On Tuesday, the Obama Administration released their final budget request to Congress, seeking $4.1 trillion in federal spending in fiscal year 2017, with $3.6 trillion projected in revenue. As we previewed last week, the Administration included in its request a change to the Cadillac/excise tax that would provide relief to states with healthcare costs. Instead of a single national standard, if a state’s average premium for a gold marketplace plan exceeded the current standard, then the tax would be adjusted to reflect the value of the average gold premium plan. States that don’t meet this criterion would default to the existing standard. The Administration argues that this change provides permanent relief from the tax and helps employers in high cost areas from being subjected to the tax. The president’s budget request also included a provision to make it easier for employers offering flexible spending accounts to determine how much they would owe under the tax. The Administration claims that these changes would cost $1.26 billion over the next decade.
NAHU is hopeful that this proposal is part of an ongoing evolution by the Administration in its position on the Cadillac/excise tax and that it will be open to considering a full repeal this year. A vast majority of members of the House of Representatives support repealing the tax with their co-sponsorship of H.R. 879 and H.R. 2050 and 39 senators have signed onto companion legislation. The Senate also voted overwhelmingly 90-10, including many leading Democratic supporters of the law as a whole, on an amendment to repeal the provision as part of the failed reconciliation package. While this did not pass, Congress and the Administration agreed to delay the tax last year as part of the omnibus budget agreement, signaling that both sides are open to finding agreement on addressing the tax. We remain fully committed to working with Congress and the Administration on permanently repealing the tax and are continuing our efforts with our coalition partners in the Alliance to Fight the 40 and the National Coalition on Benefits on this repeal. You can help us in this effort by sending an Operation Shout today.
In addition to the Cadillac/excise tax proposal, other major health-related items in the budget request included an overall budget of $1.1 trillion for the Department of Health and Human Services, $27.6 billion in Medicaid/CHIP spending over 10 years, and the president’s billion dollar “moonshot” for cancer research. The budget request also included $2.1 billion to operate the federal marketplaces, of this $744 million would be spent on outreach, $659 million on operations, and $657 million on IT costs. The Administration projects that $1.6 trillion of the $2.1 trillion would be offset by the 3.5% user fee levied on plans sold on HealthCare.gov, meaning that it falls about $535 million short of the budget and will need to come to a consensus with Congress if it seeks to fully fund its full request.
The Administration also released details on its efforts to widen the window of opportunity for states to expand Medicaid. The White House is attempting to address the federal-matching funds gap that was created when the Supreme Court invalidated the mandatory expansion in their 2012 ruling. Under the proposal, states would receive a 100% federal match on their expanded population for three years, aligning it to the original statutory intent when federal funds were provided to states from 2014-16, then reducing on a schedule to a permanent 90% match thereafter.
Other health-related items in the budget included a proposal to close a tax loophole designed to offset the costs of the ACA. High-income earners are subject to a 3.8% “net investment income tax” on passive income such as dividends, rents, royalties and interest, with funds earmarked for Medicare, but many have been able to skirt this by reclassifying themselves as active participants in businesses and passing investment income through them. Also, as part of the Administration’s push for quality-based care, it advocates for bonuses for hospitals that collaborate with alternative payment models such as accountable care organizations, bundled payment models, and patient-centered medical homes. Bonuses would begin in 2022 and be paid through the inpatient prospective payment system permanently, and through the outpatient system through 2024, and would be paid for by reducing inpatient and outpatient payments to all providers. The Administration announced that it expects to meet its goal of transitioning 30% of Medicare payments to alternative models by the end of the year.
It’s important to keep in mind that the president’s budget request is just that—a request to Congress for them to consider when they draft their own budget. Under ideal circumstances, the president would submit a budget request and Congress would put forth their budget proposal and the Administration and Congress would work together at creating a cohesive document. Of course government, and especially divided government, doesn’t quite work like that. House Speaker Paul Ryan (R-WI) helped underscore this point when he responded to the budget request by stating, “This isn’t even a budget so much as it is a progressive manual for growing the federal government at the expense of hardworking Americans.” Given that, this means that the president’s budget was effectively dead on arrival, but it does help to frame the priority policy issues that the Administration intends to advance in the overall budget negotiation process over the course of the next several months.