The $4 Billion Typo in Obamacare’s ‘Louisiana Purchase’

Do you remember the “Louisiana Purchase?” I don’t mean Thomas Jefferson’s acquisition of land from Napoleon, but rather Democrats’ acquisition of Sen. Mary Landrieu’s (D., La.) support for the Patient Protection and Affordable Care Act. Landrieu, critics believe, pledged her vote in exchange for gaining $200 million additional federal funds for Louisiana’s Medicaid program. Except that, due to a drafting error, the law ended up giving Louisiana $4.3 billion in extra Medicaid funds: more than twenty times the assigned amount. How this happened, and how Congress failed to fully fix it, is a microcosm of our new health law’s many flaws.

Our story begins in the fall of 2009, when Sen. Harry Reid (D., Nev.) was trying to cobble together the necessary 60 votes to pass the Affordable Care Act. He needed every Democrat on board in order to do this, which gave waffling senators a great deal of leverage. In the case of Sen. Landrieu, this involved gaining some extra funding for the state’s Medicaid program, something that Republican Governor Bobby Jindal also sought (though he opposed its attachment to PPACA).

How the feds and the states share funding responsibility for Medicaid

Medicaid, America’s government health-care program for the poor, is jointly funded by the states and the federal government. The federal government chips in at different levels to different states, using a formula called Federal Medical Assistance Percentages, or FMAP. FMAP is determined by several factors, such as a state’s per-capita income, and the state’s own Medicaid spending. (FMAP has come under a lot of criticism from policy types, who point out that its structure incentivizes state politicians to spend more on Medicaid, knowing that taxpayers in other states will foot most of the bill.) The Medicaid law specifies that the feds will contribute no less than 50 percent of a state’s Medicaid costs; the national average prior to the Obama Administration was about 57 percent.

Louisiana had received a ton of additional Medicaid assistance in the aftermath of Hurricane Katrina, and Sen. Landrieu’s goal was to continue that assistance, so as to more gradually wean the state off of its additional subsidies.

Section 2006 of PPACA, a “Special Adjustment to FMAP Determination for Certain States Recovering from a Major Disaster,” was designed to temporarily increase the federal government’s FMAP contribution to Louisiana to the tune of around $200 million. It contains extremely complicated legislative language, whose main purpose is to ensure that only Louisiana benefits from the specified FMAP increase. See if you can make heads or tails out of it:

SEC. 2006. SPECIAL ADJUSTMENT TO FMAP DETERMINATION FOR CERTAIN STATES RECOVERING FROM A MAJOR DISASTER.

Section 1905 of the Social Security Act (42 U.S.C. 1396d), as amended by sections 2001(a)(3) and 2001(b)(2), is amended—

(1) in subsection (b), in the first sentence, by striking ”subsection (y)” and inserting ”subsections (y) and (aa)”; and

(2) by adding at the end the following new subsection:

”(aa)(1) Notwithstanding subsection (b), beginning January 1, 2011, the Federal medical assistance percentage for a fiscal year for a disaster-recovery FMAP adjustment State shall be equal to the following:

”(A) In the case of the first fiscal year (or part of a fiscal year) for which this subsection applies to the State, the Federal medical assistance percentage determined for the fiscal year without regard to this subsection, subsection (y), subsection (z), and section 10202 of the Patient Protection and Affordable Care Act, increased by 50 percent of the number of percentage points by which the Federal medical assistance percentage determined for the State for the fiscal year without regard to this subsection and subsection (y), is less than the Federal medical assistance percentage determined for the State for the preceding fiscal year after the application of only subsection (a) of section 5001 of Public Law 111-5 (if applicable to the preceding fiscal year) and without regard to this sub- section, subsection (y), and subsections (b) and (c) of section 5001 of Public Law 111-5.

”(B) In the case of the second or any succeeding fiscal year for which this subsection applies to the State, the Federal medical assistance percentage determined for the preceding fiscal year under this subsection for the State, increased by 25 percent of the number of percentage points by which the Federal medical assistance percentage determined for the State for the fiscal year without regard to this subsection, subsection (y), subsection (z), and section 10202 of the Patient Protection and Affordable Care Act, is less than the Federal medical assistance percentage determined for the State for the preceding fiscal year under this subsection.

”(2) In this subsection, the term ‘disaster-recovery FMAP adjustment State’ means a State that is one of the 50 States or the District of Columbia, for which, at any time during the preceding 7 fiscal years, the President has declared a major disaster under section 401 of the Robert T. Stafford Disaster Relief and Emergency Assistance Act and determined as a result of such disaster that every county or parish in the State warrant individual and public assistance or public assistance from the Federal Government under such Act and for which—

”(A) in the case of the first fiscal year (or part of a fiscal year) for which this subsection applies to the State, the Federal medical assistance percentage determined for the State for the fiscal year without regard to this subsection, subsection (y), subsection (z), and section 10202 of the Patient Protection and Affordable Care Act, is less than the Federal medical assistance percentage determined for the State for the preceding fiscal year after the application of only subsection (a) of section 5001 of Public Law 111-5 (if applicable to the preceding fiscal year) and without regard to this subsection, subsection (y), and subsections (b) and (c) of section 5001 of Public Law 111-5, by at least 3 percentage points; and

”(B) in the case of the second or any succeeding fiscal year for which this subsection applies to the State, the Federal medical assistance percentage determined for the State for the fiscal year without regard to this subsection, subsection (y), subsection (z), and section 10202 of the Patient Protection and Affordable Care Act, is less than the Federal medical assistance percentage determined for the State for the preceding fiscal year under this subsection by at least 3 percentage points.

”(3) The Federal medical assistance percentage determined for a disaster-recovery FMAP adjustment State under paragraph (1) shall apply for purposes of this title (other than with respect to dis- proportionate share hospital payments described in section 1923 and payments under this title that are based on the enhanced FMAP described in 2105(b)) and shall not apply with respect to payments under title IV (other than under part E of title IV) or payments under title XXI.”.

CBO estimated the Louisiana Purchase’s costs at $200 million

On March 20, 2010, hours before the final vote on the health care bill in the House of Representatives, the Congressional Budget Office and the Joint Committee on Taxation issued their fiscal scoring of the bill. According to their analysis, the “Louisiana Purchase” would cost $0.1 billion in 2011 and $0.1 billion in 2012, with no additional spending thereafter for a total of $0.2 billion, or approximately $200 million.

Republicans were angry, as were many voters. But while President Obama voiced some opposition to the special deals cut in Congress in support of his signature legislation, he made an exception for the Louisiana Medicaid adjustment, incorrectly asserting that the language also applied to Hawaii:

Something that was called a special deal was for Louisiana. It was said that there were billions—millions of dollars going to Louisiana, this was a special deal. Well, in fact, that provision, which I think should remain in, said that if a state has been affected by a natural catastrophe, that has created a special health care emergency in that state, they should get help. Louisiana, obviously, went through Katrina, and they’re still trying to deal with the enormous challenges that were faced because of that…That also—I’m giving you an example of one that I consider important. It also affects Hawaii, which went through an earthquake. So that’s not just a Louisiana provision. That is a provision that affects every state that is going through a natural catastrophe.

Later on, CMS estimates Louisiana Purchase’s cost at $4.3 billion

However, in November 2011, when the Centers for Medicare and Medicaid Services (CMS) tried to make sense of the legislation, they came up with a much larger number: $4.3 billion. This was, in part, because the text of the law didn’t phase out the adjustment in two years, as originally intended, but rather increased the federal subsidy in out-years.

The language in Section 2006, wrote CMS, “results in increased, rather than phased down, financial assistance to [Louisiana] each year, and allows [the state] to continue to qualify for assistance after their underlying FMAP has stabilized. The resulting assistance will be higher than initially projected.”

You can say that again. In fiscal year 2012 alone, the federal government sent about $700 million in supplemental funds to Louisiana’s Medicaid program, with another $3.6 billion to be spent in fiscal years 2013-2015. In FY13, the law changed the feds’ share of Louisiana Medicaid spending from 61 percent to 72 percent: a billion-dollar adjustment for the Bayou State.

Congress’ “fix” of the problem leaves Louisiana with an erroneous $1.1 billion

In Louisiana French, lagniappe means “something given as a bonus or extra gift,” like a 13^th doughnut. When Republicans took over the House in 2011, they added Sen. Landrieu’s “Louisiana Lagniappe” to their list of PPACA provisions slated for repeal. Indeed, the latest payroll tax extension deal between Republicans and Democrats does contain some language addressing the FMAP adjustment. Section 3204 of this new bill, Republicans claim, “eliminates funding for the ‘Louisiana Purchase’ contained in ObamaCare beginning in FY2014. CBO estimates this provision would reduce spending by $2.5 billion.” In other words, the bill keeps the FY2013 spending intact, sending another $1.1 billion in error to Louisiana’s Medicaid coffers.

Even this compromise—which allowed Louisiana to keep $1.6 billion in erroneously spent federal dollars—was unpopular among Louisiana’s Congressional delegation, including some Republicans. Rep. Bill Cassidy (R., La.), one of the GOP’s rising stars on health-care issues, and a likely challenger to Sen. Landrieu in 2014, was foremost among opponents of the fix. “Why, with all the false, misleading assumptions in President Obama’s health care law, is only this one singled out?” he asked in a recent blog post. “Why aren’t we revising the entire bill, rooting out every instance where it was poorly drafted and/or will cost more than it was billed as costing?”

Rep. Cassidy’s complaint, however parochial, has a point. It would be easy to dismiss the Louisiana Lagniappe as a trivial issue: after all, $4.3 billion in a trillion-dollar health-care law is a rounding error. But the haste and carelessness with which Sen. Landrieu’s provision was drafted is endemic of the legislation, more broadly.

Allow me to pick a few examples out of a hat. The CLASS Act, a new entitlement for long-term care, was suspended by Health and Human Secretary Kathleen Sebelius, because she couldn’t come up with a way to ensure its long-term solvency. The law’s high-risk pools, designed to cover people with pre-existing conditions, are spending twice as much per beneficiary as originally projected. And the White House has quietly increased its budget for the law’s insurance subsidies by $111 billion from 2014 to 2021.

I could go on, but you get the point. The Affordable Care Act’s supporters believe the law to be a thoughtfully conceived, fiscally responsible program that will cover more people while reducing the deficit. There are a lot of reasons to doubt their optimism.