As the final days of 2012 slip away, little time remains for Congress and the President to strike a deal on tax rates and spending levels. If there is no deal, a host of tax cuts enacted under both Presidents Bush and Obama will expire (along with a number of other measures that protect the unemployed and stimulate economic growth), and the automatic spending cuts that were created by the Budget Control Act will go into effect. (Other year-end issues that must be addressed include preventing a significant reduction in Medicare reimbursement to physicians and reauthorizing several health coverage programs such as the “Medicare Savings Initiative,” which provides assistance to low-income Medicare beneficiaries.)

Observers are seeing the closed door negotiations between President Obama and Speaker of the House John Boehner as a sign the two are coming closer to an agreement (although Mr. Boehner’s statement on the House floor on Tuesday may have thrown cold water on that. That may or may not be a good thing: a bad deal is not better than no deal. The President has indicated that he is willing to give substantial ground on Medicare and Medicaid spending if Republicans accept higher tax rates for the wealthiest Americans. Some observers anticipate a deal that would allow some increase in tax rates for the top 2 percent of earners along with capping deductions in exchange for an increase in the Medicare eligibility age. However, this is unlikely unless Republicans also give some ground on raising the debt ceiling.

Republicans really lack leverage on the tax rates, so giving in on the Medicare age is not something Obama needs to do—he can secure an increase in rates for the top 2 percent of earners without conceding anything. The real leverage point for Republicans is the debt ceiling, and it is unlikely the White House would make a major concession unpopular with its own supporters, only to have to turn around in a few weeks and negotiate entitlement spending all over again

Of course, only a very small number of people really know what is going on in the debt talks and they aren’t telling. But a straight-up swap of a tax increase for the top 2 percent for an age increase for Medicare beneficiaries is unlikely. (You heard it here first.)

Good news, bad news and no news from HHS

First the good news: The administration has indicated that it withdrawing its support for the idea of a Medicaid “blended rate” as a way to reduce federal health spending. A blended rate would shift costs onto states and undermine the chances of states taking up the now optional Medicaid expansion to 138 percent Federal Poverty Level (FPL).

At the same time, HHS has indicated that only a full expansion to 138 percent FPL will qualify for enhanced matching funds. Although advocates have been sweating this one, and Republican governors predictably complained, the Administration did not have much choice.

First, the decision is consistent with how the ACA is drafted. Perhaps weighing more heavily in the decision are the budget consequences of allowing a partial expansion. It would be impossible to allow “reluctant” states to expand only to 100 percent FPL while requiring more supportive states to go to 138 percent. The administration would have had to make that option available to everyone. Since all states would probably take advantage of the option, the net result would be an increase in federal health spending because the cost of federally financed Exchange credits is higher than the federal share of the Medicaid expansion.

The bad news: HHS announced it would release regulations or guidance on the Basic Health Plan (BHP) “eventually.” This essentially kills the hope BHP guidance would be available in time for states to make a reasonable determination on whether to use the BHP option prior to the 2014 launch of the ACA coverage expansion. This decision disadvantages a number of populations including legal immigrants with incomes below 138 percent FPL, who will have to get coverage in the higher cost Exchanges rather than through Medicaid; people in a number of states who have income between 138-200 percent FPL who have Medicaid now and are likely to see their benefits reduced and their costs go up when states switch them over to Exchange coverage; and low-income people in general who will face higher premiums and cost sharing than they otherwise might have. Of particular concern is that low-income people may be drawn to plans with no premiums but high out-of-pocket costs, leaving them with barriers to access and unaffordable bills even if they get coverage.

Community Catalyst is working with state partner organizations to develop policy alternatives that will help protect these populations.

Finally, the no news: No word yet on how CMS will revise the formula for distributing Disproportionate Share Hospital payments to states. The new formula will come out some time next year…

 — Michael Miller, Director of Strategic Policy