Despite bipartisan cheer over pay reform, SGR deal won't spur healthcare harmony

Most health policy observers don't expect the bipartisan bonhomie in Congress surrounding last week's enactment of the Medicare physician payment-reform package to last.

The divide between Republicans and Democrats over the Affordable Care Act remains as stark as ever, and there is a vast gulf between the budget blueprints proposed by President Barack Obama and the Republican-controlled Congress. In addition, the pending King v. Burwell lawsuit before the U.S. Supreme Court—which could erase premium subsidies through the federal exchange in up to 37 states and sow chaos in the insurance market—will hang over any healthcare policy discussions. A ruling in that case is expected by the end of June.

The doc-fix legislation was a triumph of classic closed-door dealmaking between House Speaker John Boehner and Minority Leader Nancy Pelosi. Both Democrats and Republicans were upset about certain provisions of that package. But in the end, the overwhelming majority held their noses and voted aye. Obama signed the bill Thursday, ending more than a decade of short-term fixes and averting a 21.2% cut in payments to doctors.

Larry Jacobs, a healthcare politics expert at the University of Minnesota, said the payment-reform deal was possible because Medicare enjoys tremendous support among powerful healthcare industry groups and seniors, who vote in large numbers.

Tom Scully, who served as CMS administrator under President George W. Bush, also thinks that the circumstances encouraging harmony on the doc fix were unique. “At this point they didn't have much choice,” said Scully, now a general partner with the private-equity firm Welsh, Carson, Anderson & Stowe. “It was driving stupid legislation year after year.”

The federal budget now will be the focus of the healthcare debate. Republicans say they are seeking to balance the budget within 10 years. That means Medicare and Medicaid will be on the chopping block. Both House and Senate Republicans have proposed repealing the ACA lock, stock and barrel, including the law's Medicaid expansion.

House Republicans want to transform Medicare into a defined-contribution, “premium support” model under which seniors would receive a fixed amount to buy either private or public coverage through a Medicare plan exchange.

They also want to convert Medicaid into a state block-grant program in which federal contributions would be cut and capped, and states would have much greater flexibility in how to spend those dollars, including reducing eligibility and benefits. With the 2016 elections looming and many senators facing tight races, Senate Republicans have been less explicit about their Medicare and Medicaid plans.

Major overhauls to the two big healthcare programs are anathema to most Democrats, but there is one area of potential common ground. Obama's budget calls for reducing spending on Medicare by $400 billion over a decade through various benefit changes.

Republicans view the King case as their big chance to force an alternative to the ACA. House Ways and Means chair Paul Ryan (R-Wis.) has said that House Republicans should have a plan ready by June 20 to address the needs of millions of Americans who will lose coverage if the Supreme Court strikes down the subsidies. But so far, few details have emerged about what their plan will look like, or how it would avoid enraging conservatives opposed to any federal spending or regulation to expand health coverage. Some Republicans have proposed a limited extension of the subsidies tied to a repeal of most parts of the law.

But many political observers doubt the White House will see any need to bargain in the wake of a Supreme Court ruling wiping out the subsidies, the political consequences of which are impossible to predict. Instead, they predict Obama will demand that Congress pass a simple technical fix to clarify that premium tax credits are available in all 50 states.

Sara Rosenbaum, a healthcare policy expert at George Washington University, notes that Congress has shown an ability to function in recent years only when facing “action-forcing events.” The sustainable growth-rate deadline was one such trigger, and a Supreme Court ruling striking down the subsidies could prove to be another.

But Scully predicts that elected officials in most of the 34 states that have not established their own exchanges would take action to preserve premium subsidies for their residents. He estimates that only eight to 10 southern states would balk, leaving residents of those deep-red states as the biggest losers from the GOP-supported King lawsuit. That would put Republicans in a national political bind.

“The odds that the administration is going to cut a deal are very, very small,” Scully said. “I think they're going to sit there and watch this simmer.”