Health Reform Talk Takes A Brief Break

With a momentous health reform year finally coming to an end, the authors of Health Reform Talk are taking a brief break after today.

Health Reform Talk will resume its regular insights into health reform on January 5.

Happy Holidays and Happy New Year.

Health Reform Will Dramatically Lower Rate Of Uninsurance, Costs Of Uncompensated Care

Under the Patient Protection and Affordable Care Act (ACA), the number of uninsured adults younger than age 65 would drop by 27.8 million (from 18.6% to 8.3% of this population), and the cost of uncompensated health care provided to the uninsured would drop by 61%, according to the Urban Institute. The report, America Under the Affordable Care Act, also found that the Medicaid expansion would enroll an additional 16.8 million people, and 43.8 million people would be covered through health insurance exchanges (both nongroup and Small Business Health Options Program (SHOP)).

Although the number of uninsured would decline for all income levels, the greatest decline in uninsured would be among the lowest-income. For those with income below 200% of the federal poverty level (FPL), the number of uninsured would drop by 19.4 million.

Under the ACA, nearly 30% of non-elderly adults at all income levels who would have been uninsured without reform would be covered by Medicaid or the Children’s Health Insurance Program (CHIP); nearly 20% would be covered under the new health insurance exchanges; and another 10% would be covered by private insurance outside the exchanges. The remaining 40% would remain uninsured, but nearly 40% of these would be eligible for Medicaid or CHIP and would decline enrollment. In addition, slightly more than one-quarter of the remaining uninsured would be undocumented immigrants who do not qualify for either the public health care programs or the health insurance exchanges, the Urban Institute determined.

Expanded Medicaid would enroll 13.1 million new adults and 3.7 million new children, but coverage costs for the new adults enrolled would be much lower, on average, than the costs for current adult Medicaid enrollees, the report noted.

Health insurance exchanges would cover an estimated 43.8 million non-elderly adults, with about half of these (23.1 million) purchasing coverage individually and the remainder (20.7 million) obtaining their exchange coverage through their employer.

Total health care spending for the non-elderly by government, employers, and individuals would rise by 4.5% under the ACA (excluding savings from multiyear provisions) if it were fully implemented in 2010. The report did not explore multiyear provisions such as Medicare and Medicaid savings and cost-containment programs. Total costs to employers would be mostly unchanged. The Urban Institute found that spending for most individuals would not change significantly, although many of the existing uninsured who do not qualify for Medicaid or the most generous premium subsidies would spend more on premiums for new health insurance or individual mandate penalties.

The 61% reduction in the cost of uncompensated care would allow federal and state governments to reduce spending on programs that now support the uninsured (not in the Urban Institute’s government baseline). Less uncompensated care could also result in lower private premiums and higher provider revenue.

For a comprehensive analysis of the ACA, and additional information on health reform and other developments in employee benefits, just click here.

Virginia Court Strikes Down Individual Mandate In Health Reform

The 2010 health reform requirement that individuals maintain essential health coverage or pay a penalty invites an “unbridled exercise of federal police power” and “exceeds the constitutional boundaries of congressional power,” according to a December 13 ruling by Judge Henry E. Hudson of the U.S. District Court for the Eastern District of Virginia.

In the ruling (Commonwealth of Virginia v. Kathleen Sebelius (Civ. Act. No. 3:10CV188-HEH)), the judge specifically declared unconstitutional Sec. 1501 of the Patient Protection and Affordable Care Act (ACA), the Requirement To Maintain Minimum Essential Coverage. The case originally was filed soon after passage of the ACA by Virginia attorney general Kenneth T. Cuccinelli II.

Under Sec. 1501, beginning in 2014, a penalty is imposed on applicable individuals for each month they fail to have minimum essential health coverage for themselves and their dependents. This penalty also is called a “shared responsibility payment.”

Implementation Can Proceed

Although Virginia had asked that the court invalidate the entire law, Mr. Hudson made clear that the ruling only involved Sec. 1501 and that the rest of the law remained intact.

Mr. Hudson also denied request to prevent implementation of Sec. 1501 until a higher court acts, noting that because the provision does not take effect for at least three years, “the likelihood of any irreparable harm pending certain appellate review is somewhat minimal.”

In a press briefing on December 13, White House press secretary Robert Gibbs noted that “the individual responsibility portions of the ACA are the basis and the foundation for examining and doing away with insurance company discrimination on behalf of preexisting conditions. Obviously, without an individual responsibility portion in the law, you could not find yourself dealing with preexisting conditions because the only people that would likely get involved in purchasing health care would be the very sick. And obviously, that would be enormously expensive.”

Three other district courts already have ruled on health reform challenges. In late November, the United States District Court for the Western District of Virginia ruled that employer and individual coverage provisions in the ACA are legal under the Constitution. In addition, in two other challenges to the ACA, a Michigan court dismissed a case and a Florida court allowed two challenges to move forward. Finally, in November, the Supreme Court declined to hear a challenge to the ACA.

For a comprehensive analysis of the ACA, and additional information on health reform and other developments in employee benefits, just click here.

Guidance Issued For Mini-Med Plans

Two new sets of guidance issued by the Department of Health and Human Services (HHS) on December 9 require that health insurers offering “mini-med” plans must notify consumers in plain language that their plan offers extremely limited benefits, and restrict the sale of new mini-med plans except under very limited circumstances. Mini-med plan insurers also must direct consumers to http://www.HealthCare.gov where they can get more information about other coverage options.

The Patient Protection and Affordable Care Act (ACA) bans annual dollar limits for coverage of essential benefits such as hospital, physician, and pharmacy, effective with plan years beginning in 2014. Until then, annual limits are phased out as follows: For plan years starting between Sept. 23, 2010, and Sept. 22, 2011, the limits may not be less than $750,000; for plan years starting between Sept. 23, 2011, and Sept. 22, 2012, the limits may not be less than $1.25 million; and for plan years starting between Sept. 23, 2012, and Jan. 1, 2014, no less than $2 million.

Consequently, the ACA provisions will end limited-benefit health insurance plans, sometimes called “mini-med” plans, in 2014 and make available affordable coverage options through health insurance exchanges. “Unfortunately, today, mini-med plans are often the only type of private insurance available to some workers,” the HHS said in a press release announcing the new rule. “In order to protect coverage for these workers, HHS has issued temporary waivers from rules restricting the level of annual limits to some group health plans and health insurance issuers. Waivers only last for one year and are only available if the plan certifies that a waiver is necessary to prevent either a large increase in premiums or a significant decrease in access to coverage.”

New Sales Limited

The first December 9 guidance clarifies that the waivers apply only to mini-med plans in effect before Sept. 23, 2010. Effective on or after Sept. 23, 2010, insurers granted waivers for mini-med plans may not issue new mini-med plans for group or individuals, except under the following two circumstances:

1. in the case of states with laws in effect before Sept. 23, 2010, that mandate the availability of low annual limits policies and that apply for a waiver on behalf of existing issuers, but only for policies through Sept. 23, 2011; and


2. to allow group health plans in effect before Sept. 23, 2010, with waivers to change to a different issuer that also has received a waiver, as permitted for a grandfathered health plan. This change is permitted as long as the existing annual limits are not lowered and any coverage changes are within the allowed parameters. If the group health plan obtained from the issuer before Sept. 23, 2010, is no longer available, the plan sponsor may obtain a replacement policy with a lower annual limit only if other comparable coverage with the same level of annual limits as the prior policy is not available. Note that if the replacement policy has a lower annual limit than was in effect before Sept. 23, 2010, the plan loses its grandfathered status.

Any health insurance issuer of new waivered coverage must obtain from the plan sponsor a statement that the criteria outlined above are satisfied, and the statement must be accompanied by a copy of the prior policy outlining the terms of the prior coverage. Issuers must retain this information in accordance with the data retention requirements of the Sept. 3, 2010, and Nov. 5, 2010, guidance documents.

Notice Requirements

Under the second set of guidance, mini-med plans that have received waivers also must inform consumers that the health care coverage offered through these plans have lower annual dollar limits than the limits required under the health reform law. The notice to consumers must specify the dollar amount of the annual limit along with a description of the plan benefits to which the limit applies, and that the waiver was granted for only one year. The guidance provides model language that group health plans and issuers will be required to use to satisfy the transparency requirements established in the Nov. 5, 2010, supplemental guidance.

For plans or issuers that have already been approved, or that will receive approvals, for a waiver for plan or policy years that begin before Feb. 1, 2011, the notice must be provided to current and eligible participants and subscribers within 60 days from December 9, the date the guidance was issued. For applicants for waivers covering plan or policy years that begin on or after Feb. 1, 2011, the notice must be provided to eligible participants and subscribers as part of any informational or educational materials, and also in any plan or policy documents sent to enrollees describing coverage (e.g., summary plan descriptions).

For additional information on these provisions, e-mail the OCIIO at OCIIOOversight@hhs.gov (use “supplemental guidance” in the subject line).

For a comprehensive analysis of the ACA, and additional information on health reform and other developments in employee benefits, just click here.

Health Reform Law Is Amended (A Tiny, Tiny Bit)

It’s not much of a change, but Congress has passed its first amendment to the Patient Protection and Affordable Act (ACA) since President Barack Obama signed it in March 2010.

Forget about the calls for wholesale repeal—even provisions Republicans and Democrats agreed should be changed remain in the law (more about that later). But on December 8 and 9, the Senate and the House of Representatives passed the Medicare and Medicaid Extenders Act of 2010, which in part extends current Medicare payment rates through Dec. 31, 2011. Under the current "sustainable growth rate" (SGR) formula, Medicare physician payment rates were scheduled to be reduced by 25% on January 1, 2011.

Congress has provided temporary relief (also known as the “doc fix”) from these Medicare reductions every year since 2003.

The estimated cost of the provision to extend Medicare payment rates until 2012 is $14.9 billion over ten years—here is where the health reform law comes into play. The cost of the extension will be paid for by a change in the refundable tax credit formula in the ACA.

Under IRC Sec. 36B as added by the ACA, certain taxpayers who purchase qualified health plans through state exchanges are entitled to a refundable income tax credit equal to the premium assistance credit amount, starting in 2014. The premium assistance credit applies to tax years ending after December 31, 2013.

Under the law, if an individual’s income turns out to be higher than the amount that was used to calculate the advanced premium tax credit, the individual must return part or all of the excess payment to the government. Originally, the amount repaid by the individual was limited to $250 for individuals and $400 for families for those at or below 400% of the Federal Poverty Level (FPL)

H.R. 4994 provision increases the existing limits of $250 and $400, and replaces the across-the-board structure with a scaled structure that starts with lower limits for those with lower incomes. For those with incomes less than 200% of FPL, the new limit would be $600.  For those with incomes of at least 450% but less than 500% of FPL, the limit on the payback would be $3,500.

Estimated savings from this minor change? More than $19 billion.

Oh, that provision that everyone wants changed? It went down in defeat late in November. There were at least two proposals to repeal Form 1099 reporting requirements for small businesses that were included in health reform. The Form 1099 requirements, signed into law as part of the PPACA, mandate that all businesses file a return for payments to vendors in excess of $600 beginning in 2012. The measure is estimated to raise some $19 billion over 10 years to help offset the cost of health care reform.

Small businesses strongly opposed the provision, claiming the excessive paperwork is too burdensome. President Obama had earlier signaled that he would support changes to the Form 1099 rules, and the provision had wide support among both Republicans Democrats.

The differences in the provision that got changed and the one that did not?  Money—the amendment to the doc fix is paid for by increasing fees to taxpayers—thus the change in health reform does not cost the federal government any money. The burdensome 1099 reporting repeal had no offsetting revenue and could not overcome that fiscal hurdle.

For a comprehensive analysis of the Patient Protection and Affordable Care Act, including the full text of the law and additional information on health reform and other recent developments in employee benefits, just click here.

Premium Rate Review, Or How To Know If The Pudding Is Any Good

Just as the proof of a pudding is in the eating, so the test of a law is in its implementation.  And if past practice in the states is any indication, the implementation of rate reviews of health care premium increases may require many taste tests.

Under the Patient Protection and Affordable Care Act (ACA), the Department of Health and Human Services (HHS) is required to work with state insurance departments to conduct an annual review of “unreasonable rate increases.” The ACA allocates $250 million for states to enhance their process for reviewing proposed rate increases. However, in a recently released study, the Kaiser Family Foundation noted that the ACA does not alter states' existing regulatory authority over health insurance premium rate increases. This is problematic because such state authority varies dramatically from state to state, ranging from those with no authority at all to those with robust authority to review and approve or disapprove rates before they are implemented.

The ACA does not define what constitutes an “unreasonable” increase. HHS is expected to define a potentially “unreasonable” rate increase so that carriers know when they will need to submit data to HHS and the states for review.

There is no commonly accepted standard definition of an unreasonable rate increase for HHS to rely on. Some states apply the definition during rate review, while other states deal with problems on a case-by-case basis, often in response to consumer complaints. The new law requires that plans submit justifications for any “unreasonable” rate increases to the states and HHS, and post them on their websites. HHS is also required to make those justifications publicly available. In addition, in order to promote transparency, HHS asked the National Association of Insurance Commissioners (NAIC) to develop a standard rate filing disclosure form that all health plans must use when justifying unreasonable rate increases to HHS and the relevant state. The goal of the form is to ensure that regulators and the public can access the data and justifications in a way that allows for “apples-to-apples” comparisons.

Consequences Of Different Standards

In the study, Rate Review: Spotlight on State Efforts to Make Health Insurance More Affordable, Kaiser surveyed all 50 state's rate review statutes, and then conducted follow-up interviews in ten states (Alaska, Connecticut, Colorado, Idaho, Louisiana, Maine, Ohio, Pennsylvania, South Carolina, and Wisconsin). Kaiser found that states with an active premium rate review process experienced lower premium requests filed by insurers. In addition, states that have statutory authority to approve or disapprove rates before they are used are able to extract significant reductions in the rates that health insurance issuers file. States that do not have prior approval authority lack the capacity to comprehensively review rates and are less likely to achieve reductions in requested rates.

Kaiser also found the following:

• The authority to review and approve rate increases in advance does not necessarily protect consumers from large rate increases, as rate review can vary widely, depending on each state's motivation, resources, and staff capacity.


• Many states do not have enough trained actuaries to review all filed rates. In addition, statutory clauses can "deem" rates approved if not acted on within 30 or 60 days, limiting states' ability to conduct thorough reviews. Kaiser found that state regulators said that because rate review is not a mechanical function, it requires significant expertise and nuanced judgment calls. States that do not have adequate resources or staffing may miss those judgment calls or even mistakes made by a carrier in its filing.


• Some states with statutory authority to disapprove rates can only exercise that authority in certain situations, such as for specific insurers or products (i.e., non-profit Blue Cross Blue Shield plans or HMOs). Others provide alternative regulatory pathways for insurers, such as a minimum loss ratio guarantee, that allow carriers to avoid state review of their rates.


• Most of the states interviewed by Kaiser said that they use subjective standards to guide the review and approval of rates, such as that rates cannot be "excessive, inadequate, or unfairly discriminatory" or that "benefits are reasonable in relation to premiums charged." These subjective standards give states more flexibility, but can make the process appear arbitrary and unclear to the public.


• Most interviewed states have made little or no effort to make rate filings transparent. In many cases, carriers can designate some portions of the rate filing to be "trade secret" and thus not available to the public. Two of the interviewed states define all rate-filing information as "proprietary." Only a few states that were interviewed allowed a policyholder to request a public rate hearing.

Possibly the most telling statement in the Kaiser report is this one, which makes clear how important implementation is:

“Policymakers interested in assuring that premium increases are reviewed for reasonableness and accuracy will need to look not only at the laws that govern rate filings and approvals, but also insurance department resources and practices. Prior approval laws do not assure that thorough reviews will occur. At the same time, regulators can sometimes encourage insurers to reduce filed rates even when their authority is relatively weak. Giving regulators the explicit authority to review and approve rates prior to their use appears to provide the most leverage to encourage insurers to reduce filed rates, but regulatory resources and a culture of active review may be equally important.”

For a comprehensive analysis of the Patient Protection and Affordable Care Act, including the full text of the law and additional information on health reform and other recent developments in employee benefits, just click here.

How To Sort Through The Complications Of The Small Business Health Care Tax Credit

As new guidance issued by the Internal Revenue Service makes clear, the path to receiving the small employer tax credit (under the Patient protection and Affordable Care Act) is complicated. Nevertheless, the Council of Economic Advisors estimates that as many as 4 million small businesses are eligible for the credit if they provide health care to their workers.

The maximum credit is 35% of premiums paid in 2010 by eligible small business employers and 25% of premiums paid by eligible employers that are tax-exempt organizations. In 2014, this maximum credit increases to 50% of premiums paid by eligible small business employers and 35% of premiums paid by eligible employers that are tax-exempt organizations.

The most recent guidance, issued just last week,  makes clear that sole proprietors, partners in a partnership, shareholders owning more than 2% of the stock in an S corporation, and any owners of more than 5% of other businesses are not taken into account as employees for purposes of the credit. Family members of these owners and partners are also not taken into account as employees.  This should make it easier for small businesses to claim the credit.

The definition of "family member" does not specifically refer to spouses, but Notice 2010-82 notes that the following individuals are not taken into account as employees for purposes the credit:

(1)        the employee-spouse of a shareholder owning more than two percent of the stock of an S corporation;

(2)        the employee-spouse of an owner of more than 5% of a business;

(3)        the employee-spouse of a partner owning more than a five percent interest in a partnership; and

(4)        the employee-spouse of a sole proprietor.

Part of the complication in claiming the credit involves the three methods that employers are permitted to use for calculating employees' hours of service for the taxable year: (1) counting actual hours worked; (2) using a days-worked equivalency; or (3) using a weeks-worked equivalency. Counting hours of service is important in determining how many full-time equivalent employees a company has, and thus is important in determining whether the company is eligible for the credit.

According to Notice 2010-82, employers need not use the same method for all employees, but may apply different methods for different classifications of employees, if the classifications are reasonable and consistently applied. For example, an employer may use the actual hours worked method for all hourly employees and the weeks-worked equivalency method for all salaried employees. In addition, employers may change the method for calculating employees' hours of service for each taxable year.

The new guidance also clarifies that because health reimbursement arrangements (HRAs) and health flexible spending arrangements (health FSAs) are self-insured plans, these arrangements are not health insurance coverage. Health savings accounts (HSAs) also are not health insurance coverage. Thus, employer contributions to HRAs, health FSAs, or HSAs are not taken into account for purposes of the credit.

Help Is Available

More detailed information on the most recent guidance and additional help in understanding the employer tax credit is available to Wolters Kluwer Law and Business subscribers here, here , and here.

The IRS also has provided a new Form 8941(Credit for Small Employer Health Insurance Premiums), and instructions to the form to assist businesses in claiming the credit. Additional information from the IRS is available here.

For a comprehensive analysis of the Patient Protection and Affordable Care Act, including the full text of the law and additional information on health reform and other recent developments in employee benefits, just click here.

Virginia court dismisses health reform challenge

In the latest round in the ongoing legal debate over the constitutionality of portions of the Affordable Care Act, a district court in Virginia has dismissed a challenge to the employer and individual coverage provisions of the ACA.

Liberty University, the plaintiff in the case (Liberty University v. U.S., DC VA, No. 6:10-cv-00015-nkm), offered nine separate challenges to the health reform law. It claimed that the ACA's provisions violated numerous parts of the Constitution, including the Commerce Clause, the Guarantee Clause, and the Free Exercise and Establishment Clauses of the First Amendment.

U.S. District Court Judge Norman K. Moon dismissed all the challenges. With respect to the Commerce Clause claim, the court noted that "the employer and individual coverage provisions are a regulation of interstate commerce authorized by the Commerce Clause."

An appeal to the U.S. Court of Appeals for the Fourth Circuit is expected. In November, the Supreme Court declined to hear one challenge to the ACA. In addition, a Michigan federal court dismissed another constitutional challenge to the Act, while a Florida court has allowed two challenges to move forward.

For a comprehensive analysis of the Affordable Care Act, including the full text of the law and additional information on health reform and other developments in employee benefits, just click here.

Delivering health care: challenges remain for Integrated Delivery Systems

Integrated health care delivery systems (IDSs), in which medical care is coordinated and compensated within the system, have been shown (when compared to traditional health delivery systems) to make patient care more efficient, while at the same time improving both access to and the quality of the care received.

That said, challenges remain, especially among IDSs designed to care for underserved populations, such as Medicaid enrollees and rural populations. That's the conclusion of "Features of Integrated Systems Support Patient Care Strategies and Access to Care, but Systems Face Challenges," a recent report issued by the Government Accountability Office (GAO-11-49). For its study, the GAO analyzed a sample of 15 private and public IDSs that are clinically integrated across primary, specialty and acute care disciplines.

Challenges faced by the IDSs include the following:

• Lack of compensation from health insurance companies for the care coordination services provided to patients by the IDS;
• Securing access to specialty care, including mental health care, for underserved patients; and
• Resistance to organizational change from various stakeholders, including physicians.

The GAO report is here. For more answers about health care delivery systems, go here.

IRS provides MLR guidance to the Blues

In Notice 2010-79, the Internal Revenue Service provides interim guidance for 2010 for certain Blue Cross and Blue Shield organizations in how to comply with the medical loss ratio (MLR) provisions of the Patient Protection and Affordable Care Act and retain special tax treatment.

Special tax treatment. IRC Sec. 833 allows a special tax deduction to Blue Cross and Blue Shield organizations and other organizations that provide health insurance. The ACA amended Sec. 833 to limit the application of this tax deduction to those groups with a medical loss ratio that is not less than 85%.

Interim guidance. Because Sec. 833(c)(5) applies to taxable years beginning after December 31, 2009 (including the period in 2010 before enactment of the ACA), taxpayers will need to consider the effect, if any, of the recently-published guidance under ACA Sec. 2718 on issues that arise under Sec. 833(c)(5).

For purposes of determining whether a taxpayer's percentage of total premium revenue expended on reimbursement for clinical services is not less than 85% (and thus satisfies the requirement of Sec. 833(c)(5)), taxpayers must use the definition of "reimbursement for clinical services provided to enrollees" that is set forth in the recently-issued U.S. Department of Health and Human Services interim final regulations.

In addition, the IRS accepts the inclusion of "amounts expended for activities that improve health care quality" as defined in the Department of Health and Human Services interim final regulations.

What happens if an organization's MLR is less than 85%? Be aware of these consequences:

1. The organization is not taxable as a stock insurance company by reason of Sec. 833(a)(1);
2. The organization is not allowed the special deduction set forth in Sec. 833; and
3. The organization takes into account 80%, rather than 100%, of its unearned premiums for purposes of computing premiums earned on insurance contracts during the taxable year under Sec. 832(b)(4).

For a comprehensive analysis of the Affordable Care Act, including the full text of the law and additional information on health reform and other developments in employee benefits, just click here.

An ACA side dish to be thankful for

A few provisions of the Patient Protection and Affordable Care Act (ACA) will have far-reaching consequences that many Americans may not know about, or comprehend the importance of. One of these overlooked provisions, a healthy side dish for the health reform Thanksgiving table, as it were, is the additional funding being provided for the National Health Service Corps (NHSC) under the ACA. The HHS has just announced the launch of the new NHSC application cycle.

In exchange for two years of service at health care facilities in medically underserved areas, the NHSC offers primary care medical, dental and mental health clinicians up to $60,000 to repay their student loans. In accordance with the ACA, hundreds of millions of dollars are being invested in the program this year. The ACA also provides more flexibility in how the NHSC administers the loan repayment program. In addition to monetary awards that are higher than previous years, the NHSC will give members the option of working half-time to fulfill their service obligation and provide credit for some teaching hours.

The ACA section providing this funding recently drew praise from Doctors for America (drsforamerica.org), which stated, "For medical students considering a primary care career in underserved areas, reform makes this a realistic option. Over 7 million patients rely on NHSC clinicians, and we support expansion of this program to provide care to those who need it most. The benefits of NHSC go well beyond the year or two of financial support; 80% of clinicians continue working in an underserved community after completing their initial commitment."

Appropriations out of any nonappropriated Treasury funds are authorized in the following amounts (PHSA Sec. 338H(a), as amended by Act Sec. 5207 of the Affordable Care Act):

$320,461,632 for fiscal year 2010; $414,095,394 for fiscal year 2011; $535,087,442 for fiscal year 2012; $691,431,432 for fiscal year 2013; $893,456,433 for fiscal year 2014; and $1,154,510,336 for fiscal year 2015.

And, according to the HHS, the ACA will not only grant monetary awards that are higher than those of previous years, the NHSC will now give members the option of working half-time to fulfill their service obligation and provide credit for some teaching hours.

For a comprehensive analysis of the Patient Protection and Affordable Care Act, including the full text of the law and additional information on health reform and other developments in employee benefits, just click here.

We all need insurance, even Congressmen

Responding to a challenge issued by Rep. Joe Crowley (D-NY), two new members of Congress have declared that they will turn down the health insurance normally offered to all members of Congress. The challenge was proposed in response to a complaint by newly-elected Rep. Andy Harris (R-MD) that his health care benefits would take a month to kick in.

House Rep. Bobby Schilling (R-IL) of Illinois told ABC news that he and his family are “bringing our own health care to Washington, D.C.” and Mike Kelly (R-PA) has been quoted by C-Span as saying “I got my own plan, I don’t need a congressional plan. I’ve taken care of myself for a long time.”

It’s unclear exactly what kind of health insurance plans these two new members of Congress have, but it’s probably better than what one of their average constituents could afford to go out and purchase.

It would be interesting to see what will happen if any of our Congressmen and women decide to forgo health insurance altogether, in protest of the Patient Protection and Affordable Care Act's (ACA's) individual mandate. An amicus brief, recently filed in one of the many state challenges to the ACA (State of Florida v. HHS, No. 3:10-cv-91-RV/EMT, U.S.District Court, Northern District of Florida, brief filed 11/19/2010) explains why such a decision, which would seem self-sacrificial on the surface, could actually cost the American people more than it would save them.

According to the brief, written by, among others, three scholars who have received the Nobel prize for economics and two who have received the John Bates Clark Medal for outstanding American economists under age 40, and which include professors from Harvard, Brandeis, and MIT, the need for and possible cost of medical care is unpredictable, and, if someone decides not to purchase health insurance, the ramifications of that are far-reaching, affecting the medical care system, prices for other patients, and possibly increasing the spread of communicable disease.

In addition, the brief continues, perfect competition does not exist between medical care providers, due to the constraints already imposed by the government, including licensing requirements, the regulation of the patient-provider relationship, as well as the more general restraints of the limited number of hospitals and primary care physicians. When someone needs healthcare, whether or not he or she has insurance, by law, (such as the Emergency Medical Treatment and Labor Act, (EMTALA)), someone ends up paying for it, the brief points out. The ACA merely assures that everyone will pay his or her fair share of medical costs that they are bound to receive during their lifetime. The brief also states that, according to a Medical Expenditure Panel Survey by the Agency for Health Care Quality and Research, 57% of people without insurance in 2007 used medical services that year.

Add to that the fact that many medical services cost more than the average family makes in a year, and it would seem that many of us have to have access to outside funds to pay for our health care. It looks like few Americans have the wherewithal to follow Rep. Kelly and Schilling’s lead.

Considering the sky-high costs of certain advanced medical treatments, it's even possible that anyone in Congress who decides to forgo insurance altogether in solidarity with their constituents would end up getting treated on the taxpayer's dime, anyway.

For a comprehensive analysis of the Patient Protection and Affordable Care Act, including the full text of the law and additional information on health reform and other developments in employee benefits, just click here.

Over-the-Counter Drugs Must Be Prescribed?

A friend, an early retiree from the State of Illinois, sent me the following e-mail a couple of days ago. The subject title was “One consequence of the new health reform law.”

“I learned on the news (NBC) last night that the new law will require physicians to write prescriptions for otc products, costing everyone more time and money. What's with that?”

Don’t you love it? It is no wonder that the public is worked up about health reform, when the general media give them incomplete or incorrect information. Fortunately for my friend, she knows I can give her the correct information about the revised treatment of over-the-counter drugs, and other health reform provisions.

So I explained: Effective Jan. 1, 2011, expenses for over-the-counter drugs other than insulin will not be considered a deductible medical expense that can be claimed under a medical flexible spending account, or other medical account, unless the OTC drug is prescribed. Health insurance plans rarely cover OTC drugs. Currently, people can claim reimbursement under health reimbursement or Sec. 125 flexible spending accounts for such items as aspirin, Tylenol, cough syrup, as well as OTC versions of allergy and digestive system medications. I never claim such expenses (fortunately, I have little need for drugs) since I save any medical account funds for larger expenses that are not covered by my insurance. As far as I am concerned, the "foul" cries over the removal of OTC drugs from the definition of covered medical costs is much ado about nothing--the great majority of people are not affected.

The Internal Revenue Service provides the following Questions and Answers on the subject of OTC drug treatment beginning Jan. 1, 2011.

Q. How are the rules changing for reimbursing the cost of over-the-counter medicines and drugs from health flexible spending arrangements (health FSAs) and health reimbursement arrangements (HRAs)?
A. Section 9003 of the Affordable Care Act established a new uniform standard for medical expenses. Effective Jan. 1, 2011, distributions from health FSAs and HRAs will be allowed to reimburse the cost of over-the-counter medicines or drugs only if they are purchased with a prescription. This new rule does not apply to reimbursements for the cost of insulin, which will continue to be permitted, even if purchased without a prescription.

Q. How are the rules changing for distributions from health savings accounts (HSAs) and Archer Medical Savings Accounts (Archer MSAs) that are used to reimburse the cost of over-the-counter medicines and drugs?
A. In accordance with Section 9003 of the Affordable Care Act, only prescribed medicines or drugs (including over-the-counter medicines and drugs that are prescribed) and insulin (even if purchased without a prescription) will be considered qualifying medical expenses and subject to preferred tax treatment.

If you have an HSA or Archer MSA, the amount of the distribution for expenses that are not qualifying medical expenses will be includable in your gross income and subject to an additional tax of 20%.

The news report my friend heard led her, and the NBC news report’s other listeners, to believe that she would have to get a doctor’s prescription for every OTC drug for her medicine cabinet. I was able to set my friend straight, but the rest of the public likely swallowed the wrong pill, while the health of the U.S. population is at risk. The U.S. news media needs CCH's Law, Explanation and Analysis of the Patient Protection and Affordable Care Act.
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Amid Widespread Opposition, Some Find Light

While many surveys shows the country divided on the benefits, or failings, of health reform, the Consumer Perceptions of Health Reform Survey from Deloitte Center for Health Solutions found that 38% of U.S. adults said they are “not at all” knowledgeable about the Patient Protection and Affordable Care Act (ACA). Despite this lack of knowledge, most of the Deloitte respondents felt that the ACA will have a positive impact on the country. For example, 59% believe the ACA will increase access to affordable health insurance for the uninsured, 49% believe it will encourage consumers to live healthier lives, 45% said it will reduce overall health care costs, and 45% said it will reduce the cost of prescription drugs.

And a segment this morning on National Public Radio's Morning Edition reported on a study that found that the number of small firms with 10 or fewer workers buying health insurance rose by 14%, bouyed by the ACA-provided tax credit for these firms to buy health insurance. Still, the National Federation of Independent Business is fighting the ACA.

You think maybe the ACA has some helpful provisions to like?

More MIddle Income, Ailing Workers Are Uninsured

Recent results of the National Health Interview Survey reported by the Centers for Disease Control and Prevention (CDC) help to debunk major health care myths about health care coverage. These myths hold that only the poor, and young, healthy people are uninsured and that the young, healthy folks choose to not have health insurance.

Hear this: “Uninsurance of young and middle-class adults increased by 4 million people from 2008 to the first quarter of 2010,” reported Thomas Frieden, the CDC director, on November 10 in the CDC’s most recent Vital Signs monthly report. The Vital Signs report collected data from more than 90,000 interviews done through the National Health Interview Survey conducted in January through March 2010, just before the passage of the Patient Protection and Affordable Care Act.

According to Mr. Frieden, “Half of those who are uninsured are non-poor and there’s a serious impact on access to needed health care. Specifically, among adults age 18 to 64, the proportion who had no insurance for at least part of the prior year increased from 46 million to 49.9 million to be exact, 4 million more from 2008 to the first quarter of 2010.” Mr. Frieden also noted that the number of individuals who have been without health insurance coverage for more than 12 months also increased substantially from 27.5 million in 2008 to 30.4 million in the first quarter of 2010, an increase of 3 million in chronically uninsured adults.

Mr. Frieden noted that “half of the uninsured are over the poverty level, and one in three adults under 65 in the middle income range (defined here between $44,000 and $65,000 a year for a family of four [who] were uninsured at some point in the year).” Furthermore, “about more than two out of five individuals who are uninsured at some point during the past year had one or more chronic diseases and this is based on just a partial list of chronic diseases. So the actual number may be higher than that.” The CDC reported that 15 million uninsured had one of three conditions: high blood pressure, diabetes, or asthma. The uninsured with asthma were five times more likely than insured individuals not to get needed care, and the uninsured with diabetes and hypertension were are six times more likely to not get needed care.

Since most people get their health insurance through their own or family members' employers, these results are not surprising given these tough economic times with high unemployment. Will the provisions of the Affordable Care Act help people get the care they need? We shall see.

No health insurance rebates yet, despite lower healthcare volumes

Wait ‘til next year!! This is a chant that we Chicago Cubs fans are often heard to say, sometimes as soon as May or June of each year. However, people with health insurance may be soon be saying the same thing, too.

You see, under the new health reform law, starting in 2011, health insurers must meet certain minimum “medical loss ratios,” which essentially require insurers to spend at least 80 percent (for individual and small group plans) or 85 percent (for large group plans) of the premiums they collect on actual medical care. If they don’t meet these rules, insurers have to send rebates to their customers. This rule applies to insurers offering both group and individual coverage and takes effect starting in 2011.

Now, you might be saying, “but my insurance premiums go up every year, how could this be?” Well, it’s like this.

In tough economic times, such as these, more than a few people tend to put off elective surgeries and otherwise skimp on their healthcare expenses. What this amounts to is what one analyst calls a “broad-based slowdown in health care volumes.” Fewer doctors’ visits, fewer lab tests, and fewer elective surgeries should mean fewer health insurance claims and, ultimately, reduced healthcare premiums, right? Alas, health insurance premiums are expected to increase by about 9 to 12 percent for 2011 but, down the road, some experts suggest that this could change if healthcare claims continue to remain flat.

Don't count your savings yet. Other factors could play a role in determining whether you get a rebate. Not to mention that deciding exactly what should count towards the minimum medical loss ratios has been a bone of contention, though recently, after much debate, the National Association of Insurance Commissioners (NAIC) sent its medical loss recommendations to the HHS.

Perhaps a “wait and see” approach is best but hey, it could happen.

For more information. For a comprehensive analysis of the Patient Protection and Affordable Care Act, and additional information on health reform and other developments in employee benefits, just click here.

How will employers respond to health reform?

The $64,000 question of health reform is this: What will employers do in response to health reform changes? Will they continue to offer health benefits to their employees or will they drop health insurance as an employee benefit altogether? Thanks to a new survey by benefits consultant, Mercer, we have a better idea of what will likely happen once the state-run health insurance exchanges become operational in 2014 when employers can opt out by paying a penalty.

Not likely to abandon plan sponsor role. When Mercer asked employers how likely they will be to get out of the business of providing health coverage to their employees, for most employers, the answer is “not likely.”  Survey responses varied by employer size, with larger employers most committed to their health plan sponsor role. In fact, Mercer says, only 3 percent of the largest employers (10,000+ employees) say that they’re likely to terminate their health plans and let employees seek coverage through insurance exchanges and only 6 percent of employers with 500+ employees say the same thing.

Why? “Employers are reluctant to lose control over a key employee benefit” suggests Mercer’s Tracy Watts.  After considering “the penalty, the loss of tax savings and grossing up employee income so they can purchase comparable coverage through an exchange, for many employers dropping coverage may not equate to savings,” she suggests.

On the other hand, small employers, who have less purchasing power and are more vulnerable to large rate increases, are far more likely to terminate their health plans in response to health reform, with about one-fifth saying that they’re likely to do so. However, Mercer’s Beth Umland cites the experience in Massachusetts, where exchanges have been operating for 3 years, as evidence that small employers may not leave the health plan sponsor market, despite the low penalties under the Massachusetts “play or pay” rules.

Health reform’s cost impacts. Cost, of course, plays a key role in determining whether an employee will continue to offer health insurance to its employees. Though costs have been rising by about 6 percent for each of the past 5 years, Mercer suggests that “PPACA will generally increase cost, although the impact will vary from one employer to the next depending on their employee demographics and current benefit program design, as well as the health care markets in which they operate.” For most, Mercer believes, health reform provisions taking effect in 2011 will increase costs by 2 percent or less.

Cadillac plan tax is key concern. The excise cost on high-cost plans (the so-called “Cadillac plans”) is the health reform legislation rule that most concerns employers, Mercer says. When asked about their most likely response to the excise tax, about a fourth of employers (23%) with 50+ employees say that they’ll do whatever is necessary to bring their costs below the threshold amounts. An additional 37 percent of employers say they will attempt to bring the cost below the threshold amounts, but acknowledge that this might not be possible. Only 3 percent say they will take no special steps to bring cost below the threshold amounts, and the rest (37%) predict their plans won’t ever hit the cost threshold.

Interestingly, assuming current costs and 6 percent annual cost increases, Mercer found that, if employers make no plan design changes, 39% of employers with 50+ employees can expect to trigger the excise tax on Cadillac plans in 2018, the year the tax becomes effective. Seems like a lot, doesn’t it? But, as Mercer’s Watts points out, “it’s important to keep in mind that this new tax is still eight years out and a lot could change between now and then,” who added that “given how often ERISA, tax, Medicare and Medicaid rules are modified, there’s a good chance that the excise tax that takes effect in 2018 won’t be exactly the same as the sketch we’re working from today.”

For a comprehensive analysis of the Patient Protection and Affordable Care Act, including the full text of the law and additional information on health reform and other recent developments in employee benefits, just click here.

Election’s over, what’s next for health reform?

Now that the mid-term elections are over, many people are wondering what’ll happen with recently-enacted health reform legislation. The Republicans have been talking about trying to “repeal and replace” or attempting to defund the law. However, starting in 2011, they control the House but not the U.S. Senate or the presidency.

After the election, President Obama has suggested that he would be open to tweaking the legislation. He cites the 1099 provision in the law as something that “appears to be too burdensome for small businesses” and is an example of something that should be looked at. Likely new House Speaker, Rep. John Boehner (R-OH) pledged “we have to do everything we can to try to repeal this bill and replace it with common-sense reforms that'll bring down the cost of health insurance.”

Of course, no one can really tell what the future holds but here's a sampling of what some experts think about the future of health reform.

A benefits consultant’s view. From a leading employee benefits consultant, Towers Watson, there’s this:

“The results of the 2010 midterm elections have important implications for health care reform implementation. Repealing the health care reform law was a popular promise on the campaign trail, but repeal — and even significant change — is unlikely while President Obama wields the veto pen. Nevertheless, health care reform will remain a leading issue for the new Congress, creating an uncertain environment for employers as they plan for implementation of the law’s major provisions in 2014.”

Towers Watson also suggests that, while repealing health care reform is not likely, the law will remain in the spotlight. “Expect the new Republican majority in the House to increase oversight of the regulatory and implementation process, attempt to deny the funding needed to implement and enforce the law, and work to increase opposition to the law leading into the 2012 elections.”

A former health insurance industry insider’s view. Wendell Potter, a health insurance industry insider who helped plan the industry’s public relations/public policy strategies, is doubtful that health reform legislation will be repealed, according to an interview in Newsweek. Among other things, Potter says that “despite all the attacks on `Obamacare,’ the new law props up the employer-based system that insurers and large corporations benefit from so greatly.”

An economist’s view. According to the Incidental Economist blog, it’s doubtful that health reform will be repealed, pointing out that “there’s a big difference between campaigning and legislating.” In 2012, they say, the “slogan on healthcare is `Repeal and Replace!’ but that’s not a plausible bill because it won’t satisfy the interest groups. Nor can it pass.”

Now what? As we at Health Reform Talk said so often during the legislative process, only time will tell what the future will bring. Let’s just wait and see.

For more information. For a comprehensive analysis of the Patient Protection and Affordable Care Act, and additional information on health reform and other developments in employee benefits, just click here.

Feds Battle For Hearts And Minds

Feds Battle For Hearts And Minds

The federal government continues the battle for the hearts and minds of health care consumers in a new report stressing Medicare savings due to the Patient Protection and Affordable Care Act.

Average Medicare beneficiary savings in traditional (fee for service) Medicare will be approximately $3,500 over the next ten years because of changes made by the Patient Protection and Affordable Care Act (ACA), according to a report released on Nov. 4 by the Department of Health and Human Services. Beneficiaries who have high prescription drug spending will save much more – as much as $12,300 over the next 10 years. In comparison, Medicare beneficiaries with low drug costs will save an average of $2,400 over 10 years.

(HHS previously released a statement by Don Berwick, administrator of the Centers for Medicare and Medicaid Services, that beneficiaries in the Medicare Advantage program would have an average reduction in cost of 1% for 2011.)

The analysis on traditional Medicare, released by the HHS Office of the Assistant Secretary for Planning and Evaluation (ASPE), shows that the ACA helps lower costs for those on Medicare by slowing the growth of cost-sharing in Medicare. Closing the Part D coverage gap known as the “donut hole” will produce the greatest cost savings. Already, more than 1.8 million seniors and people with disabilities who have reached the donut hole in 2010 received a one-time $250 rebate check, and checks will continue to be distributed to those who enter the donut hole this year, according to the report. Next year, people in the donut hole will receive 50% discounts on covered brand name Part D prescription drugs. Also starting next year, seniors and people with disabilities on Medicare will have access to a number of recommended preventive services and annual wellness visits at no additional cost. 

Although all seniors and people with disabilities in Medicare are likely to see savings, the savings will be greatest for those with costly medical conditions or high prescription drug costs, according to the report. Total savings per beneficiary enrolled in traditional Medicare are estimated to be $86 in 2011, rising to $649 in 2020. For a beneficiary with spending in the donut hole, estimated savings increase from $553 in 2011 to $2,217 in 2020.

According to HHS Secretary Kathleen Sebelius, “The Affordable Care Act makes Medicare stronger and reduces the burden of health care costs on some of our most vulnerable citizens. The law improves benefits for seniors and people with beneficiaries who rely on Medicare and ensures that Medicare will be there for current and future generations by extending the life of the Medicare Trust Fund. These benefits and savings are only possible with the continued implementation of the Affordable Care Act.”

The entire HHS report is available here.

For a comprehensive analysis of the Patient Protection and Affordable Care Act, including the full text of the law and additional information on health reform and other recent developments in employee benefits, just click here.

The estimate saving for years 2010 through 2020 are as follows according to the HHS report:

 

Table 1. Estimated Affordable Care Act Annual Savings

per FFS Medicare Beneficiary

	Beneficiaries Not Reaching the Donut Hole	Beneficiaries Reaching the Donut Hole	All Fee For Service Beneficiaries
2010	-$6	$244	$23
2011	$27	$553	$86
2012	$92	$654	$154
2013	$134	$766	$203
2014	$168	$901	$247
2015	$212	$1,048	$300
2016	$261	$1,216	$361
2017	$310	$1,428	$427
2018	$354	$1,654	$490
2019	$405	$1,910	$564
2020	$462	$2,217	$649

Early Retiree Reinsurance Program Chugging Along

Despite the well-publicized discontent with health reform among employers, those few companies that continue to sponsor pre-65 retiree health care plans have moved quickly to cash in on the Early Retiree Reinsurance Program established by the Patient Protection and Affordable Care Act.

The Department of Health and Human Services (HHS) on October 28 released a list of additional employers and unions accepted into the EERP. Nearly 700 additional large and small businesses, state and local governments, educational institutions, nonprofit organizations, and unions have been accepted into the program i the last month, which reimburses employers for a portion of the cost of health benefits for early retirees' and their families. This brings the total number of organizations participating in the program to nearly 3,600 (click here for earlier accounts of ERRP’s popularity).

In 2009, only 28% of all employers with 500 or more employees even offered retiree health care to pre-65 retirees, so the numbers in the program are even more impressive.

A total of $5 billion has been allocated to ERRP, and when that money is exhausted, so is ERRP.  A complete list of approved applicants and other information is available here.

In addition, HHS has just published a revised application for the ERRP, along with corresponding revised instructions for completing the application. HHS also published a revised "Dos and Don'ts" document for completing and submitting the revised application.

HHS notes the following for those who already have completed an application, those who are in the process of completion, and those who will not finish until after November 9:

• Sponsors that have already submitted an application, using a version that was appropriate as of the date of submission, should not submit another application for the plan referenced in that submitted application.

• Sponsors that have started to complete the most recent prior version of the application that had been posted on the ERRP website on Aug. 9, 2010 (see News, Aug. 12, 2010, HHS Provides Relief For Incomplete Applications To The Early Retiree Reinsurance Program), but have not yet submitted the application, may submit that version of the application if postmarked by Tuesday, Nov. 9, 2010. A sponsor completing that version of the application should also use the most recent prior versions of the application instructions (posted August 24, 2010) and "Dos and Don'ts" (posted August 9, 2010). Sponsors can contact HHS' ERRP Center if they need copies of those two documents.

• Sponsors submitting an application postmarked after Tuesday, November 9, 2010, must use the revised versions of the application, application instructions, and "Dos and Don'ts", all of which were posted on November 2, 2010.

The revised application, application instructions, and "Dos and Don'ts" are posted on the How to Apply for the Program page on the ERRP website.

For a comprehensive analysis of the Patient Protection and Affordable Care Act, including the full text of the law and additional information on health reform and other recent developments in employee benefits, just click here.