Senate Committee Explores New Payment Rates, Taxes to Fund Reform

Janice Simmons, for HealthLeaders Media , May 19, 2009

The third and final policy options paper regarding financing healthcare reform measures was issued by the Senate Finance Committee on Monday. The full committee will hold a closed-door "walk through" on Wednesday on the option proposals as it moves toward drawing up a health reform bill by June. The committee had earlier released papers on expanding coverage and transforming the healthcare delivery system.

A number of options need to be examined now to slow down rapid increases in healthcare costs "that take up more and more of the budget for American families and businesses," said Committee Chairman Max Baucus (D-Mont.) in a statement accompanying the paper. Without healthcare reform now, healthcare spending could hit $4.4 trillion by 2018.

The policy options focus on three main areas of potential funding sources: savings achieved from within the healthcare system from reductions in current levels of spending; re- evaluating current health tax subsidies; and changing non-health tax provisions.

For health system savings, the committee is re-examining current Medicare and Medicaid payment rates. The options paper notes that their payments are "significantly" different from the actual cost of providing health services. To "correct this inconsistency without hindering the quality of care or patient access," options are suggested, such as by updating payment rates for home health services; re-examining appropriate payments for durable medical equipment, such as oxygen or power wheelchairs; adjusting payments for "high-growth, potentially overvalued services," such as imaging and minor procedures; and reducing the marketbasket updates for those providers with payments that are higher than actual costs.

Noting that Medicare payment rate updates don't account for "new technologies and other productivity increases that reduce costs," the policy options look at ways to adjust annual inflationary increases that account for productivity in Medicare payment rate updates.

Also, citing ongoing research at Dartmouth University and elsewhere that examines variation in healthcare spending by geographic region, the policy options explore ways to reduce this variation by reducing Medicare payments in areas where spending is above the national average. Adjustments would be considered to note any differences in input prices and beneficiary healthcare status.

Several options for modifying current tax treatments of health- related expenses are also examined. This includes re-examining exclusions for employer-provided health insurance. Under current law, employer-provided health insurance is not counted as income for tax purposes. The paper notes that this tax-free status encourages employers to offer "Cadillac plans, or overly generous healthcare plans" that end up promoting the overuse of healthcare services. The paper said that this drives up healthcare costs. Several options are discussed on how to address these exclusions.

The paper also looks at modifying the rules for nonprofit hospitals: the hospitals would be required to maintain a minimal level of charitable activity, limit charges to uninsured, indigent patients, and limit aggressive collection actions. Those hospitals that fail to meet those requirements would be subject to an excise tax, under the current proposal.

Several lifestyle tax proposals—to help promote wellness and healthy choices—are under discussion such as increasing taxes on alcoholic beverages and placing excise taxes on sugar and sweetened beverages.

Janice Simmons is a senior editor and Washington, DC, correspondent for HealthLeaders Media Online. She can be reached at

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