the Union"
"We have got 20 million folks out there across this land who have told the federal government, 'Phooey, nonsense. I'm not going to participate in your program because it doesn't do what I need done.' So, they are paying a penalty."