Within the Administrative State (Health Care Edition) | American Enterprise Institute

While the Supreme Court prepares a combined decision on two cases that affect the so-called Chevron doctrine (as to the executive branch’s deference to actions neither required nor provided for by law), the nature of the “administrative state” is receiving renewed attention, but mostly in general terms. To provide some context, a closer look at how one specific agency — the Centers for Medicare and Medicaid Services, or CMS — has become a regulatory colossus may be helpful.

When Congress passed the original legislation creating Medicare and Medicaid, the intent was for the federal government to play a carefully circumscribed role in the evolution of American health care. This impulse quickly collided with the reality of running large publicly sponsored insurance plans.

As costs rose, Congress wanted to act, but found direct market intervention too complex. Consequently, it regularly tasked CMS (which used to be known as the Health Care Financing Administration) to write specific rules establishing new terms for payments based on broad guidelines (such as the use of cost ratios from a set year to build “future payments” forward, with adjustments for politically sensitive factors such as local labor costs). While these powers were delegated to CMS, they often came with additional overt authorities to set quality standards, ensure fair access for underserved populations, police fraud and abuse, and much more.

CMS received an additional major increase in its authority with the passage of the Affordable Care Act (ACA) in 2010. That law famously included nearly 3,000 references to the secretary of the Department of Health and Human Services, mostly as part of delegations new regulatory powers. For example, the law required the secretary to set minimum benefit standards for all insurance plans, rules for states that choose to build online marketplaces for insurance enrollment, and accounting guidelines for measuring how much insurers spend on medical benefits.

Over time, the industry has come to see the expanded role of CMS as an inevitable feature of the business landscape. Therefore, any new extension of CMS scope is mostly greeted with resignation. A few recent examples illustrate this dynamic.

• This year, CMS published a 284-page final rule, without any prompting from Congress, outlining new requirements for insurers sponsoring Medicaid managed care plans. Among the many new requirements in the published regulation is a mandate for states to establish “mystery shoppers” to test insurers’ compliance with new access-to-care standards, including wait times for primary care appointments.
• Also this year, CMS moved forward with minimum staffing requirements for nursing homes that are receiving payments from Medicare and Medicaid. The new input cost floor for these institutions was not associated with higher payments.

• CMS’s 2024 Medicare Advantage Rule (a new one is issued each year) is over 400 pages long in the Federal Register. Among the new requirements this year are restrictions on reimbursement agreements with insurance brokers, new access to tests of care for various covered services, and formulary adjustments that limit payments for patient risk factors.

CMS also has powers beyond published regulations. For example, within Medicaid, states can petition the federal government for “waivers” of certain statutory requirements when those restrictions impede state-initiated reforms. There are some statutory guidelines governing the waiver process, but mostly the terms are set by CMS based on a regulation that was written without significant input from Congress. Much of the Medicaid program is now run by federal-state waiver negotiations that occur without significant public oversight.

It is possible to envision a different division of labor between Congress and CMS, but that would require a revised approach to health care policy. If the intent is for the federal government to essentially run American health care, Congress will never be able to take the driver’s seat. The institution is too unreliable to be able to intervene in predictable ways to market changes, and it is also so sensitive to pressure from interest groups that its decision can distort market outcomes even more than what actually emerges. now from CMS.

The outlook might be different if Congress were to step back from trying to run the health care system and instead establish clear market rules that govern transactions between insurance providers, medical providers, and consumers, with less ongoing government interference. This more detached stance would be difficult to maintain when, inevitably, some Americans found themselves disadvantaged by conduct prohibited by law.

Given the likelihood that political pressures will always push Congress to try to guarantee health care outcomes (regardless of the futility of the effort) rather than to establish fair market rules, it is far more likely that, even with more little judicial patience, CMS or an agency like it will continue to call most of the shots.