Here’s our testimony before the Assembly Budget Subcommittee on Health and Human Services, at today’s hearing, chaired by Assemblywoman Holly Mitchell and attended by Assemblywoman Mariko Yamada on the “Potential Impacts of Federal Deficit Reduction on California’s Health and Human Services.”
Health Access California, the statewide consumer advocacy coalition for quality, affordable health care for all Californians, is pleased to offer testimony on the impact of federal deficit reduction on California. We also serve on the leadership of the Health and Human Services Network, a broad coalition that has focused on budget solutions in recent years.
Analyzing the specific impacts of federal deficit reductions is difficult, since there are many proposals floating around. There’s the:
1) cuts already made, including the $1 trillion made as part of the negotiations earlier this year around raising the federal debt ceiling;
2) cuts that will be triggered (called sequestration) if the Joint Committee on Deficit Reduction fails to pass a proposal to further reduce the deficit by another $1.2 trillion;
3) cuts–and revenues–that the Joint Committee could agree to, which could include anything, including:
a. the proposals by the House GOP in the Paul Ryan budget, such as to replace Medicare with a voucher program, or Medicaid with a block grant program;
b. the proposals by President Obama in his deficit reduction proposal further detailed in September;
c. other proposals that have come out of various bipartisan negotiations, including the public recommendations of the Bowles-Simpson Commission, and the private negotiations around a “grand bargain” deal between the President and Congressional leaders where other proposals were rumored to be “on the table.”
We can speculate on what may emerge, but we do think that California and our elected leaders have common interest in advocating around certain principles, and weighing in on key debates on behalf of the interest of the state and its residents.
SHORT TERM VS. LONG TERM: Let’s first put this conversation in context. Given our current economic situation, especially in California with a 12% unemployment rate, this is not the time to implement significant cuts that could further harm our economic recovery.
In fact, the need for health and human services is increased in this economic downturn, as both states and families continue to struggle with their benefits. With its continued economic problems, California should speak with one voice in urging additional assistance—especially on that help that recently expired in July, from COBRA subsidies to families, to enhanced Medicaid matching funds to states.
At the same time, we don’t disagree on the need to put in place a long-term plan to control and reduce the deficit and debt. As health advocates, we have a significant stake in ensuring that core programs like Medicaid and Medicare to be sustainable into the future. But part of the solution is to first get out of the historic economic crisis that we have experienced. And then there’s the real debate on how to do that.
PAST DECISIONS VS. FUTURE PRIORITIES: Many of the decisions made in the past decade have contributed to the deficit, including two packages of tax cuts and two wars, none of which were paid for by commensurate revenues or cuts. The same is true of a Medicare prescription drug benefit, which also did allow the federal government to negotiate with the drug companies for the best price, and not getting the lower prices and higher rebates obtained through Medicaid.
We support the Obama Administration’s deficit reductions proposals to revisit these decisions, from letting many of the tax cuts expire, to aligning Medicare drug payments with Medicaid.
PUBLIC PROGRAMS VS. THE HEALTH SYSTEM: Especially if you let many of the Bush-era tax cuts expire, then when you look at the long-term projections, the real issue isn’t education or social services or the government as a whole. The issue is health care costs, and the upward trend in underlying medical costs, and how that is reflected in health programs like Medicaid and Medicare. Making even drastic cuts to discretionary spending (and the federal government has already made $1 trillion in discretionary spending cuts), whether in human services, public health, or other areas, isn’t going to address the fundamental drivers of the long-term deficit.
But let me be clear: while the deficit is largely driven by Medicaid and Medicare costs into the future, this isn’t a Medicaid problem. This isn’t a Medicare problem. This is a health care problem. The issue is with rising costs in the health care system as a whole, not with the specific programs. In fact, Medicaid and Medicare do better—in some cases, far better, than the private market in controlling costs. These programs provide less expensive care, often to a more vulnerable, older, in some cases sicker population.
So the solution is not to attack or undermine Medicare or Medicaid—it is to find ways to control the base cost of health care.
SHIFTING VS. SAVING: Nor is the solution to simply shift the burden of the rising cost of health care from the federal government to the states, or to seniors, or to low-income families. Federal deficit reduction can’t be simply to “pass the buck” to others—especially to those who have less ability to deal with these costs.
Many of the proposals being discussed in Washington right now do little to save costs. The House GOP proposal would radically restructure Medicare into a privatized voucher program—but by all accounts, the savings comes from the fact that the value of the voucher would not keep pace with the cost of medical care. This would represent a shift in the cost of care from the federal government to seniors, that could cost them thousands of dollars in the near term, and even more into the future. What’s worse, individual seniors are not in any position to bargain for better rates, or to implement the systemic changes needed to save costs in the health system.
The House GOP proposal would “block grant” Medicaid, which would be definition place a limit on the amount of reimbursement the state would receive to help operate our Medi-Cal program. The federal contribution would be capped, even in the event of a recession that increases enrollment, or a public health emergency that increases costs, and the state would shoulder that financial burden. This is in fact the wrong policy direction to go, since the state, with a balanced budget requirement, is actually ill-equipped to deal with the ebbs and flows of the economy, as this budget committee knows all too well. Shifting additional costs to the states would simply force the states to do the “dirty work” of cutting eligibility, benefits, and provider rates, with the resulting consequences on families, on our health providers and the health system on which we all rely.
So California should speak with one voice against any deficit proposals that simply shift the cost of care onto states, or seniors, or low-income families. This simply makes patients and taxpayers pay more in the end.
WHAT WE HAVE ALREADY DONE VS. WHAT WE NEED TO DO: This doesn’t means there aren’t savings to be had, by finding ways to control or reduce the cost of health care.
In this regard, it is important to recognize that the federal government has recently passed the most sweeping deficit reduction package in a generation. It’s called the Affordable Care Act, which included a range of provisions to reduce the rising cost of care. The Act was not only paid for with a combination of revenues and savings, but according to the CBO, it will provide over $210 billion dollars of budget savings over the first ten years, and over a trillion in budget savings over the next ten years.
Some of the money-saving measures were booked as providing savings, even if some supporters had questions about their effects, such as the tax on high-cost “Cadillac” health plans, or the creation of an independent Medicare board to consider the evidence on the effectiveness of certain treatments. But there are other provisions, such as investments in prevention, or the adoption of information technology and electronic health records, where the evidence is not clear but many believe there will be substantial savings. In many cases, the Affordable Care Act provides new tools and new platforms for getting savings, especially in a reformed health system where more people will be in the system (and thus we can better manage their costs), and where insurers have to change their business model away from avoiding risk and toward actually competing on price, quality, and service.
So there is much more to do to reduce health costs. But let’s recognize the progress in the Affordable Care Act. Let’s also recognize that in the negotiations arising from the need to raise the debt ceiling, there were over $1 trillion in cuts in discretionary spending as well, including in areas like public health.
CUTS VS. REVENUES: It’s time to balance these cuts with revenues, beginning with letting unpaid tax cuts expire, closing corporate tax loopholes, and asking for shared sacrifice from all sectors of society, including the most fortunate, and not just for those who find the need for core services like Medicaid and Medicare.
THE CUTS IN THE TRIGGER VS. ON THE TABLE: We appreciate that many members of the Supercommittee say that everything should be on the table. We are concerned that some are already foreclosing any notion of revenues to balance cuts, either those already made or those yet to come.
If the subcommittee fails, the triggered cuts would fall on defense and discretionary spending. California’s first choice should be to avoid this with a package of smarter cuts balanced with the needed revenues. That said, the triggered cuts do not include direct cuts to Medicaid, to Affordable Care Act premium subsidies in the Exchanges, or to Medicare beneficiaries. Some Medicare provider cuts would be enacted, and the discretionary cuts might have some indirect impacts on the Affordable Care Act—whether on resources for implementation, or on the specific subsidies to limit cost-sharing.
What we are much more concerned about are the cuts that the Supercommittee could adopt. We are pleased that the President is protecting the basic core of Medicare and Medicaid, although we are concerned about the impact of specific cuts that he has proposed in his package, whether the reduction in funds for prevention and public health, some cost increases to certain Medicare beneficiaries, or some of the Medicaid cuts that will fall on states.We were relieved that the savings sought from Medicaid was less than originally feared, given how sparsely funded it currently is. But the cuts that remain continue to be cause for concern. The President has put forward a proposal that would restrict the ability to get federal Medicaid match on provider fees, which have been used to plug key holes in the budget in recent years.
The President’s proposal would also change the formula by which the federal government reimburses states for much of the cost of Medicaid, and there’s a real argument for making those formulas simpler and fairer. Depending on the formula, the damage to California could be different. But the issue is that this recalculation would also seek to save the federal government money—in the President’s September proposal it was around $15 billion over 10 years, and others wanted savings of much more—which means some combination of states will have to pick up the difference. California would not be in a position to make up the difference—I’m not sure many states would be—and as a result the state would have to make up the difference through cuts or tax increases. To give a sense of scale, just a $15 billion cut if done proportionately would force a bigger cut to Medi-Cal (around $180 million/year) than the cut California made in 2009 to eliminate dental and 9 other benefits (which was around $125 million). Our Governor Brown was very concerned about an earlier “blended rate” proposal because of the risk to the state’s general fund, and it’s something to watch closely.
THE PROBLEM VS. THE SOLUTION: California needs to watch this process very carefully. In particular, it should send a strong message that we want a deficit solution that doesn’t add to other problems. A solution should not increase unemployment or poverty at a time when we need an economic recovery; it shouldn’t shift costs to patients already struggling with high health bills; it shouldn’t stick states with additional costs at a time when states need help themselves. There are solutions, but some actually make the problem worse.