Last week, the Government Accountability Office (GAO) sent a letter to Secretary of Health and Human Services (HHS) Kathleen Sebelius raising questions over her legal authority to spend $8.3 billion on a quality bonus payment demonstration for Medicare Advantage (MA) plans.
The demo was the most expensive project ever undertaken by the Centers for Medicare and Medicaid Services (CMS), and GAO concluded that it will be unsuccessful at improving quality and reducing costs.
Thus far, CMS has offered no response to the challenge of its legal authority. Section 402 of the Social Security Amendment of 1967 allows the Secretary to “modify methods of payment under Medicare to establish additional incentives to increase the economy and efficiency of services provided under the program by carrying out experiments and demonstration projects.”
However, the Quality Bonus Payment Demonstration program does not satisfy these requirements, as concluded in a previous GAO report. This means the Secretary does not have the authority to implement this program, and the GAO has recommended that it be discontinued.
Why is stopping this demo a problem for the Administration? Because the Secretary used these demo funds to delay the massive MA cuts put in place under Obamacare, which would have disrupted coverage for millions of seniors. But, it is these cuts to MA that supposedly helped “pay for” Obamacare.
The demo bonus payments almost completely offset the cuts Obamacare made to MA, which began in 2012. According to the GAO, “the demonstration will offset more than one-third of the reduction in MA payments projected to occur under [Obamacare] during the demonstration years. The largest annual offset will occur in 2012—71 percent.”
There’s good political reason to protect MA plans from Obamacare’s massive cuts. MA is a popular alternative to traditional Medicare: 25 percent of Medicare beneficiaries participate, and enrollment grows every year.
But once the Obamacare cuts to MA kick in, it will be a different story. The CMS actuary predicts that enrollment in MA will decrease 50 percent by 2017, when the cuts are fully phased in. Benefit packages will also be less generous. As Heritage research states, “The average enrollee will receive $3,714 less per year in the value of his or her coverage by 2017.”
In the words of Senator Orrin Hatch (R–UT), who commissioned the first GAO report, “The White House does not have the authority to green light spending on whatever program it wants. American taxpayers and America’s seniors deserve the truth about how Obama’s health law harmed access to the Medicare Advantage program.”
It remains uncertain if the Obama Administration will take the GAO’s recommendation seriously and stop implementing the demonstration program. Either way, they have a problem: If they stop the bonus payments, they’ll have to face millions of angry seniors whose coverage will be impacted; if they continue to avoid the massive cuts to MA, they’ll have to explain to the American people why the price tag for Obamacare continues to grow.