ADVANCED ENVIRONMENTAL MANAGEMENT AND SYSTEMS

NREM 905

COURSE LECTURER: PROF. I.O. AGBAGWA

Institute of Natural Resources, Environment & Sustainable Dev.,

University of Port Harcourt,

Rivers State, Nigeria.

Waste (also known as rubbish, trash, refuse, garbage, junk,

litter, and ort) is unwanted or useless materials. In biology,

waste is any of the many unwanted substances or toxins that are

expelled from living organisms, metabolic waste; such as urea

and sweat.

Basel Convention Definition of Wastes

“substances or objects which are disposed of or are intended to be disposed of or are required to be disposed of by the provisions of the law”

Disposal means

“any operation which may lead to resource recovery, recycling, reclamation, direct re-use or alternative uses”

Waste

The Basel Convention on the Control of Transboundary Movements of Hazardous Wastes and their Disposal –

➢ Adopted in 1989 and came into force in 1992

➢ The most comprehensive global environmental treaty on hazardous and other wastes

➢ About 170 member countries (Parties). Nigeria is a party

• Aim is – Protect human health and the environment against the adverse effects resulting from the generation, management, transboundary movements and disposal of hazardous and other wastes.

Reasons for the Basel Convention

• Illegal cross-border transport of hazardous wastes in the 1980s

• Toxic waste traders were in the rise with third world countries targeted as dumping grounds for hazardous waste

• Toxic ships such as the Katrin B and the Pelicano, sailed from port to port trying to offload their poisonous cargoes

• Five ship loads of highly toxic and radioactive wastes originating from city of Pisa, in the Italian region of Tuscany discovered at Koko Port (old Bendel State now in Warri North LGA of Delta State) in May 1988 – Katrin B

A little on Basel Convention

UNSD waste definition

• According to the United Nations Statistics Division (U.N.S.D.): “Wastes are materials that are not prime products (that is products produced for the market) for which the generator has no further use in terms of his/her own purposes of production, transformation or consumption, and of which he/she wants to dispose. Wastes may be generated during the extraction of raw materials, the processing of raw materials into intermediate and final products, the consumption of final products, and other human activities. Residuals recycled or reused at the place of generation are excluded.”

Nigeria and Waste Legislations

• THE HARMFUL WASTE (SPECIAL CRIMINAL PROVISIONS, ETC) ACT, 1988

• THE NATIONAL ENVIRONMENTAL STANDARDS AND REGULATIONS ENFORCEMENT AGENCY ACT 2007 (NESREA ACT, repealed the Federal Environmental Protection Act of 1988)

• ENVIRONMENTAL IMPACT ASSESSMENT ACT OF 1992

Relevant regulations are

• NATIONAL ENVIRONMENTAL (SANITATION AND WASTES CONTROL) REGULATIONS, 2009)

• THE National Environmental Protection (POLLUTION ABATEMENT IN INDUSTRIES AND FACILITIES GENERATING WASTE) REGULATIONS, 1991

Hazardous Waste General definition

A hazardous waste has the potential to cause an

unacceptable risk to:

➢ PUBLIC HEALTH

➢ THE ENVIRONMENT

Note: Hazardous wastes may arise in a number of different forms: liquids, solids, gases, or sludges.

• They may be by-products of extraction of raw materials (e.g. drill cuttings), manufacturing processes (e.g. leather, textile etc.) or simply discarded products (e.g. used electronics).

• The hazard associated with a waste depends on its composition, its physical form and its physical and chemical properties.

Hazardous Waste General definition

• In its simplest form, the definition of a hazardous waste is one that has the potential to cause harm to public health and to the environment. However, such a definition is too vague for use in a regulatory framework

• It is important to stress that waste classifications are related to, but generally independent of, the classification systems used for industrial chemicals.

• This can cause the waste generator confusion, and waste managers need to know both systems and have access to both sets of data.

Why definition is difficult

HAZARDOUS WASTE

PHYSICAL FORM

PHYSICAL PROPERTIESCHEMICAL PROPERTIES

COMPOSITION

The hazard associated with a waste depends on:

BIOLOGICAL PROPERTIES

Slide 8 Why definition is difficult

▪ Definition may be based on its composition; its physical form; its

chemical, biological or physical properties; or alternatively on the waste

stream in which it arises.

▪ Each country has its own interpretation of what constitutes hazardous

waste, as well as using various terms to refer to it, such as ‘chemical’,

‘special’, ‘poisonous’, ‘toxic’ or ‘difficult’.

▪ Worldwide there is no standard definition of hazardous wastes, and a

number of different approaches are taken to the problem of defining it.

▪ The Global Waste Survey 1992 – the first attempt to gain a worldwide

picture of hazardous wastes – found that there were ‘almost as many

definitions as countries’.

▪ Other ways of defining hazardous wastes might include one based on its

recycling potential.

▪ In developing economies, there is often an inadequate identification of

the waste streams which arise – not simply of hazardous wastes – and

this can lead to an increase in pollution of the environment as well as

increased risks to human health. Nigeria and artisanal mechanics

▪ However difficult, waste classification is an important early step in

developing a waste management system.

Examples of hazardous waste

definitions: 1. Basel Convention

According to the Basel Convention there are 45 categories of

wastes that are presumed to be hazardous.

•18 are waste streams (e.g. clinical wastes, mineral oils,

Polychlorinated biphenyls -PCBs) (Y1-Y18)

•27 are wastes having clearly identified constituents (e.g.

mercury, lead, asbestos, organic cyanides, solvents) (Y19-Y45)

These categories of waste need to exhibit one or more

hazardous characteristics:

flammable, oxidising, poisonous, infectious, corrosive,

ecotoxic

Examples of hazardous waste definitions: 2. UNEP

Wastes other than radioactive wastes which,

by reason of their chemical activity or toxic, explosive,

corrosive or other characteristics cause danger or are likely

to cause danger to health or the environment

• Definition is based on the UN Transport of Dangerous Goods

Code. This is a classification system for hazardous materials

which does not have regard to the origin of the waste, nor to

the fact that wastes are often a complex mixture of unspecified

composition rather than pure substances.

• Such a classification is useful for improving aspects of

handling, transport and storage safety.

Examples of hazardous waste

definitions: 3. USA

UNDER US EPA REGULATIONS, there are three ways of

defining hazardous wastes:

1. The waste is listed/included in list of defined

hazardous wastes (i.e. in EPA regulations)

2. The waste is tested and meets one of the four

characteristics established by EPA:

• Ignitable

• Corrosive

• Reactive

• Toxic

3. The waste is declared hazardous by the generator

Examples of hazardous waste

definitions: 4. European Waste

Catalogue A core list of 850 types of waste

Of these, around 420 are classified as hazardous wastes

These are divided into 19 main categories

The objective of definitions

Why define wastes?

To decide whether or not that waste should be

controlled – this is important for the generator as well

as the regulator

Why create a list?

•Clear and simple

•No need for testing

Different methods of Classification

i. Lists e.g. Basel Convention Annex I, Basel List

A, EU European Waste Catalogue, US EPA list

ii. Origin e.g. processes, Basel Convention Annex

II

iii. Hazardous characteristics e.g. toxicity,

reactivity, Basel Convention Annex III

iv. Chemical and physical properties e.g.

inorganic, organic, oily, sludges

• Need to match classification to objectives

• No method will suit all cases

Methods of waste classification: by Origin

•Waste streams e.g. Basel Convention

•Miscellaneous or ubiquitous wastes e.g.

• contaminated soils

• dusts

• redundant pesticides from agriculture

• hospital wastes

Example of waste classification by Origin: Basel

The Basel Convention’s List of

Hazardous Waste Categories (Y1-Y18)

identifies wastes from specific

processes

e.g. Y1 Clinical wastes

Y6 Wastes from the production and

use of organic solvents

Y18 Residues from industrial waste

disposal operations

Methods of Waste Classification: by Hazardous Characteristics

Main characteristics:

•Toxic

•Corrosive

UN Committee on the Transport of Dangerous Goods

by Road or Rail (ADR) lists waste characteristics.

These have been adopted by Basel Convention –

Annex III gives 13 characteristics, based on ADR

rules, including:

•Explosive

•Flammable

•Toxic and eco-toxic

Represented as codes H1-H13

•Ignitable

•Reactive

Hazardous Characteristics: Toxicity

Toxic wastes are harmful or fatal when ingested, inhaled or

absorbed through the skin

Examples:

•Spent cyanide solutions

•Waste pesticides

• Toxic wastes disposed of on land may result in contaminated leachate.

• The leaching of toxic compounds or elements from landfills into

groundwater is one of the most common ways in which the general

population can be exposed to the chemicals found in industrial wastes.

• In the US, the EPA has devised a toxicity characteristic leaching

procedure (TCLP) test to identify wastes likely to leach hazardous

concentrations of toxic constituents.

• Using the test on a waste sample creates a liquid similar to the liquid the

US EPA would expect to find in the ground near a landfill containing the

same waste.

Hazardous Characteristics: Corrosivity

Acids or alkalis that are capable of dissolving human flesh and corroding metal such as storage tanks and drums

• Corrosive wastes are acid or alkaline and can readily corrode or dissolve flesh, metal or other materials.

• They are also one of the most common hazardous waste streams. Wastes with a high or low pH can react dangerously with other wastes or cause toxic contaminants to migrate from certain wastes.

• Examples of corrosive wastes include acids from metals cleaning processes (e.g. ferric chloride from printed circuit board manufacture) and liquor from steel manufacture.

Hazardous Characteristics: Ignitability Ignitable wastes:

• can create fires under certain conditions

• or are spontaneously combustible

Examples: •Waste oils •Used solvents •Organic cleaning materials •Paint wastes

For emphasis, ignitable wastes are those which readily catch fire and sustain

combustion. These could cause a fire during transport or storage of the waste,

or after disposal.

Hazardous Characteristics: Reactivity Reactive wastes are unstable under ‘normal conditions’

They can cause: explosions, toxic fumes, gases or vapours

Examples: • Peroxide solutions • Hypochlorite solutions or solids •Discarded munitions and explosives

For emphasis, reactive wastes will readily explode or undergo violent

reactions. Reactivity is an important characteristic of hazardous wastes

because unstable wastes can pose a problem at any stage of the waste

management life cycle.

Hazardous characteristics: Eco-toxicity

Eco-toxic wastes are harmful or fatal to other species

or to the ecological integrity of their habitats

Examples: Heavy metals, Detergents, Oils, Soluble salts

• The high sensitivity of some fish like trout to toxins at levels far lower than

human drinking water standards illustrates the importance of regarding eco-

toxicity as an important separate issue.

• By implication, human toxicity standards are not always appropriate when

considering ecological problems.

• Some substances such as oils and detergents that barely affect humans can

nevertheless interfere with other species’ life processes including

reproduction.

• Issues of bio-magnification along the food chain are just as important for

other species as they are for human toxicity.

• Despite the importance of this issue, criteria, measurements and standards

for eco-toxicity are not well developed, and are thus frequently discounted

by regulators or waste operators.

• Animal and plant species can be much more sensitive to

certain chemical substances or to conditions of pH than

mammals (including humans).

Methods of waste classification: by chemical, biological and physical properties

• Inorganic wastes e.g. acids, alkalis, heavy metals, cyanides, wastewaters from electroplating

• Organic wastes e.g. pesticides, halogenated and non-halogenated solvents, PCBs

• Oily wastes e.g. lubricating oils, hydraulic fluids, contaminated fuel oils

• Sludge e.g. from metal working, painting, wastewater treatment

Hazardous waste handling and

storage

Links in an integrated hazardous

waste management system

Storage

Collection/

Transportation

Disposal

Links in an integrated hazardous waste management system contd.

• There is always a need for a structured hazardous waste management system which begins as soon as the waste has been generated and continues through all subsequent stages to final treatment and disposal. In the simplest form, a hazardous waste management system comprises three units:

i. Storage upon generation

ii. Collection and transportation

iii. Final treatment and disposal

• Handling and storage are both important factors in all of these management stages, from cradle to grave.

• Different materials have to be handled in different ways, and may have special storage requirements. For this reason proper identification and labelling of materials is essential, and is likely to represent the difference between a safe hazardous waste management system and a dangerous one.

Links in an integrated hazardous waste management system contd.

• Correct handling, storage, packaging and labelling are vital if accidents are to be avoided and the environment is to be protected.

• The hazardous waste management system consists of a series of actions to control and contain the waste. This must be coordinated so that the various persons and groups of persons involved at the different stages are aware of their role and how that role fits within the larger structure. This is particularly true of handling and storage procedures.

Storage site selection

On-site storage:

• In waste generator premises

• Not subject to flooding

• Away from manufacturing/processing areas

• Away from employee activities

Off-site storage:

• Not subject to flooding

• Away from residential area

• Ideally in industrial area

• Good access to public infrastructure e.g. roads, emergency services

• Minimise risk of explosion or unplanned releases

• Keep incompatible wastes separate

• Not < 15m from site boundary (where possible)

• Away from foot and vehicular traffic

Storage site design criteria 1

.

• Impermeable base material

• Leak and spill containment

Storage site design criteria 1 contd.

• Whether it is stored on-site or off, any hazardous waste storage areas must be designed to minimise the possibility of an explosion or any unplanned sudden or gradual release of hazardous waste to air, water or soil. The following design criteria should be observed:

• Waste compatibility: different hazardous wastes should be stored in separate compatibility areas

• Distances from boundary and traffic: hazardous waste should be stored away from traffic, including both vehicular and foot traffic. Ignitable and reactive wastes should be stored at least 15m from the facility’s boundary, if possible – on small sites

• Base material: an impermeable base should used for the area where containers may be stored, to prevent any leaks or spills, or accumulated precipitation, from seeping into the ground.

• Leak and spill containment: the storage area must be designed and operated to contain any leaks and spills e.g. with bunds. For outdoor storage facilities, the maximum probable quantity of runoff must also be considered. Regulatory agencies, such as fire departments, may specify certain containment requirements.

Storage site design criteria 2

• Protection from climate

• Good ventilation

• Limit height of stacked containers

• Eye wash station

• Provide drainage system or elevate

• Adsorbent material for spills

• Re-packaging area

• Comply with regulations

Storage site design criteria 2 contd.

• Climate and environment: weather conditions can frequently be an important factor in determining storage conditions. Heat, cold, moisture, and wind can adversely affect storage of all chemicals. If waste materials must be stored outside, they should always be covered by a roof or tarpaulin, and be kept away from direct sunlight.

• Ventilation: adequate ventilation should be provided to prevent build-up of gases. Any area used for storage of chemical wastes or any other hazardous material should be well ventilated.

• Stack height: drums should not be stacked more too high. Drums containing flammable liquid should not be stacked.

• Eye wash station: an eye wash station must be provided for each storage area

Storage site design criteria 2 contd.

• Drainage system: floors should be sloped towards retention pits or drains. The drainage system should ensure that any spilled wastes or precipitation do not remain in contact with the waste containers. Alternatively, storage could be on elevated platforms or pallets – this also simplifies inspection. Any spilled or leaked waste, or storm water run-off, should be removed from the sump or collection area as soon as possible to prevent any overflow. (This collected waste must then be correctly handled as hazardous waste.)

• Earthing: when pumping waste or emptying and filling containers, it is necessary to earth the process

• Adsorbent material: should always be present to clean up spills immediately

• A separate repackaging room: any items which are seen to be incorrectly or inadequately packaged can be taken here

• Agency requirements: government agencies, such as the fire department, should be contacted prior to the design and building of a storage structure to incorporate any other specific requirements they may have.

Hazardous waste compatibility 1

• Need compatibility between:

• waste & container; wastes stored together; wastes stored close to each other; wastes & environment

Compatibility = the ability of two or more materials to exist

in close association with each other without the formation

of harmful chemical or physical reactions

• The concept of compatibility, when applied to hazardous waste, refers to: the

way chemicals react when in contact with each other

• Chemicals need compatibility with the containers in which they are stored,

otherwise there is a risk of container failure resulting in environmental

damage or personal injury. For example, acid should not be stored in steel

drums, or pressurised materials in weak containers.

• Compatibility with nearby materials and equipment: For example, containers

of flammable materials should be stored with proper consideration of

proximity to heat, electrical sources and open flames.

• All flammable containers 20 litre or larger should be earthed.

• Compatibility with the environment itself. Storing many waste materials

outside may be practical, but storing drums of highly flammable material in

dark drums in open sunlight can be extremely dangerous.

Hazardous waste compatibility 2

Source: UK DoE (1988) Waste Management Paper No 26

Undesirable reactions to mixing incompatible wastes

▪Generation of heat by chemical reaction

➔ Alkali metals, metal powders

▪ Generation of toxic gases

➔ Hydrogen cyanide, hydrogen sulphide

▪ Generation of flammable gases

➔ Hydrogen, acetylene

▪ Generation of gases

➔ Nitrogen oxides, chlorine, sulphur dioxide

▪ Dissolution of toxic compounds

➔ Heavy metals, complexing agents

• Storage should be for as brief a period as possible

• Permitted temporary storage duration varies from country to country

Western Europe:

• Typically 28 or 90 days

USA:

• Up to 90 days for large quantity generators

• Up to 180 days for small quantity generators

Some European countries and Far East:

• Indefinite period allowed

Duration of hazardous waste storage

Long term storage

• For longer term storage, different controls needed

• If storage may be indefinite, controls should be similar to

those for final disposal facilities

• Long term storage may be a practical solution to the

problem of a shortage of hazardous waste treatment and

disposal facilities

• Important to avoid ‘storage’ becoming an excuse for

uncontrolled disposal

• Example of inappropriate long term storage of wastes is the stockpiling of obsolete pesticides in some countries. Because the conditions were not properly controlled, drums have corroded or buckled, and storage areas h

Net Federal Spending for Medicare Parts A and B for A ected Beneficiaries

Total Payments by A ected Beneficiaries

Combined Net Federal Spending for and Total Payments by A ected Beneficiaries

Premiums Paid by A ected Beneficiaries

-15% Second-Lowest-Bid Option

Average-Bid Option

-8%

-8%

-5%

-7%

-7%

18%

35%

Estimated Difference From Outcomes Under Current Law, Without Grandfathering, in 2024

CONGRESS OF THE UNITED STATES CONGRESSIONAL BUDGET OFFICE

CBO A Premium

Support System for Medicare:

Updated Analysis of Illustrative

Options

OCTOBER 2017

Notes All years referred to in this report are calendar years. The estimates were generated using the Congressional Budget Office’s March 2016 baseline projections of Medicare spending.

The amounts in the text and tables are in nominal (current year) dollars. Numbers in the text, tables, and figures may not equal totals because of rounding.

Supplemental information accompanies this report on CBO’s website (www.cbo.gov/publication/53077).

www.cbo.gov/publication/53077

Figures

1. Estimated Difference From Current Law in Net Federal Spending for and Total Payments by Affected Medicare Beneficiaries Under Illustrative Premium Support Options, Without Grandfathering, 2024 7

2. Ratio of Actual and Projected Medicare Advantage Bids to Medicare FFS Spending per Capita Under Current Law, in Two CBO Studies 13

Table

1. Estimated Change in Net Federal Spending for Medicare Under Illustrative Premium Support Options, Relative to Spending Under Current Law, 2022 to 2026 6

Contents

Summary 1 What Are CBO’s New Estimates? 1 How Much Did CBO’s Estimates Change and Why? 1

What Is the Current Role of Private Plans in Medicare? 2

What Policy Options Did CBO Analyze? 2 The Federal Contribution 3 Grandfathering 3 Other Features 3 Key Design Decisions for Future Proposals 5

What Were CBO’s Analytical Methods? 5

What Are CBO’s New Estimates? 5 Budgetary Effects Without Grandfathering 6 Budgetary Effects With Grandfathering 8 Other Effects 8

How Much Did CBO’s Estimates of Effects Without Grandfathering Change and Why? 10 Changes in the Estimates 10 Reasons for the Changes in the Estimates 11 BOX 1. THE ROLE OF THE MEDICARE FEE-FOR-SERVICE PROGRAM AND ITS PROVIDER PAYMENT RATES 14

How Much Did CBO’s Estimates of Effects With Grandfathering Change and Why? 15

About This Document 17

A Premium Support System for Medicare: Updated Analysis of Illustrative Options

Summary Over the past two decades, policymakers and analysts have advanced a variety of proposals for converting Medicare to a premium support system as a way to reduce federal spending. Under such a system, beneficia- ries would choose health insurance from a list of compet- ing plans, and the federal government would share the cost of their premiums. The proposals have differed in many respects, notably in the way that the federal con- tribution would be set and how that contribution might change over time.

The Congressional Budget Office has in the past ana- lyzed the budgetary effects of some illustrative options for a premium support system.1 This report updates the agency’s work on the topic, presents new estimates of the budgetary effects of those options, and examines the reasons for the changes in the estimates, including changes in law that have affected the Medicare program. CBO constructed its estimates for this report under the assumption that the system would be implemented in 2022. Depending on their details, future cost esti- mates for legislative proposals that resemble the options analyzed in this report could differ substantially from the estimates presented here.

In the options CBO analyzed, the federal government’s contribution would be determined from insurers’ bids, and Medicare’s traditional fee-for-service (FFS) program would be included as a competing plan. CBO examined two approaches for determining the federal contribu- tion: One would set the contribution on the basis of the second-lowest bid in each region; the other would use the region’s average bid. CBO also examined the effects of grandfathering, which would keep beneficiaries in the current Medicare program if they were eligible for Medicare before the premium support system took

1. See Congressional Budget Office, Options for Reducing the Deficit: 2014 to 2023 (November 2013), pp. 204–210, www.cbo.gov/ content/options-reducing-deficit-2014-2023, and A Premium Support System for Medicare: Analysis of Illustrative Options (September 2013), www.cbo.gov/publication/44581.

effect instead of requiring all beneficiaries to enter the premium support system once it began.

What Are CBO’s New Estimates? CBO’s new estimates indicate the following:

■ Without grandfathering, the second-lowest-bid option would reduce net federal spending for Medicare by $419 billion between 2022 and 2026; the average-bid option would reduce such spending by $184 billion.

■ With grandfathering, the second-lowest-bid option would reduce net federal spending for Medicare by $50 billion between 2022 and 2026; the average-bid option would reduce such spending by $21 billion.

Those savings would arise because private insurers’ bids would generally be lower than FFS costs per capita and would substantially influence the federal contribution. Savings would be much smaller if the options included a grandfathering provision because only a small portion of the Medicare population would be covered by the new system initially, and that portion would increase gradually.

On average, CBO estimates, beneficiaries’ total payments for Medicare premiums and cost sharing (enrollees’ out-of-pocket spending on copayments, coinsurance, and deductibles for Medicare-covered benefits) would be higher under the second-lowest-bid option, but lower under the average-bid option, than under current law. Under either option, the total payments made by partic- ular beneficiaries could differ markedly from the national average. For example, in many regions, total payments by beneficiaries who chose to enroll in Medicare’s FFS pro- gram would be substantially higher than under current law because of the increases in beneficiaries’ premiums.

How Much Did CBO’s Estimates Change and Why? CBO’s current estimates of the federal savings from the premium support options without grandfathering are much higher than its earlier estimates. In a November

2 A Premium SuPPort SyStem for medicAre: uPdAted AnAlySiS of illuStrAtive oPtionS october 2017

2013 report, CBO estimated that if a premium sup- port system was implemented without grandfathering, the second-lowest-bid option would reduce net federal spending for Medicare by $275 billion between 2018 and 2023 and the average-bid option would reduce net federal spending over that period by $69 billion.2

CBO’s savings estimates increased primarily because the agency’s current projections of the bids that Medicare Advantage plans would submit under current law are lower relative to FFS spending per capita than the pro- jections used in its earlier analysis. Medicare Advantage plans submit bids to Medicare for the amount that it would cost to provide enrollees with Medicare bene- fits covered under the Hospital Insurance (Part A) and Medical Insurance (Part B) programs. Medicare pays plans based on those bids, and then Medicare Advantage plans assume responsibility for paying providers for beneficiaries’ care. (In contrast, Medicare’s FFS program pays providers directly for services covered under Parts A and B.) CBO used its projections of the bids Medicare Advantage plans submit under the current program to estimate the bids of private insurers under the pre- mium support options. The lower current projections of Medicare Advantage bids suggest that those insurers’ bids would be lower than CBO had previously anticipated. Other factors also affected CBO’s budgetary estimates, but with smaller net effects.

CBO lowered its projections of Medicare Advantage bids relative to FFS spending per capita for two reasons. First, Medicare Advantage bids have declined relative to FFS spending in recent years. Second, legislation affecting updates to Medicare’s FFS physician payment rates caused CBO to revise its projections of how much Medicare Advantage bids will change relative to FFS spending.

What Is the Current Role of Private Plans in Medicare? In 2016, about 30 percent of Medicare’s 57 million beneficiaries were enrolled in Medicare Advantage plans. Almost all other beneficiaries were enrolled in Medicare’s FFS program. Insurers who wish to participate in Medicare Advantage submit bids to the government

2. For that estimate, CBO assumed implementation in 2018, four years earlier than the current estimate. See Congressional Budget Office, Options for Reducing the Deficit: 2014 to 2023 (November 2013), pp. 204–210, www.cbo.gov/content/ options-reducing-deficit-2014-2023.

indicating the per capita payment they will accept for providing benefits to enrollees under Medicare Parts A and B. The resulting federal payments depend in part on the insurers’ bids and on how those bids compare with county-level benchmarks, which range from 95 percent to 115 percent of local spending per capita in Medicare’s FFS program. Federal payments to insurers are adjusted to account for the health status of their enrollees, and plans receive bonus payments if they earn high ratings for quality of care. (Private insurers also participate in a separate bidding process that determines payments under Medicare Part D, the prescription drug program.)

What Policy Options Did CBO Analyze? In the current analysis, CBO examined two sets of illustrative options for converting Medicare to a pre- mium support system. For each, the federal government’s contribution would be determined from insurers’ bids, including the “bid” of the Medicare FFS program, which would be a competing plan. The nation would be divided into regions within which competing private insurers would submit bids indicating the amount they would accept to provide Medicare benefits to a benefi- ciary in average health.3 Similarly, Medicare’s FFS bid in each region would be based on the projected cost of providing benefits in Medicare FFS to an enrollee in average health.

Insurers would submit bids for a benefit package that covered the same services as Parts A and B of Medicare (with a few exceptions, noted below) at the same actuar- ial value as Parts A and B combined. (That is, each policy would cover the same benefits and percentage of total expenses for a given population that would be covered under current law by Medicare’s FFS program.) As under current law, Medicare Part D would be administered separately.

The options CBO examined differ from each other along two dimensions: the approach used to deter- mine the federal contribution, and whether the option included a grandfathering provision so that beneficiaries who became eligible for Medicare before the premium support system took effect would remain in the current

3. Throughout this report, the term bid refers to the standardized bid for a beneficiary in average health. As under current law, federal payments to plans would be adjusted to account for differences in their enrollees’ health.

3october 2017 A Premium SuPPort SyStem for medicAre: uPdAted AnAlySiS of illuStrAtive oPtionS

Medicare system rather than enter the new system. Other program features would be the same.

The Federal Contribution CBO analyzed two approaches to determining the benchmarks for setting the federal contribution:

■ A second-lowest-bid approach would set the regional benchmark at the lower of a pair of bids: either Medicare’s FFS bid or the second-lowest bid submitted by a private insurer.

■ An average-bid approach would set the regional benchmark at the weighted average of all bids, including the FFS bid, with weights equal to the proportion of beneficiaries enrolled in that plan in the preceding year.

For each enrollee, the federal government would pay insurers an amount equal to the benchmark for the region minus the standard premium paid by enroll- ees (discussed below). Insurers would receive larger or smaller payments for beneficiaries whose health was worse or better than average. Neither the amount nor the growth rate of the federal payment would be capped.

Beneficiaries who enrolled in a plan with a bid that equaled the benchmark would pay a standard premium directly to the insurer. That premium would be the same everywhere and would be set to cover approximately one-fourth of the total cost, excluding cost sharing, for services covered in Part B (physicians’ services, hospital outpatient care, durable medical equipment, and other services, including some home health care)—a formula that is similar to that under current law for Part B premi- ums. Beneficiaries who chose a plan with a bid above the benchmark would pay the insurer the standard premium plus the difference between the bid and the benchmark. Those who chose a plan with a bid below the benchmark would pay the standard premium minus the difference between the benchmark and the bid. Income-related Part B premiums for higher-income beneficiaries would continue as under current law.

Grandfathering For each approach to determining the benchmark, CBO analyzed options with and without grandfathering. (Grandfathering would keep current beneficiaries from having to adjust to a new system.) Under grandfathering, only a small portion of the Medicare population would

participate in the premium support system initially, but that portion would increase gradually over the long term.

Other Features The other features of a premium support system were common to all options. Some illustrate the potential for savings from a premium support framework; others were chosen for feasibility of implementation or to simplify the modeling approach. Many other variations are pos- sible, and none of the options presented in this report should be considered a recommendation by CBO.

Under each option, beneficiaries would choose a plan when they first entered the premium support system. Beneficiaries who did not select a plan at that time would be assigned (with equal probability) to a plan that had submitted a bid at or below the regional bench- mark, including the FFS program if it met that criterion. Beneficiaries would remain in the plan they chose (or were assigned to) in subsequent years, unless they chose a different plan during an annual enrollment period.

To clarify the choices for beneficiaries (and thereby heighten competition based on differences in premiums), private insurers would be allowed to submit bids for the basic Medicare package for just one or two plans in each region. If they chose to submit bids for two plans, each could have different features—offering a larger or smaller provider network, for example—but both would need to have the same actuarial value. Insurers also could offer a package of enhanced benefits (with a single, fixed, higher actuarial value that would be the same for all insurers) to accompany each basic package offered. Enrollees would pay the full additional cost of the enhanced packages through higher premiums.

CBO assumed that there would be no changes to the current FFS program, either in the mechanisms for setting the rates paid to providers or in the tools avail- able to contain costs. As under current law, beneficia- ries who remained in the FFS program could purchase supplemental coverage (known as medigap coverage) from private insurers. Such policies cover some or all of Medicare’s cost sharing and may also cover certain services that are not covered by Medicare.

To simplify the analysis, CBO assumed that the pre- mium support system would not affect certain types of federal spending for Medicare. Specifically, the agency assumed that dual-eligible beneficiaries—people who are

4 A Premium SuPPort SyStem for medicAre: uPdAted AnAlySiS of illuStrAtive oPtionS october 2017

simultaneously enrolled in Medicare and Medicaid— would be excluded from the premium support system and that federal spending for their health care would continue as it would under current law. CBO made that assumption because of the additional complexity of structuring a premium support system to include dual-eligible beneficiaries, although a system could be devised to include them.

In a change from past analyses, CBO assumed that ben- eficiaries with coverage only for Medicare Part A would be excluded from the premium support system and that federal spending for their benefits would continue as it would under current law. CBO chose that feature because most such beneficiaries have primary coverage through employment-based insurance and have second- ary coverage through Medicare.4

CBO also assumed that Medicare’s spending for Part D would continue as projected under current law, as would spending for items and services that are not included in the calculation of the benchmarks or bids for current- law Medicare Advantage plans—such as Medicare’s additional payments to hospitals for medical education, hospice benefits, and certain benefits for patients with end-stage renal disease.

The categories of spending that CBO assumed would be unaffected by the premium support system—which include spending for dual-eligible beneficiaries and bene- ficiaries enrolled in Part A only, all spending on Medicare Part D, and the other categories of spending discussed above—made up about 40 percent of net federal spend- ing for Medicare in 2016. (Net spending consists of total Medicare spending minus beneficiaries’ premiums and other offsetting receipts.)

CBO made many other detailed assumptions concerning the options that have been described previously.5 With the following three exceptions, the specifications used in this analysis were the same as those that applied in 2013.

4. Under current law, beneficiaries must be enrolled in both Part A and Part B of Medicare to be eligible to enroll in a Medicare Advantage plan.

5. See Congressional Budget Office, A Premium Support System for Medicare: Analysis of Illustrative Options (September 2013), pp. 7–15, www.cbo.gov/publication/44581.

First, CBO assumed that beneficiaries who had Part A– only coverage would be excluded from the premium support system. That analytical choice resulted in mod- estly smaller budgetary savings, relative to CBO’s prior estimate, because Medicare is the secondary payer for most such beneficiaries and thus typically spends much less to cover them.6

Second, CBO assumed that the federal government would apply a greater reduction in the risk scores of private-plan enrollees under the premium support options than it would under the current Medicare Advantage program. Risk scores are computed for all Medicare beneficiaries on the basis of their diagnoses and other characteristics, and the government uses those scores to adjust payments to plans. (CBO assumed that a comparable risk-adjustment system would be used for the premium support options.) Research pub- lished in the past few years has shown that, on average, Medicare Advantage enrollees have higher risk scores than FFS beneficiaries in similar health and that the difference has increased recently.7 The difference between risk scores for the two groups of enrollees appears to arise more from the intensive diagnostic coding used by Medicare Advantage plans than from actual differences in health among the two groups.8 In the current analysis, CBO assumed that the federal government would take steps to ensure that the risk scores of private-plan enroll- ees would be no more than 5 percent higher, on average, than the risk scores of Medicare FFS beneficiaries with

6. In certain situations—such as when a Medicare-eligible beneficiary has health insurance coverage through a current employer or a spouse’s employer—Medicare acts as the secondary payer. That is, Medicare only pays for covered benefits after the primary payer has met its responsibility for the beneficiary’s costs of care.

7. For example, see Medicare Payment Advisory Commission, “MA Risk Adjustment and Coding Intensity Adjustment,” in Report to the Congress: Medicare Payment Policy (March 2016), pp. 344–346, www.medpac.gov/-documents-/reports; and Richard Kronick and W. Pete Welch, “Measuring Coding Intensity in the Medicare Advantage Program,” Medicare & Medicaid Research Review, vol. 4, no. 2 (2014), pp. E1–E19, https://go.usa.gov/xN5DU.

8. Because they receive larger payments for covering enrollees with higher risk scores, Medicare Advantage plans have an incentive to code all diagnoses that are included in the risk-adjustment mechanism. Many providers (particularly physicians) have no such incentive to code every diagnosis for their Medicare FFS patients; they are paid on the basis of the services furnished, not the diagnoses reported.

5october 2017 A Premium SuPPort SyStem for medicAre: uPdAted AnAlySiS of illuStrAtive oPtionS

similar health status.9 That difference is smaller than the published estimates of the difference under current law.

Third, for this analysis, CBO assumed that legislation to establish a premium support system would be enacted late in 2017. To allow time for the federal government to develop the necessary administrative structures and for beneficiaries and insurers to prepare for the new system, CBO assumed that the system would not be imple- mented until 2022.

Key Design Decisions for Future Proposals Options considered by the Congress, and the result- ing costs or savings, could differ significantly from the options analyzed in this report. Policymakers who wished to develop such proposals would need to make many complex decisions about the design of a premium sup- port system, with important implications for Medicare spending. In its earlier report, CBO discussed several such decisions that would be specific to a system with grandfathering.10

Some more broadly applicable design questions include the following:

■ Would dual-eligible beneficiaries be included in the premium support system, and if so, how would the system accommodate them?

■ Would enrollment in Part B remain voluntary, and if so, how would beneficiaries who are enrolled only in Part A be treated by the new system?

9. Recent trends informed CBO’s expectation that, under current law, the unadjusted difference between the risk scores of Medicare Advantage enrollees and FFS beneficiaries would be greater than it anticipated in 2013 and substantially above 5 percent. For the premium support options, CBO assumed that coding differences would be limited to 5 percent. That limit is illustrative and arbitrary. Pressure to have a low limit would stem from concerns that a greater divergence between risk scores under premium support would allow private plans to reduce their bids. Reductions in those bids would tend to lower the federal contribution but would not affect the FFS bid. Thus, premiums would increase for beneficiaries who chose to remain in the FFS program.

10. See Congressional Budget Office, A Premium Support System for Medicare: Analysis of Illustrative Options (September 2013), pp. 32–33, www.cbo.gov/publication/44581.

■ What rules would be established for beneficiaries who receive retiree coverage from a former employer or union?