Despite a new veto threat from the White House, Democrats in the House pushed through legislation on August 1 that calls for a $50 billion expansion of the State Children’s Health Insurance Plan.

The legislation also calls for increases in doctors’ payments under Medicare and other expansions of the Medicare program. The vote was 225-204 after a bitter debate over several days that included raised voices and efforts by Republicans to use parliamentary maneuvers to delay a vote.

The bill is H.R. 3162, the Children’s Health and Medicare Protection Act (CHAMP).

Among its most controversial features is the use of a phaseout over 4 years of the 12% differential given to providers in the private Medicare Advantage program to help pay for the program.

Another controversial feature of the House bill is a provision creating a continuing study on the “comparative effectiveness” of health care. After the first 3 years, this program would be funded by a per-capita tax on every individual covered by health insurance (see story below).

A 45 cent increase in the federal tobacco tax is also being used to fund the House version of SCHIP expansion.

Democrats would also impose other cutbacks, toughen reporting mandates and add consumer protection provisions for those enrolled in the Medicare Advantage program under the bill.

John Greene, a lobbyist for the National Association of Health Insurers, Arlington, Va., called these provisions “overkill” because NAHU and other health insurance groups are already working with the National Association of Insurance Commissioners to develop programs and practices designed to root out unscrupulous marketing practices.

The bill will now have to be reconciled with similar, but more modest, legislation that was expected to be finalized in the Senate before its scheduled departure for a month-long recess on Aug. 3.

The Senate bill calls for a $35 billion increase in the program, and doesn’t touch the Medicare Advantage program. The Senate bill would be financed by a larger 61 cent increase in the federal tobacco tax.

The MA program was crafted as part of the 2003 Medicare Modernization Act. The major part of that bill was creating a prescription drug benefit under Medicare.

That sets the stage for a bitter debate in September over reconciliation of the two bills because the SCHIP authorization legislation expires Sept. 30, the end of the current fiscal year.

As the bill was nearing passage, the Bush administration weighed in with a new veto threat, saying the legislation “clearly favors government-run health care over private health insurance” and spends far too much money.

Overhanging the administration position and that of Republicans in both the House and Senate is a concern that the SCHIP expansion is another step in crowding out private health insurance.

In the debate on the House floor, Rep. Jim McCrery, R-La., ranking minority member of the House Ways and Means Committee, noted, “This is not just about helping low-income children.”

“This bill today seems to be spending government funds to lure middle class, upper middle class, even wealthy, perhaps, families, to opt out of private health coverage and go to government health coverage,” he said.

Regarding the higher cost of the Medicare Advantage program provided by private insurers, Rep. John D. Dingell, D-Mich., chairman of the Energy and Commerce Committee, called the overpayments “a great injustice” and said Democrats were determined to “stop that evil practice.”

But officials of America’s Health Insurance Plans, whose members offer the program, said it was the people the Democrats were trying to help who would suffer if the MA program is cut.

Three million seniors could lose their Medicare Advantage coverage while millions more would face benefit cuts and higher out-of-pocket health care costs, AHIP said in a statement after the bill was passed.

Karen Ignagni, President and CEO of AHIP, said 49% of Medicare Advantage beneficiaries have incomes of less than $20,000 per year. The cuts, she said, “would have a devastating impact on seniors’ health security.”

“The House bill shreds the safety net for millions of seniors who depend on Medicare Advantage,” Ignagni said.

She also pointed to recent testimony before the Ways and Means Committee by Peter Orszag, Director of the non-partisan Congressional Budget Office. He testified that MA enrollment would fall by 33% under the legislation passed by the House.

Besides increasing SCHIP by $50 billion over five years, the House bill would also eliminate a 10% cut in the reimbursement rate for doctors who treat Medicare patients. The cut is scheduled to take effect Jan. 1. Instead, the legislation would give doctors a 0.5% increase in their reimbursement rates each of the next two years when they treat Medicare patients.

The specific changes in the MA program were prompted by a Congressional Budget Office report that says the MA program costs the government 12% more than traditional fee-for-service under Medicare.

In response, the bill phases out MA overpayments over 4 years ending in 2011.

Under the bill, the phase-out would be based on a blend of the current county benchmarks adjusted for the applicable year and 100% of county fee-for-service costs in the FFS costs in the projected year.

Under the bill, there is no change in 2008; in 2009 the benchmarks will be a blend of 2/3 current benchmark and 1/3 of FFS for the county; in 2010 the blend moves to 1/3 current benchmark and 2/3 FFS; and starting in 2011 benchmarks will be 100% of FFS.

The bill would prohibit a plan that fails to bid below the phased down benchmarks in their counties during the transition to equitable payment from enrolling new members in that year.

It would also complete the full repeal of the regional PPO stabilization fund created in the Medicare Modernization Act to provide incentive payments to certain types of private plans.

The bill also proposes to develop a federal/state system to regulate private plan marketing and other activities, improve beneficiary protections and provide more information about plan spending on health care services.

It also prohibits private plans from charging higher cost-sharing than FFS Medicare and requires plans to meet minimum requirements regarding level of spending on medical benefits (versus administrative costs, overhead or profit).

The SCHIP bill requires all private plans to report quality data to the Centers for Medicare and Medicaid Service in order to measure quality of care and develop new data to assess disparities in health care for racial and ethnic minorities.

In another toughening of the mandates on private plans, it reinstates annual report on plan efforts to reduce disparities.