As the Supreme Court readies a combined decision on two cases touching on the so-called Chevron doctrine (regarding deference to the executive branch on actions that are neither required nor proscribed by law), the nature of the “administrative state” is getting 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 might be useful.

When Congress approved the original legislation creating Medicare and Medicaid, the intention was for the federal government to play a carefully circumcised role in the evolution of American health care. That impulse quickly collided with the realities of running large publicly-sponsored insurance plans. 

As costs soared, Congress wanted to act but found intervening directly in the market exceedingly complex. Consequently, it regularly tasked CMS (which used to be known as the Health Care Financing Administration) with writing specific rules for establishing new terms for payments based on broad guidance (such as using cost reports from a certain year to build “prospective payments” going forward, with adjustments for politically sensitive factors such as local labor costs). As these powers were handed over to CMS, they often came with additional open-ended authorities to establish quality standards, ensure fair access for underserved populations, police fraud and abuse, and much else. 

CMS received an additional major surge in its authorities 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 new delegations of regulatory powers. For instance, the law required the secretary to establish minimum benefit standards for all insurance plans, rules for states electing to build online marketplaces for insurance enrollment, and accounting guidelines to measure how much insurers spend on medical benefits.

Over time, the industry has come to view CMS’s expansive role as an unavoidable feature of the business landscape. Each new extension of CMS’s reach is therefore mostly greeted with resignation. Some 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 deploy “secret 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 floor on input costs for these institutions was not tied to higher payments.

• CMS’s 2024 Medicare Advantage rule (a new one is issued annually) runs over 400 pages in the Federal Register. Among this year’s new requirements are restrictions on compensation arrangements with insurance brokers, new access to care tests for various covered services, and formula adjustments limiting pay bumps for patient risk factors.

CMS also wields power beyond published regulations. For instance, within Medicaid, states can petition the federal government for “waivers” of certain statutory requirements when those restraints hinder state-initiated reforms. There are some statutory guidelines governing the waiver process but mostly the terms are set by CMS based on a rulebook that has been written without significant input from Congress. Much of the Medicaid program is now governed 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 it would require a revised approach to health care policy. If the intention is for the federal government to essentially run US health care, Congress will never be able to occupy the driver’s seat. The institution is too unreliable to be able to intervene in predictable ways to market changes and is also so sensitive to interest-group pressure that its decision might distort market outcomes even more than those now emanating from CMS. 

The outlook might be different if Congress stepped back from trying to run the health system and instead set clear market rules governing transactions between suppliers of insurance, medical services providers, and consumers, with less ongoing governmental interference. This more removed stance would be difficult to sustain when, inevitably, some Americans found themselves disadvantaged by conduct not prohibited by law.  

Given the likelihood that political pressures will always push Congress toward trying to guarantee results in health care (no matter the futility of the attempt) instead of establishing fair rules for the market, it is far more likely that, even with less judicial forbearance, CMS or an agency like it will continue to call most of the shots.

The post Inside the Administrative State (Health Care Edition) appeared first on American Enterprise Institute – AEI.