Presidential Executive Orders have long required cost estimates and impact analyses for every major proposed or final rule.  However, the Centers for Medicare and Medicaid Services (CMS), perhaps under direction from the White House Office of Management and Budget (OMB), has apparently stopped providing cost estimates for rules implementing the Affordable Care Act (ACA) health reform law.

Analysis of Costs and Benefits of CMS Regulations:

Executive Orders 12866 and 13563 require federal agencies to assess all costs and benefits of available regulatory alternatives.  If a regulation is necessary, the agency must select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity).  In Executive Order 13563, President Obama directs each federal agency:

…to use the best available techniques to quantify anticipated present and future benefits and costs as accurately as possible.

An Regulatory Impact Analysis (RIA) must be prepared for rules with economically significant effects ($100 million or more in any one year).  OMB details what is considers good regulatory analysis in its Circular A-4.  Here’s OMB’s checklist for what CMS and other federal agencies must address in a Regulatory Impact Analysis.

Few matters in Medicaid, Medicare, or ACA implementation can reasonably be said to have an impact under $100 million.  A mild sneeze should meet that threshold.  Therefore, virtually every CMS proposed or final rule should include a (preliminary or final) Regulatory Impact Analysis that presents the costs and benefits of the regulations.

Other federal laws – including the Regulatory Flexibility Act, the Unfunded Mandates Reform Act, and the Paperwork Reduction Act – require additional types of analysis or estimates.  In addition, the Regulatory Right-to-Know Act of 2000 requires OMB to report annually on the total costs and benefits of all major federal rules issued in the prior year.

Has CMS Stopped Providing Cost Estimates for ACA Rules?

CMS’ new 473-page proposed rule on Medicaid, CHIP, and Health Insurance Exchanges proposes a range of regs on eligibility and enrollment coordination, Medicaid benefits and cost sharing, and appeals processes.  It should include a preliminary Regulatory Impact Analysis.  However, repeatedly throughout the proposed rule, CMS says that the proposed regulatory requirements for states will “have no meaningful impact on state programs.”  Sorry guys, but given the broad scope and complexity of the proposed rules, this is, ahem, a stretch.

CMS rationale for this is the new rules are based on prior guidance to states (usually through letters to state Medicaid directors).  As the argument goes, states should not be surprised and therefore no information on the impact of the rules on states (or providers, health plans, businesses) is required.

However, this kind of “sub-regulatory” guidance does not include cost estimates or any form of impact analysis.  Also, unlike proposed rules, they generally do not go through a public comment period on a draft or advance notice.  In general, under the federal Administrative Procedures Act and Executive Orders, this kind of guidance is not supposed to be a substitute for formal rulemaking.  Rules are required whenever CMS makes substantive, interpretive policy.

In effect, they are saying cost estimates and impact assessments are not provided because they already made the policies through guidance (without benefit of public comments, formal rulemaking, cost estimates, and other impact analyses).  And they imply that the earlier guidance did not require rulemaking because it merely codifies the statutes.

So the result is:

  • Substantive, high profile, and significant policy is made, at least initially, through guidance rather than rulemaking.
  • No estimates of the cost of new rules – at least no public estimates.
  • None of the other regulatory impact analysis normally provided with proposed and final rules (e.g., impact of other parties, such as beneficiaries, providers, or businesses).

The last time CMS released a detailed and useful cost estimate for ACA related rules was for the August 2011 proposed rule on ACA Medicaid eligibility expansion (CMS-2349-P).  This estimate – which projected a far larger Medicaid enrollment increase and higher state budget impact than projected by the Congressional Budget Office (CBO) – was subsequently pulled from the CMS website.  But I posted a copy here.  (CMS’ website is getting better but is not reader friendly and links often go dead.)

It’s important to be fair to CMS here:

  1. The Obama Administration is trying to get more states, especially GOP-run states, to opt for ACA Medicaid eligibility expansion.  HHS and OMB don’t want to give more ammunition to fiscal conservatives who oppose Medicaid expansion.   And there’s little doubt that a detailed RIA for the latest proposed rule – as was case for the August 2011 proposed rule – would show significant state costs (e.g., for woodwork effect, crowd out, expansion population after 2016) and different federal costs for Exchange subsidies.  Not a valid excuse for not giving estimates but a powerful reason from the Administration’s perspective.
  2. Estimating the cost and other impacts of ACA is very difficult.  In size, scope, complexity, and uncertainties, ACA is unprecedented in every respect.  In many cases, there is simply no data and no models to use in projecting costs and benefits.
  3. Agencies vary widely in the quality of their regulatory impact analyses.  CMS is no different.  Some RIAs are very helpful and others are too vague or indeterminate to be useful.
  4. CMS’s Medicare-specific analytical capacity is reasonably strong, especially in the Office of the Actuary (OACT).  However, CMS’s capacity (staffing, data, models, techniques) for Medicaid and Exchange related projections is limited.  Also, national projections of the impact of new Medicaid policies are generally much harder than Medicare projections.  Medicaid is a more complex and variable program.  Also, Medicaid is administered day-to-day by the states, not CMS.  Therefore, CMS doesn’t have the same hands-on, operational experience with Medicaid as it does for Medicare.
  5. Federal laws affecting Medicare and Medicaid change frequently and are increasingly complex.  Further, the ACA requires an enormous array of new rules.  State, providers, health plans, employers, advocates, and other stakeholders are desperate for guidance.  And drafting new rules and vetting them through the CMS, HHS, and OMB takes time.  So it’s no surprise that CMS often relies on sub-regulatory guidance to get the ball rolling, even if this guidance may often violate the intent (if not the letter) of the Administrative Procedures Act.  Eventually, rules are published and the guidance is moot.
  6. The White House Office of Management and Budget sets and enforces the processes for regulatory impact analyses.  Also, all CMS proposed and final rules must go through OMB review and clearance before publication.  Therefore, CMS must do OMB’s bidding when it comes to RIAs.  OMB decides when an RIA is required and what is adequate.  In the case of the latest proposed rule, the lack of a preliminary Regulatory Impact Analysis was perhaps not CMS’ choice.
  7. The latest CMS proposed rule, for whatever reason, may be a unique case.  Perhaps CMS will provide cost estimates for future ACA rules or, at least, a thoughtful discussion on why analytically sound estimates are not possible.

It’s tough to estimate the costs and benefits of federal rules – especially for complex programs like Medicaid and the massive range of new programs and policies under the Affordable Care Act.  However, the process and resulting information, however limited or tentative it may be, is incredibly valuable.  There is learning curve – creating RIAs is important to building CMS’ capacity for projecting and tracking Medicaid expansion, Health Insurance Exchanges, and other ACA policies.  Also, in light of all the messy politics of ACA, transparency and cost estimates are critically important to maintaining CMS’ credibility with Congress, states, and others.

Even when cost estimates are not technically required, every ACA rule should include them.