Is the Federal Government Failing to Save $67 Billion? Congress Should Look in the Mirror
by Nick Schwellenbach, 2/25/2014
Many members of Congress have taken to social media this week pushing a stat that says the federal government is failing to implement some 17,000 recommendations from inspectors general that could - in total - save an estimated $67 billion a year. The stat is based on a report issued by the House Oversight and Government Reform Committee last March. There’s a slight problem with the story being peddled, however: the executive branch has sought to implement some of these recommendations, but needs Congress to enact some of them through laws. Even the March report states that Congress could act on its own: "Congress should aggressively incorporate unimplemented recommendations into legislative actions."
Some examples of tweets by members of Congress today:
Over 16,000 recommendations from non-partisan Inspectors General that would have saved $67 billion failed to be implemented. #StopGovtAbuse— Rep. Renee Ellmers (@RepReneeEllmers) February 25, 2014
Despite their complaints, Congress could pass laws that would generate some of the potential savings identified by the inspectors general. But passing laws is something Congress hasn’t been too good at lately. Take for instance, two out of the 16,000 recommendations that on their own represent nearly one-third of the overall estimated savings being cited.
These two recommendations both come out of the Department of Health and Human Services Office of Inspector General (HHS OIG) and they both relate to Medicare.
For instance, as of December 2012, the HHS OIG recommended that the “Centers for Medicare & Medicaid Services (CMS) seek legislation or legislative authority to eliminate (or reduce) Medicare payments to hospitals for bad debt associated with beneficiaries’ failure to pay their deductibles and coinsurance and modify Medicare’s bad debt policies.” Basically these changes would align Medicare’s policies with those of the private sector, which does not pay for bad debt. What currently happens is Medicare still pays “when hospitals fail to make a reasonable effort to collect unpaid deductibles and coinsurance from Medicare beneficiaries who can afford to pay or to collect from other sources (such as beneficiaries’ other insurance or Medicaid) that would pay the amounts on their behalf.” In the last fiscal year, Medicare paid 70 percent of these bad debts. HHS estimated that reducing this to 25 percent would save $35.9 billion over ten years.
President Obama's Fiscal Year 2014 budget request that was issued in April last year sought this legislative change (see: "Reduce Medicare Coverage of Bad Debts"). The change did not happen. It is hard to pin the blame on the executive branch when the White House is asking for something and Congress fails to act. Even in the absence of the White House request, clearly someone in Congress on a relevant committee should know about the HHS OIG recommendation and could pursue a legislation change.
Another HHS OIG recommendation is to ensure that payments to Medicare Advantage providers are backed up by empirical data on costs (for instance, the OIG notes "high Medicare-funded administrative costs" being paid to for-profit insurance companies)—one way to do this is by harnessing the power of the market through competition. This could lead to substantial savings since it is widely believed that Medicare Advantage providers are being grossly overcompensated. In Medicare Advantage, the federal government pays for-profit insurance companies that process Medicare payments as opposed to processing those payments directly by the Centers for Medicare and Medicaid Services (CMS). An HHS proposal that has not been enacted was the establishment of a competitive bidding system, which “would have allowed the market, not Medicare, to set MA [Medicare Advantage] payment rates.” HHS estimated in 2010 that this would have saved $177.2 billion over ten years.
However, making any changes to Medicare Advantage has been a political hot potato. If the Obama administration pursued this recommendation, many in Congress would be up in arms. As recounted in a Politico story from last week:
Republican and Democratic strategists say any cuts to Medicare Advantage, which now covers a third of all Medicare beneficiaries, will give the GOP ammunition to attack Democrats. Some Democrats have already asked the administration to leave the program alone.
Forty senators, including vulnerable Democrats Kay Hagan of North Carolina, Mary Landrieu of Louisiana, Mark Pryor of Arkansas and Mark Udall of Colorado, as well as Sen. Chuck Schumer (D-N.Y.) and a host of Republicans, sent a letter Tuesday asking the administration to “prioritize beneficiaries’ experience and minimize disruption to payment levels for 2015.”
Friday afternoon, a memo from House Majority Leader Eric Cantor highlighted plans for Republicans to focus on “the negative impact on seniors from the Medicare Advantage cuts.”
Insurers recently launched a pre-emptive, seven-figure campaign to pressure the Obama administration to turn the various payment dials in order to offset a variety of cuts to the program, including reductions under the Affordable Care Act to bring payments to the private plans in line with the traditional Medicare program.
The ten-year cost estimates for these two recommendations are $35.9 billion and $177.2 billion respectively, for a total of $213.1 billion over ten years with a one-year average of $21.3 billion in savings. That's nearly one-third of the overall estimated $67 billion in savings from implementing 17,000 inspector general recommendations that cannot be blamed entirely on the White House. The story is clearly more complicated than the executive branch not taking action. After all, Congress is the law making branch of the federal government and has profound responsibilities in our constitutional system of government. Perhaps it should look in the mirror.