Author Archives: Erin Will Morton

Erin Will Morton

About Erin Will Morton

Erin Will Morton, a government relations manager in the Washington, D.C., office of Drinker Biddle & Reath, works with a range of non-profit health care clients providing both government relations and association management services. Through her client endeavors, Erin has developed extensive experience in managing and convening coalitions and building support among coalition member organizations. She works on a variety of policy areas in the health care arena, including medical simulation, Medicare reimbursement and grassroots advocacy.

Dewonkify – Chained CPI

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Word: Chained CPI

Meaning: A revised method of calculation for the Consumer Price Index (CPI) that the Bureau of Labor Statistics (BLS) could use to estimate inflation, which takes into account assumptions about how people spend money.

Used in a sentence: “Chained CPI is one of many ways to approximate the impact to consumers’ pocketbooks of rising or falling prices.”

What it really means:  Chained CPI is a clever way of saying “slow the growth of inflation” without actually coming out and saying it.  Currently, CPI is calculated by BLS based on data collected on the prices paid by consumers for goods and services. Chained CPI would add another level to this calculation by taking into consideration what consumers might buy in place of something that has become too expensive.  For example, if you plan on having broccoli for dinner tonight and head to the store to get some, but then you realize the cost of broccoli has gone up since the last time you were in the store, you might settle for spinach instead.  Now, instead of everyone paying more for broccoli, consumers are choosing other vegetables, so the demand for broccoli goes down, and eventually so does the price.  Overall, the impact is a much slower rate of inflation.

The Catch:  So, what does slowing inflation actually mean politically, and why is it suddenly getting all of this attention—from Democrats and Republicans?  You have probably heard chained CPI being discussed as an offset for part of the current deficit negotiations.  Slowing inflation would be a huge cost saver for the federal government because of all of the programs tied to the CPI, with Social Security the most popular example.  The benefits that seniors receive are updated annually to account for inflation, and that update is calculated based on the BLS CPI estimates.  If chained CPI goes into effect, Social Security checks annual increases could get smaller and smaller.

In addition to Social Security, chained CPI would also slowly affect tax rates because the IRS updates tax brackets based on inflation—this keeps people’s taxable rates in line with cost of living increases in salaries.  If CPI slows down, salaries will rise ahead of the IRS adjustments, meaning some Americans will pay higher taxes.

CPI also determines reimbursement rates for some health care providers in the Medicare system.  Annual updates to these rates would not be as high if chained CPI were implemented.  Given productivity updates and cuts implemented as part of the Affordable Care Act, the slower growth of CPI could cause problems for some providers.

What’s interesting about chained CPI is that it has been supported by both Democrats and Republicans.  Even though it cuts spending (Medicare and Social Security) and raises taxes, it has unique bipartisan support.  While some Democrats are skeptical about the impact it will have on seniors, Obama has been on record supporting it.  The chained CPI proposal was dropped during round one of the fiscal cliff negotiations, but is likely to resurface as Congress looks for a long term solution to the debt.

If you are interested in reading more on chained CPI, see these articles:

“Chained CPI: The Sneaky, Complicated Idea That Could End the Fiscal Cliff Showdown—Explained” (The Atlantic) http://www.theatlantic.com/business/archive/2012/12/chained-cpi-the-sneaky-complicated-idea-that-could-end-the-fiscal-cliff-showdown-explained/266098/

“What is Chained CPI” (The Washington Post) http://www.washingtonpost.com/blogs/2chambers/wp/2012/12/17/what-is-chained-cpi/

Dewonkify – Offset

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Word: Offset

Definition: A funding source used to pay for new government spending, usually comprised of reductions to, or elimination of, other government programs.

Used in a sentence: “GOP Lawmakers Not Calling for Offsets for Sandy Aid”

What it means:  When Congress passes legislation that costs the government money—with the exception of the annual appropriations bills—they look to find “offsets,” or savings from other government programs to “pay for” the new legislation.  Sometimes, offsets are colloquially referred to as “pay-fors”—literally, paying for something that the government wants to buy. Finding an offset can be a challenge because every Member of Congress has specific priorities and programs he or she wants to protect and taking funding from one program to pay for another often leads to internal debates between political parties or chambers.

History:  It was not always the case that offsets were required for new government spending.  In years past, when the economy was doing better and fiscal constraint was not governing Washington, new legislation could be passed without a specific offset—meaning the government would just pay for the program with new money—either adding to the deficit, or using tax revenue.

Off and on over the past 20 years, Congress has operated under a mechanism called PAYGO, under which any new government spending needed to be offset by savings from (or cuts to) current programs.  In 2010 President Obama signed the Statutory Pay-As-You-Go Act into law, thus making PAYGO mandatory.  Occasionally, Congress will pass legislation for disaster relief—as could be the case with Hurricane Sandy—or emergency spending to stimulate the economy—as with the American Recovery and Reinvestment Act—that is exempt from the PAYGO rules.  This exemption allows money to move more quickly through the legislative process without finding an offset.

As an example of offsets in practice, the current fiscal cliff negotiations must deal the disagreement over how to offset the cost of extending several tax provisions like middle income tax cuts and unemployment benefits.  If cost was no obstacle, extending these popular provisions would be a no-brainer, but finding a politically acceptable offset presents a real challenge.

Two Approaches to Health Care Spending in NEJM

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The debate on health care spending and cost cutting ideas continues in the New England Journal of Medicine (NEJM).  Earlier this month, NEJM published two articles, which discuss two different approaches to addressing the rising cost of health care in America.

The first article, “A Systematic Approach to Containing Health Care Spending,” was authored by 23 health policy experts, including Zeke Emanuel, Donald Berwick, Tom Daschle and Peter Orzag.  The authors put forward several ideas about how they would reduce health care costs over the coming years including, alternatives to fee-for-service Medicare, an expanded use of competitive bidding within the Medicare system, price transparency for health care costs, a greater emphasis on using non-physician providers, and evidence-based clinical practice guidelines reduce the cost of defensive medicine.

The second article, written by Joseph Antos, Mark Pauly, and Gail Wilensky, is called, “Bending the Cost Curve through Market-Based Incentives.” In this article, the authors suggest that insurance subsidies that would enable beneficiaries to purchase their own insurance (one option of which would be traditional Medicare) is the best path forward—allowing for a competitive marketplace with fewer regulatory controls.

So, what do the two sides have in common?  Both articles place blame on the fee-for-service model of Medicare payment suggesting that it leads to waste in the system as providers are encouraged to use more services.  Likewise, both groups of authors suggest some type of bundling for Medicare services and both seem to favor a wider use of competitive bidding across Medicare services.

State of the Union and Health Reform

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For some of us in Washington, watching President Obama’s State of the Union Address last night was about waiting to see what he would say about the health care law.  Given the law’s mixed reviews among Americans, it wasn’t too much of a surprise that the entire speech went by with almost no mention of health care.  Obama did make clear he would not go back to a time when insurance companies could cancel an individual’s coverage, but a larger defense of the controversial law was missing.

While this means that health care might not play a huge role in the Obama campaign’s platform for 2012, health reform is by no means a thing of the past.  The coming year promises to be an exciting one for the new law as the Supreme Court examines the constitutionality of the law and implementation of State Health Exchanges gets under way.  Undoubtedly, the law will continue to face a beating from the Republican presidential candidates as they make promises to repeal the law immediately upon taking office.

In the coming months, the talk in Washington will be about what happens if the law is repealed.  How much of the law will actually be thrown out  by the Supreme Court and  if the entire law is thrown out then what happens to the parts that have already been implemented.  It is hard to know the answers to these questions this early in the game, but it will an interesting year trying to figure it all out.