How Health Reform Would Restrict Annual And Lifetime Limits

As the Senate starts to debate health reform, Health Reform Talk begins a series comparing similar, but not identical features of the legislation already passed in the House (H.R. 3962) and the bill being considered in the Senate (H.R. 3590). These are features likely to survive in health reform legislation and which will directly affect employers. For today, provisions regarding annual and aggregate limits in group health plan are considered.

Both the House and the Senate legislation remove limits in annual and lifetime benefits from group health plans, but the two bills do so in different ways:

Senate (H.R. 3590): Sec. 1001 of the bill prohibits a group health plan and health insurers from establishing lifetime limits on the dollar value of benefits or “unreasonable annual limits.” However, the Senate bill does not prohibit self funded health care plans from placing annual or lifetime limits on “specific covered benefits” as long as those limits are not prohibited by law (for example, a limit on AIDS coverage likely would be prohibited by the Americans with Disabilities Act, and a separate limit on mental health coverage would be prohibited by the Mental Health Parity Act).

Sec. 1001 would take effect for plan years beginning on or after six months after the date of enactment.

House (H.R. 3962): Sec. 109 prohibits all group health plans and health insurers from imposing an aggregate dollar lifetime limit on benefits payable under a health plan. This provision would take effect on the date of enactment.

The House bill also prohibits health plans that are required to offer an essential benefits package from imposing any annual or lifetime limit on covered health care items and services. This provision would apply to all plans offered through the Insurance Exchange starting in 2013 (mostly small employer plans) and all employer plans starting in 2018.

Happy Thanksgiving

The editors of Health Reform Talk wish you a happy and fulfilling Thanksgiving.  We will begin posting again on Monday, Nov. 30.

Botax could increase cost of beauty

The cost of vanity could soon go up and plastic surgeons are probably not feeling too thankful about it this Thanksgiving. Tucked in the Senate’s latest version of health reform, released last week, is a provision that would slap a five-percent excise tax, dubbed by many as the “Botax,” on elective cosmetic surgeries and procedures, such as Botox, facelifts, breast implants, tummy tucks, teeth whitening, and the like. The tax would apply regardless of whether the procedure is covered by insurance or paid out of pocket.

However, the tax would not apply to surgeries and procedures that are done to fix deformities arising from or directly related to a congenital abnormality, a personal injury resulting from an accident or trauma, or a disfiguring disease. I suspect that, in many cases, this would become a close call.

Under the proposal, the tax would be paid by person on whom the procedure is performed and would have to be collected and remitted by the doctor or facility performing the procedure. If the doctor or facility doesn’t collect the tax, they would be responsible for paying it.

Though it’s estimated that the new tax would bring in an estimated $5 billion to help pay for health reform, some find this doubtful. For instance, Dr. Patrick McMenamin, the president of the American Academy of Cosmetic Surgery, points to the experience of New Jersey, which is the only state to impose a cosmetic surgery tax, claiming that the state has generated 59 percent less than expected by its tax.

Not surprisingly, doctors see plenty of gray areas in determining which surgeries and procedures would be covered by the tax and which would not. For example, ABC News reports, doctors wonder “whether breast reconstruction after a mastectomy would count as cosmetic because a ‘disfiguring disease’ didn't misshape a woman's breasts, the treatment did.” Also unclear is whether the tax would be imposed on related fees, such as anesthesia.

As it currently stands in the Senate bill, the new tax would apply to procedures occurring on or after January 1, 2010.

Anti-botax websites are already springing up. Why am I not surprised?

Medicare Fraud and Abuse Losses

Medicare’s problems with billions of dollars in fraudulent claims payments have been in the news lately. This issue is particularly galling as Congress struggles for ways to pay for health reform without breaking the national bank. President Barack Obama has said that there is enough waste and fraud in the health care system to pay for health reform.

A CBS News’ 60 Minutes segment on October 25 focused on the Medicare fraud issue which is estimated to cost taxpayers $60 billion a year. In that CBS report, one fraud perpetrator said he stole $20 million from Medicare and it was “real easy—you’d file a claim and in 15 to 30 days you’d have a deposit in your bank account.” As Steve Kroft, the 60 Minutes reporter, noted in the segment, the “only victims are the American taxpayers and they don’t even know they’re being ripped off.”

What the 60 Minutes segment, or other media sources, fail to report is that Medicare itself does not administer or pay medical claims. The Medicare agency, the Centers for Medicare and Medicaid Services (CMS), contracts with private health insurers such as a Blue Cross Blue Shield plan, or claims administrators to pay Medicare claims. Currently, seven fiscal intermediaries and eight carriers pay hospital and outpatient medical claims, respectively. As the Medicare site explains, these contractors are responsible for claims processing, payment safeguards, and financial management.

So, some of us reasoned, shouldn’t the Medicare claims contractors catch these blatantly fraudulent claims, such as those for two prosthetic arms for a beneficiary who has never had any surgery to remove those limbs, and not pay for them? Once the claims are paid, the government often cannot recover the fraudulent payments because the fraudsters have closed up shop and disappeared without a trace.

What gives? For one thing, the Medicare law requires that claims for medical services be paid within 15 to 30 days, so, as a Medicare spokesperson told me, if the paperwork looks “clean” (whatever that means), the Medicare contractor pays the claim. Any claim review for appropriateness is done after the claim is paid, by which time….

Since Congress wrote the legislation requiring the prompt claims payment, why can’t CMS ask Congress to fix the claims payment requirement to allow for investigation prior to payment? Because, the CMS spokesperson explained, medical providers would cry “foul” if their claims payments were delayed; after all, they can count on Medicare to pay claims a lot sooner than other, private, payers.

Another obstacle to fraud prevention in Medicare is the multiple number of contractors and uncoordinated claims payment systems for hospital claims and for other medical claims. CMS is working to establish an “Enterprise Data Center” that will house claims processing software systems for Medicare claims to consolidate the current large number of data centers.

Other reforms intended to reduce improper and fraudulent claims include implementing a Healthcare Integrated Genera Ledger and Account System, hiring a “Program Integrity Contractor” for each geographic zone to handle fraud and abuse; and implement a limited number of shared systems (dubbed Shared Systems Maintainers) for all contractors to use for claims and related processing. Furthermore, by 2011 CMS will have transitioned to new regional Medicare Administrative Contractors (MACs) that will process together claims for Medicare Part A (hospital) and B (medical) claims), which currently are processed by different contractors..

Maybe these reforms will help reduce the dollars lost to Medicare fraud, but I suspect that until stricter requirements and regulation for medical provider participation and claims submission documentation are adopted, the problem will continue unabated.

A boost for health insurance cooperatives in H.R. 3962

A premise underlying the 2009 push for health care reform is the perception that private, for-profit insurers have not succeeded in providing sufficiently broad access to health insurance at affordable prices. Thus one aspect of the debate has centered, whether rightly or wrongly, on the search for an alternative to private insurance.

The hotly-debated "public option," contained in varying form in both the House and the Senate bills, is one example of such an alternative. Another is the notion of a not-for-profit health insurance cooperative, which received attention last summer as a less-controversial alternative to the public option.

Not-for-profit cooperatives have existed for years in other contexts. One example is in the delivery of electricity to rural areas--Colorado's is just one example of such a cooperative. A few health insurance cooperatives have also existed for years. Current examples include HealthPartners in Minnesota and the Group Health cooperative based in Seattle, Washington.

The Democrats continue to battle for the survival of the public option. So, there's no deep dive into the cooperative approach in the House version of health care reform (H.R. 3962). However, via Act Sec. 310, the House does put its toe in the water.



Under Act Sec. 310, within six months after the President signs the bill, the new Health Choices Commissioner must form a Consumer Operated and Oriented Plan (the "CO-OP" program) under which grants and loans may be made for the establishment of not-for-profit health insurance cooperatives.

The Act authorizes the appropriation of five billion dollars (for fiscal years 2010 through 2014) to provide for the grants and loans. The grants and loans are intended to fulfill two purposes: (1) assist the cooperatives with their start-up costs and (2) help them comply with state solvency requirements.

While eligible cooperatives may operate through either the federal Health Insurance Exchange or a State-based Health Insurance Exchange, states are not required to establish a cooperative.

Cooperatives must meet certain conditions in order to be eligible for the grants or loans. For example, in addition to being not-for-profit, the cooperative's membership must consist entirely of beneficiaries of the insurance coverage offered by the cooperative.

A similar (though not identical--scroll to Act Sec. 1322) provision is contained in the version of the Senate bill that will be debated (and debated, and debated) after Thanksgiving.

Substantial Uncertainty

The House has passed a health reform bill, the Senate is about to consider one, and both the Congressional Budget Office and the Centers For Medicare and Medicaid Services have weighed in on the budgetary effects of both bills.

The conclusions of the CBO and CMS? In one word, uncertainty.

Regarding the House bill, the actual future impacts of the Affordable Health Care for America Act, H.R. 3962, "are very uncertain," according to a November 13 memorandum from Richard S. Foster, the chief actuary of the CMS, which estimates the financial and coverage effects of the non-tax provisions in the proposed legislation.

In addition to echoing an earlier report from the CBO that called budget estimates "subject to substantial uncertainty," the CMS memorandum notes that:

"The legislation would result in numerous changes in the way that health care insurance is provided and paid for in the U.S., and the scope and magnitude of these changes are such that few precedents exist for use in estimation. Consequently, the estimates presented here are subject to a substantially greater degree of uncertainty than is usually the case with more routine health care proposals."

And here is what the CBO says regarding H.R. 3590, the Patient Protection and Affordable Care Act:

“The direct spending and revenue effects of enacting the Patient Protection and Affordable Care Act would yield a net reduction in federal deficits of $130 billion over the 2010-2019 period. That estimate is subject to substantial uncertainty….

“A detailed year-by-year projection for years beyond 2019, like those that CBO prepares for the 10-year budget window, would not be meaningful because the uncertainties involved are simply too great….

“CBO expects that the bill, if enacted, would reduce federal budget deficits over the ensuing decade relative to those projected under current law—with a total effect during that decade that is in a broad range around one-quarter percent of GDP. The imprecision of that calculation reflects the even greater degree of uncertainty that attends to it, compared with CBO’s 10-year budget estimates.”

In other words, we don’t really know.  And I think that is a good admission, given the hundreds and hundred of variables over decades that could change any number of budgetary calculations. We all need to admit that the results of complex legislation, whether it involves health care, troop buildups, or welfare reform, are nearly impossible to predict.

For example, all of the CBO estimates done on health reform proposals estimate the number of individuals who will join health care exchanges and the net increase (or decrease) in employer coverage or individual coverage outside of exchanges. Regarding H.R. 3950, the CBO says, 3590 states, “About 25 million people would purchase their own coverage through the new insurance exchanges, and there would be roughly 15 million more enrollees in Medicaid and CHIP than is projected under current law. Relative to currently projected levels, the number of people purchasing individual coverage outside the exchanges would decline by about 5 million, and the number obtaining coverage through their employer would also decline by about 5 million.”

Maybe yes, maybe no. As the CBO says, this is “subject to substantial uncertainty.”

Fat chance of (diet) reform during holidays

You might remember a few months ago when I wrote about menu labeling. There was a provision in the Senate Health, Education, Labor, and Pensions (HELP) Committee’s Affordable Health Choices Act that would require certain restaurants to post nutrition information on their menus.

As it turns out, the House-passed health reform bill, the Affordable Health Care for America Act (H.R. 3962), also contains such a provision.

This provision appears to be substantially similar to the one in the Senate HELP Committee’s bill. But today, we’re not going to discuss legislative text (did you just let out a little cheer? It’s ok. I did, too.).

Instead, in honor of Thanksgiving (which is a mere week away!), let’s take a look at the nutritional aspects of some popular Thanksgiving menu items.


Food         Calories          Fat           Carbohydrates*     
2 ounces    70                 2.5g             1g                    
turkey

1/2 cup      99                7.18g           7.25g               
gravy

1 ounce     160               1g               21g                    
stuffing

1 cup        180               0.1g            41g                
sweet
potatoes

1 cup       418               0.6g             107.8g            
cranberry
sauce

1 slice     229                10.4g            29.8g                 
(3.8 oz)
pumpkin
pie
*Sources: www.livestrong.com/thedailyplate and www.calorieking.com

Now are you going to skip that pumpkin pie in light of this information? I didn’t think so.

Minimal Employer Penalties For Not Offering Health Coverage In Senate Health Reform Bill

Now that Sens. Harry Reid (Nev.), Max Baucus (Mont.), Christopher Dodd (Conn.), and Tom Harkin (Iowa) have introduced the Patient Protection and Affordable Care Act, (an amendment introduced as a substitute to an unrelated H.R. 3590), sixty Senators will have to vote to bring H.R. 3590 to the floor of the Senate to be debated and amended. If this happens, maybe as soon as tomorrow, debate is expected to continue at least until the Christmas recess in the Senate.

So what’s in H.R. 3590?

The bill combines elements of earlier bills that came from the Senate Finance Committee and Health, Education, Labor, and Pensions Committee.

The legislation would establish a mandate for most legal residents of the United States to obtain health insurance; set up insurance “exchanges” through which certain individuals and families could receive federal subsidies to substantially reduce the cost of purchasing that coverage; significantly expand eligibility for Medicaid; substantially reduce the growth of Medicare’s payment rates for most services (relative to the growth rates projected under current law); impose an excise tax on insurance plans with relatively high premiums; and make various other changes to the federal tax code, Medicare, Medicaid, and other programs.

The options available in the insurance exchanges would include private health insurance plans and could also include a public plan that would be administered by the Secretary of Health and Human Services (HHS). The public plan would negotiate payment rates with all providers and suppliers of health care goods and services; providers would not be required to participate in the public plan in order to participate in Medicare. The public plan would have to charge premiums that covered its costs, including the costs of paying back start-up funding that the government would provide. State governments could elect not to make the public plan available in their state. The legislation also would provide start-up funds to encourage the creation of cooperative insurance plans (co-ops) that could be offered through the exchanges; existing insurers could not be approved as co-ops.

Provisions Affecting Employer Plans

Employer-sponsored plans would be affected by H.R. 3590 in a variety of ways including these:

Immediate Actions to Expand Coverage. A high-risk pool would established until 2014 to provide coverage for those denied benefits because of preexisting conditions; a temporary reinsurance program would provide reimbursement to participating employment-based plans for a portion of the cost of providing health insurance coverage to early retirees (those between 55 and 65); the Health Insurance Portability and Accountability Act would be amended to improve the electronic transmission of claims information;

Other Improvements In Coverage. All group health plans would be prohibited from establishing lifetime limits or unreasonable annual limits on health coverage; plans would be required to provide certain wellness benefits with no cost sharing requirements; dependent coverage would be extended to unmarried dependent children until age 26; a summary of benefits and coverage explanation that accurately describes benefits and coverage would be standardized to fit within four pages and would include all the essential benefits required under the legislation; plans would be prohibited from discriminating in eligibility for coverage on the basis of salary; plans would be subject to new data reporting requirements on the quality of care; plans would be required to provide rebates when premium revenues for non-claims costs exceed 20%. In general, these provisions would take effect six months after enactment.

Market Reforms. For plan years beginning on or after Jan. 1, 2014, the following would be required: elimination of preexisting condition exclusions; premium rating allowed by individual or family coverage, geographic area, age (limited to a 3 to 1 ratio), and tobacco use (limited to a 1.5 to 1 ratio); guaranteed issue and renewability; a blanket prohibition against discrimination because of health status; coverage under an essential benefits package defined by the law; and elimination of waiting periods that exceed 90 days. An exemption to these rules would be provided to plans in existence on the date of enactment (grandfathered plans).

Employer Credits And Payments. For employers with 25 or fewer employees, a small employer health insurance credit up to 50% of nonelective employer contributions would be available. An employer with more than 200 employees would be required to offer automatic enrollment in any of its group health plans. All employers would be required to inform employees of the National Insurance Exchange and that employees might be eligible for the Exchange if the employer’s share of premium payments in the employer sponsored plan is less than 60%. Employers with more than 50 employees which do not offer health care coverage could be subject to fines of up to $750 per employee per year, for those employees who obtain subsidized coverage through an exchange; employers with waiting periods of more 60 days could be fined $600 per employee. These employers also would be required to submit a report to the Secretary of Health and Human Services detailing employee coverage.

Other Provisions. Full-time employees who were offered coverage from their employer would not be eligible to obtain subsidies via the exchanges. However, an exception to that “firewall” would be allowed for workers who had to pay more than a specified percentage of their income for their employer’s insurance—9.8% in 2014, indexed over time—in which case the employer would be penalized. Beginning in 2013, insurance policies with relatively high total premiums would be subject to a 40% excise tax on the amount by which the premiums exceeded a specified threshold. That threshold would be set initially at $8,500 for single policies and $23,000 for family policies (with certain exceptions); after 2013, those amounts would be indexed to overall inflation plus 1 percentage point.

Health insurance reform only the first step?

To most people, the House-passed version of health reform, weighing in at 2,016 pages, might seem massive. (By contrast, the Senate bill, as it currently stands, is a svelte 1,502 pages.) It certainly seems quite large to me as I read and re-read it until my eyes glaze over. Even so, imagine how large the bill might have been if it had followed through on its initial promises.

Originally, the health reform effort referred to health care reform and part of the goal was to “bend the rising cost curve of health care downward” by enacting a reform of health delivery systems.

Over time, however, the rhetoric has shifted to that of “health insurance reform” meaning that the focus now is on reforming insurance practices. As National Public Radio has pointed out, “even as they're taking on the highly unpopular insurance companies, lawmakers are not requiring big changes in the way health care is delivered by doctors and hospitals. In turn, those providers are backing the health care plans moving through Congress.” The whole effort has become, in effect, health insurance reform without substantial cost containment measures or health delivery system reforms.

Because the measures currently being debated don’t provide a whole lot of health system delivery reform, at least one commentator, Paul B. Ginsburg, writing in the New England Journal of Medicine, believes that this bill, if passed, might be only the first step towards reforming the whole health care system. According to Ginsburg, if current health reform legislation were to be enacted, it “would be only a start to the reform process. Regulations will need to be written, organizations (such as exchanges) will need to be built, and midcourse corrections will need to be legislated to deal with unforeseen consequences. And since only tentative steps will have been taken to reform care delivery, policymakers will inevitably have to return to battle on that front.”

Massive as the current bill is, it could only be the first “tiny” step on the road to full health care/health system reform. Keep that in mind as Congress inches toward the finish line on health insurance reform.

Where We Sit and Where We Stand

Some large groups of employers are sounding the alarm about the health reform provisions of the House’s Affordable Health Care for America Act, H.R. 3692.

For example the American Benefits Council, a group that represents large employers including 25 insurers and major health benefits consultants, in a November 12 conference call told its member participants that the Council opposed the House bill because it…
– continues unsustainable health costs;
– includes an employer “pay-or-play” mandate” with a minimum benefit package provision
– requires employers to continue existing retiree health benefits provisions;
– includes a public plan option that would increase cost shifting to private payers;
– lacks incentives for wellness programs;
– does not address medical liability reform.

In a November 5 four-page letter to Speaker of the House, Nancy Pelosi and House minority leader John Boehner, the Council wrote: “We believe the bill does not accomplish the bipartisan goal of controlling health care costs and will significantly add to the burdens and costs for employers who are the primary source of health coverage for more than 160 million Americans. As a result, we believe that the bill is likely to destabilize employer-sponsored health coverage which has driven much of the innovation and progress toward quality improvement in our health care system today.”

By innovation, they must mean the very creative consumer-driven health plans (CDHP), that is, high-deductible health plans, with either a health reimbursement account (HRA) or a health savings account (HSA). A new survey from Aon Consulting and the International Society of Certified Employee Benefits Specialists finds that employers who sponsor a CDHP prefer an HSA to an HRA. HSA plans generally cost employers a lot less and their contributions to employees’ HSAs often are much lower than their contributions to HRAs.

But then, benefits brokers and consultants and plan sponsors agree that plan design changes and cost sharing will continue to be among the most common approaches for controlling benefits costs, Prudential Financial’s Expertise is Essential study .found. The same study’s finding that benefits brokers and consultants are more likely than plan sponsors to emphasize cost containment strategies including cost-sharing and consumer-directed plans is telling..

“The Council firmly believes that the best reform options are those that preserve and strengthen the role employers play as the largest source of health coverage for most Americans,” the Council’s letter to Ms. Pelosi and Mr. Boehner continued.. “By keeping employers engaged as sponsors of health coverage, we also retain the expertise and commitment employers bring to the table in the collective effort to find practical, focused solutions to the challenges facing our health care system.”

In many ways, though, employers need not worry. As we discussed in a previous post, the minimum benefit standard set forth in the House bill would be based on employer plan designs. On the other hand, the reforms that the House bill would require employers to implement immediately upon enactment, give employers cause for concern. .

Many large employers oppose H.R. 3692’s ERISA reforms that would ultimately impose minimum benefit requirements on self-funded health benefits plans, as well as minimum actuarial value standards, and the minimum premium contribution requirements. Currently, ERISA protects self-funded employer plans (covering 57% of workers with employer-provided coverage) from state regulation and requirements. A report from the Business Roundtable, prepared by major benefits consultant Hewitt, identifies some of the same concerns as those the “Council” cites.

On the other hand, the Center on Budget and Policy Priorities points out, small business has more to gain from the House health care reform bill, which contains provisions designed to help small businesses provide their employees with health care coverage...

Obviously, what we see depends on where we sit and where we stand.

Treatment of military health services in the House bill

Under Act Sec. 311 in the House-passed bill (H.R. 3962), the existing authority of the Department of Defense and the Veterans Administration to provide health care services for members of the Armed Forces (including their dependents) and for veterans remains unchanged by the establishment of the Health Insurance Exchange.

OK. That sounds reasonable. But why did the House see the need to include this provision?

Well, last summer, three separate House Committees conducted a highly-publicized debate over the original version of the House's health reform measure (H.R. 3200). As that debate progressed, several veterans groups sent a letter to Speaker Nancy Pelosi (D-CA) to voice their concern that the proposed health care overhaul would have an adverse impact on the cost and the quality of care currently available to members of the Armed Forces and to veterans.

Nobody wants to be perceived as treating the military poorly. So, the response to the veterans groups from the House Education and Labor Committee was two-fold. The Committee first noted that the original version of H.R. 3200 contained protections for health care services currently provided to the military and for veterans. (To take an example from the final House bill, under Act Sec. 501 military health services are classified as "acceptable" health coverage. Thus, those covered under military health services are not subject to the penalty (equal to 2.5% of income) for failure to obtain acceptable coverage.)

In addition, Rep. Steve Buyer (R-IN) proposed an amendment intended to clarify that military health services were intended to be exempt from the new legislation. A slightly altered version of that amendment became Act Sec. 311.

What Are Immediate Reforms?

At first glance, employers appear to be off the hook from the changes in the House-passed Affordable Health Care for America Act until 2018.

Employer-based health plans that are in effect at the end of 2012 have an additional five years to meet the requirements for a qualified health benefits plan, including the essential benefit package requirement, as noted in an earlier post.

However, beginning as soon as 2010, all employer plans would have to adopt the immediate reforms of the House Health Care Act, including these:

Dependent Coverage. Group health plans would be required to provides coverage to dependents up to the age of 27, even if they are not students.

Preexisting condition exclusions. Preexisting condition exclusions in group health plans would be limited as follows:

• Right now, employers can “look back” six months to identify medical services or diagnoses that would trigger a preexisting condition.  Under the House legislation, this period would be reduced to 30 days.


• Right now, employers can impose preexisting condition exclusions in certain circumstances for up to 12 months.  The House legislation cuts this to three months.

Domestic violence. Existing law prohibits preexisting condition exclusions from being imposed on newborns, newly adopted children, or pregnancies.  The House bill also would prohibit acts of domestic violence from being treated as preexisting conditions (Wow—injuries incurred from beatings by your spouse should be covered by a health care plan—how progressive).

Minor child's congenital disease. Group health plans would be required provide coverage for outpatient and inpatient diagnosis and treatment of a minor child's congenital or developmental deformity, disease, or injury (and why would plans exclude this coverage?)

Lifetime limits. A group health plan would no longer be able impose an aggregate dollar lifetime limit with respect to benefits payable under the plan or coverage. This could be a big change. Approximately 55% of individuals with employer provided health insurance are subject to lifetime limits; the most common of which are $1 million and $2 million, according to a 2009 study by PriceWaterhouseCoopers.

Retiree Health Benefits. Employer group health plans that offer retire health benefits are prohibited from reducing retiree health benefits below what was offered to retirees at the time of their retirement, unless those reductions also made to active workers’ health benefits. Fewer than one-third of employers now offer retiree health care benefits, according to Mercer‑this provision could cause a quick rush by those employers to eliminate retiree coverage.

COBRA. Any individual covered by COBRA continuation of coverage could continue the coverage until a national insurance exchange took effect in 2013.

Hooray for the Tax Code!

I know you might not believe this, but sometimes the Tax Code (or IRC as we like to call it around here) is our friend. Take for instance, Code Sections 105 and 106. These little gems provide that employees are not taxed on (that is, they may “exclude” from gross income) the value of employer-provided health coverage under an accident or health plan. In addition, any reimbursements under an accident or health plan for medical care expenses for employees, their spouses, and their dependents (as defined in Code Section 152) generally are excluded from gross income.

Well, isn’t that special?

Yes, it’s definitely special, but not for everyone. Cheers for the Tax Code won’t be heard when a person who has employer-provided coverage isn’t the employee’s spouse or doesn’t meet the definition of dependent.

Code Section 152 defines a dependent as a qualifying child or qualifying relative. There are a bunch of other rules that explain what those terms mean, but I won’t go into them here. Suffice it to say that some folks, such as domestic partners, don’t usually qualify as dependents. And, thus, they can’t get the special tax treatment (in other words, an employee currently pays tax on the fair market value of the cost of coverage for the employee’s domestic partner).

House bill might herald more hoorays. The House-passed health reform bill, the Affordable Health Care for America Act (H.R. 3962), would amend Code Sections 105 and 106 to extend the general exclusion for employer-provided health coverage to “eligible beneficiaries.” An eligible beneficiary is defined as any individual who is eligible to receive benefits or coverage under an accident or health plan. The provision does not place a limit on the number of eligible beneficiaries an individual is able to claim for purposes of the exclusion.

House bill would ban domestic violence as pre-existing condition

One little-noticed, though important, provision in the House-passed version of health reform (HR 3962) would prevent health insurers from treating domestic violence as a pre-existing condition. Currently, eight states (Idaho, Mississippi, North Carolina, North Dakota, Oklahoma, South Carolina, South Dakota, and Wyoming) and the District of Columbia allow insurers to reject men and women who’ve been victims of spousal abuse for coverage.

The House bill would ban the practice for both employer-provided, group health coverage and for the individual health insurance market. A similar provision exists in the Senate Committee on Health, Education, Labor and Pensions health reform bill.

Apparently, or so the thinking goes, if a person has survived spousal abuse, he or she is more likely to be beaten again and thus, is more expensive to insure. According to one commentator, “in human terms, it’s a second punishment for a victim of domestic violence.” It’s not that no one has tried before this to ban the practice; there have been a number of attempts at the federal level, but so far, these efforts have been unsuccessful.

Apparently, state law bans haven’t been enough to totally outlaw the practice. According to one commentator, “even in those states that have passed legislation prohibiting the practice, insurance companies are said to often initially reject past victims seeking insurance in the individual market.” According to Kaiser Health News, “it’s unclear how often such rejections [due to domestic violence] take place. But it is clear, experts say, that the fact that they occur at all can have a chilling effect on victims, who may be afraid to tell their doctors about attacks out of concern they'll have trouble getting insurance in the future.”

How soon could relief arrive for domestic violence abuse victims? Under the House bill, the provision barring domestic violence as a pre-existing condition would apply to group health plans, and health insurance issuers offering group health insurance coverage, for plan years beginning on or after January 1, 2010. The provision also would apply to health insurance coverage offered, sold, issued, renewed, in effect, or operated in the individual market on or after that date.

In a September speech, First Lady Michelle Obama said that using domestic violence as a preexisting condition is among the insurance practices that "still wake me up at night." This is one provision, at least, that can’t come soon enough.

The Essential Benefits Package--An Employer Model

The Affordable Health Care for America Act, H.R. 3962, which the House approved by a narrow margin on Saturday, Nov. 7, eventually requires employer-sponsored health insurance plans to provide, at a minimum, a certain essential benefits package. Abortion services definitely will not be a part of this package, as yesterday’s post indicates. And, since the essential benefits package would be based on the benefits typically covered by employer-sponsored health insurance, it appears that employers need not worry about major adverse effects of this particular health reform bill.

A new Health Benefits Advisory Committee (HBAC), including employer members, would determine the benefits to be covered in the essential benefits package, be “equivalent in its scope of benefits, as certified by Office of the Actuary of the Centers for Medicare & Medicaid Services, to the average prevailing employer-sponsored coverage in Y1.” To that end, the Department of Labor would conduct a survey of employer-sponsored coverage to determine the benefits typically covered and report results to the HBAC and to the Department of Health and Human Services

The minimum services to be covered are those typically covered by employer-sponsored plans: hospitalization, outpatient hospital services, medical services and related supplies, prescription drugs, behavioral health, and so on. Recommended preventive services, including immunizations and well-baby and well-child care must be covered at no cost to the insured. Currently, most employer-sponsored plans require some cost sharing for preventive care services. .

The cost-sharing under the essential benefits package must be designed to provide a level of benefits that is actuarially equivalent to approximately 70% of the full actuarial value of the benefits provided under the reference benefits package with no cost-sharing.

Unlike today, annual and lifetime limits would be prohibited and the network of providers required to be “adequate,” whatever that means.

If current reported experience is any indication (see our earlier post on a related subject), an essential benefits package in health reform that mirrors typical employer-sponsored health insurance will require insureds to pay ever increasing premiums for continually costlier benefits.

Restrictive abortion language included in House-passed bill (H.R. 3962)

Many employer plans eventually would be compelled to restrict abortion coverage because of an amendment included in the House-passed health reform bill, the Affordable Health Care for America Act (H.R. 3962).

The House passed the bill by a vote of 220 to 215 on Saturday November 7. Consideration of health care refrom now moves to the Senate, which is in the process of merging two competing committee bills. (Lots of potential obstacles loom on the Senate side: see here, here, and here.)

Existing federal policy, known as the Hyde Amendment, bars federal funding for abortion and must be approved annually by Congress. The House amendment, proposed by Rep. Bart Stupak (D-MI), prohibits the use of federal funding for abortion under the public health insurance option and prohibits the use of federal affordability credits to purchase a health insurance policy that covers abortion. The Stupak amendment would not require annual approval. Abortion funding would be allowed in cases of rape, incest or if the mother's life is in danger.

Thus, under H.R. 3962, individuals eligible for affordability credits to help in the purchase of health insurance could not use those credits for coverage under an employer-based plan that included abortion coverage. Under the House bill, plans could offer separate supplemental coverage that included services for abortion.

Hey Democrats, Pass Your Bill With Some Conservative Provisions

Tomorrow, the House of Representatives is scheduled to debate and possibly vote on H.R. 3962, the Affordable Health Care for America Act. Just three days ago, House Minority Leader John Boehner (Ohio) released the text of a proposed substitute amendment, which includes these well-known Republican provisions:

• establishing association health plans and individual membership associations that can operate across state lines;


• federal payments to states that achieve specified reductions in the number of uninsured individuals or in the premiums for small group or individually purchased policies;


• federal funding for states to use for high-risk pools in the individual insurance market and reinsurance programs in the small group market;


• enhancements to health savings accounts (HSAs) to allow funds in such accounts to be used to pay premiums under certain circumstances, to make net contributions to HSAs eligible for the saver’s tax credit, and to provide a 60-day grace period for medical expenses incurred prior to the establishment of an HSA;


• limits on costs related to medical malpractice (“tort reform”), including capping noneconomic damages to $250,000 and punitive damages to $500,000 and making changes in the allocation of liability;


• requirements to adopt and regularly update standards for electronic administrative transactions that enable electronic fund transfers, claims management processes, and verification of eligibility, among other administrative tasks;


• establishment of an abbreviated approval pathway for follow-on biologics (biological products that are highly similar to or interchangeable with their brand-name counterparts); and


• an increase in funding for HHS investigations into fraud and abuses.

With a 40 seat majority in the House, Democrats believe they do not need Republican support to pass H.R. 3962. Thus, the Boehner proposal is reduced to a political ploy intended more to influence future elections than to change H.R. 3962.

There is another alternative for the Democrats, which might not gain any votes but would at least begin to address the reasonable critiques that the Democratic health reform proposal does little to address right of center concerns.

Democrats should agree to as many of the Republican proposals as possible, beginning with medical malpractice reform and allowing enhancements to health savings accounts. Malpractice reform already has been passed in more than two dozen states.  Both malpractice reform and HSA changes will make minor differences in the overall federal budget but would remove at least a couple of thorns that bother health reform advocates.

After that, Democrats and Republicans might get together to address the cost and affordability issues, which so far still remain farfetched dreams rather than realistic (albeit painful) plans.

Death, taxes and . . . retiree health benefits?

Death and taxes. I’m sure you’ve heard that, in life, these are the only guarantees. But if some members of the House get their way, something else might be guaranteed – the continuation of retiree health benefits.

Can employers reduce benefits now? Generally, if employers have reserved the right to do so in their plans and summary plan descriptions, they are free to reduce retiree medical benefits in an ERISA-covered employee welfare benefit plan. The ERISA vesting rules don’t apply to such plans as they do to pension plans. Nevertheless, the courts are replete with cases in which retirees claim that an employer intended to provide vested benefits (Wolters Kluwer subscribers can read more about this issue at ¶26,050 in the Employee Benefits Management product).

What would the House bill do? Section 110 of the 1,990-page House bill (H.R. 3962) would prohibit employers with group health plans from reducing retiree health benefits below what was offered to retirees at the time of their retirement unless reductions are also made to active workers’ health benefits.

What’s a reduction? The House bill provides that a reduction in benefits occurs when:

1. a participant’s share of the total premium (or, in the case of a self-insured plan, the costs of coverage) of the plan substantially increases or

2. there is a substantial decrease in the actuarial value of the benefit package under the plan.

The term “substantial” means “an increase in the total premium share or a decrease in the actuarial value of the benefit package that is greater than 5 percent.’’

Are there any exceptions? An employer may apply for a waiver from this provision if the employer can reasonably demonstrate that meeting the requirements would impose an undue hardship on the employer.

Public option: Much ado about nothing?

During the past year, it seems like much of the hoopla over health reform has focused on whether there should be a public option. Up until now, however, no one has really analyzed exactly how many people likely would be covered by the public option. The answer, according to the nonpartisan Congressional Budget Office, is not nearly as many as you’d think.

According to the CBO, of the 30 million Americans who would likely buy insurance through the health insurance exchanges that would be created by the legislation, only about 6 million of them (that is, one-fifth of the 30 million expected to get insurance through the exchanges) would enroll in the public option. This would mean that only two percent--6 million people out of the estimated 282 million Americans under age 65 who would have coverage by 2019—would be enrolled in the public option. Yes, you read that right, it’s not a misprint. Only two percent of the pre-Medicare American population likely would enroll in the public option.

According to Kaiser Health News, this works out to an average of 120,000 people per state, though some small states might have only a few thousand people enrolled in the public option. In fact, the number of people covered by a public option might actually be lower if states can opt out, as the Senate bill would allow them to do.

All this townhall anger, hand wringing, media coverage, debate, and general hullabaloo over two percent of the population? Amazing!! This is the tough competitor that private insurers are afraid of? All along, the claim was that the public option would bring competition to the health insurance industry. Now, if the CBO is correct, it appears that the public option might just be taking the health insurance industry castoffs, the sickest patients, because, as one commentator observed, “the public option will just be a gentler creature--it won't erect as many restrictions on available providers and services as its private competitors will, and that's likely to attract riskier consumers.”

After all the time and energy devoted to the public option, you’d think that it would’ve been a key player in the post-reform world but it doesn’t appear that it’ll happen that way. "The public option is a significant issue, but its place in the debate is completely out of proportion to its actual importance to consumers," said Drew Altman, president of the Kaiser Family Foundation. "It has sucked all the oxygen out of the room and diverted attention from bread-and-butter consumer issues, such as affordable coverage and comprehensive benefits."

About now, you might be asking yourself: “Why would the public option cover so few people? Why would it cost so much? I thought this was supposed to put the health insurers out of business.” Well, the CBO has an answer for that, namely: "The public plan would have lower administrative costs than those private plans but would probably engage in less management of utilization by its enrollees and attract a less healthy pool of enrollees.” However, the CBO also points out, a “public plan paying negotiated rates would typically have premiums that are somewhat higher than the average premiums for the private plans in the exchanges."

Some see this startling statistic as the death knell for the public option. For instance, one commentator says the public option “would see its role as sanctuary doom its role as price competitor. Private insurers would engage in aggressive `management of utilization by its enrollees,’ i.e., dumping or avoiding the people most likely to need the services of doctors and hospitals, leaving them no place to go except the public option. This would drive down private insurers' costs and drive up the public option's.”

I don’t necessarily agree with the “CBO report as death knell for the public option” view. However, I do agree that the public option probably won’t be the tough competitor the private insurers (and critics) have feared. Of course, all of this is subject to change as the health reform plans change so, for now, all I can say is “stay tuned.”

Does Actuarial Value Trump Medical Loss Ratio?

The Affordable Health Care for America Act introduced in the House on October 29 would require any health insurer in the small or large group market to issue rebates to enrollees if its medical loss ratio (the proportion of the insurer’s income from premiums that it uses to pay medical claims) fell below 85%. A quick review of major health insurers’ current medical loss ratios, as reported by the insurers themselves, indicates that most would have to beef up benefits paid, reduce their administrative costs, or provide rebates to their members.

For example, WellPoint, a Blue Cross and Blue Shield organization, reported an 81.1% medical loss ratio for its third quarter; UnitedHealth Group was a close second with an 82% loss ratio. Aetna’s loss ratio, on the other hand, is where it should be, according to the House bill.

The American Medical News on August 24 reported that, for the second quarter of this year, the average medical loss ratio of the largest publicly traded health plans was 85.2%, but ranged from 82.9% to 86.8%.

But limiting insurers’ administrative expenses is not necessarily the most beneficial strategy for insureds. Ensuring a high actuarial value of benefits provided would be best. The Congressional Research Service earlier this year reviewed “actuarial value” issues. The actuarial value provides an estimate of the proportion of health care expenses a plan likely will pay. As the economy has deteriorated, so has the actuarial value of employer-sponsored health insurance. Individuals covered by employer-sponsored health insurance these days get lower actuarial values and less protection

Workers with employer-sponsored health insurance face underinsurance and unaffordability as their insurance costs more, covers less, and health care costs rise, a study published in the June 2 online issue of Health Affairs found. In Trends in Underinsurance and the Affordability of Employer Coverage, 2004-2007, Jon R. Gabel, senior fellow at the National Opinion Research Center; and Roland McDevitt, director of research for Watson Wyatt Worldwide, found that health care plans covered slightly fewer medical expenses in 2007 than in 2004 (80.1% versus 81.4%), and covered much less for workers who were in the upper half of spenders. Expected out-of-pocket expenses for all adults rose 34%, from $545 to $729, but for the highest-cost 10% of adults expenses went up 39%. Even the lowest half of spenders saw their expenses rise by 23%.

Perhaps new requirements for employers, and insurers, to provide at least a minimum standard benefit package would strengthen “actuarial value?”

COBRA extension: “Immediate” health care reform

With all the hoopla surrounding health care reform, you might think the health care system will transform on the very date President Obama signs a final bill. That’s not the case: transition time built into all the bills up for consideration means that the Health Insurance Exchange and other key provisions won’t take effect until 2013. That’s why a set of “immediate” reforms (effective in 2010) is included in the Affordable Health Care for America Act (H.R. 3962), the latest version of the House’s legislation (unveiled with great fanfare last week by Speaker Pelosi (D-CA)).

These immediate reforms are designed to some extent to increase coverage options in the short term. One such short-term measure, approved by the House Education and Labor Committee in mid-July, would expand COBRA benefits to help bridge the transition to near-universal coverage.

Currently under COBRA, former employees may generally continue their former employer’s coverage for 18 months. Under H.R. 3962 (scroll to page 70 to find Section 113 of Division A), those same employees could remain on COBRA coverage until the proposed Health Insurance Exchange is up and running. COBRA coverage would be cut off before then if the individual gains access to other “acceptable” coverage or to Medicare, or if the individual fails to pay applicable premiums.

Will this provision make the cut into final legislation? It could face a tough fight. Senate proposals don’t include a comparable provision. Employers probably won’t like this provision: COBRA notice requirements cause headaches for many businesses. One larger insurer is already complaining about a spike in claims after watching the portion of its customers enrolled in COBRA-related plans grow (albeit to just over 2 percent) since COBRA premium subsidies started in February.

And, while those premium subsidies will begin to expire in December, legislation just introduced by Congressman Joe Sestak (D-PA) would, among other things, make the subsidy available to those laid off through June 30, 2010.