House Democrats Consider Piecemeal Health Reform Legislation

In addition to considering the use of the reconciliation process to pass health reform, House Speaker Nancy Pelosi is reviewing options to pass small pieces of the already-proposed legislation.

Ms. Pelosi is reported to believe that the House and the Senate health reform proposals are farther apart than President Barack Obama believes they are, and thus she is looking at specific provisions that could gain quick passage.

One provision mentioned as a stand-alone measure that could find broad Congressional support is the removal of the antitrust exemption for insurance companies. Sec. 262 in the House health reform bill (H.R. 3962) would amend the McCarran-Ferguson Act to apply most antitrust laws to “the business of health insurance or the business of medical malpractice insurance.”

The House provision would continue antitrust exemptions to the determination, collection, and dissemination of historical loss data, which is defined as “information respecting claims paid, or reserves held for claims reported,” by an insurer.

The legislation passed by the Senate (H.R. 3590) does not address the antitrust exemption, although the Senate bill does include provisions to subject insured health care plans to the nondiscrimination rules of self-funded plans.

How To Buy A Cup Of Coffee, But Not Health Care Reform

House Speaker Rep. Nancy Pelosi (Cal.) proposed a series of changes to the Senate-passed health reform bill (H.R. 3590) just as President Barack Obama urged the Congress in his 2010 State of the Union message not to “walk away from [health care] reform.  Not now. Not when we are so close. Let us find a way to come together and finish the job for the American people. Let's get it done.”

News reports indicate that Ms. Pelosi has suggested several options for passing health reform legislation, including one that consists of the House adopting the bill passed by the Senate and then modifying the bill through the reconciliation process. Modifications wanted by the House include eliminating or reducing the Senate bill’s tax on high-end insurance plans and increasing Medicare drug coverage by eliminating an existing gap in coverage called the doughnut hole. Passing H.R. 3590 in the House would require a simple majority vote, and any changes done through the reconciliation process also would require a simple majority for passage in the House and the Senate.

In his State of the Union address on January 27, Mr. Obama said, “After nearly a century of trying -- Democratic administrations, Republican administrations -- we are closer than ever to bringing more security to the lives of so many Americans. The approach we've taken would protect every American from the worst practices of the insurance industry. It would give small businesses and uninsured Americans a chance to choose an affordable health care plan in a competitive market. It would require every insurance plan to cover preventive care….

“By the time I'm finished speaking tonight, more Americans will have lost their health insurance. Millions will lose it this year. Our deficit will grow. Premiums will go up. Patients will be denied the care they need. Small business owners will continue to drop coverage altogether. I will not walk away from these Americans, and neither should the people in this chamber.”

All that, and $3.60 will get you a Latte at one of my favorite local coffee shops. So far, it’s unlikely to get you health reform legislation.

They’ve got some explaining to do

Perhaps, as Paul Newman said in the movie, Cool Hand Luke, what we’ve got here is a failure to communicate. Maybe the problem with health reform isn't necessarily with the health reform bills themselves, but with how they have been explained to the public. Despite widespread media coverage of health reform, apparently, many Americans are still unfamiliar with, or even misunderstand, the key elements of the proposals.

According to a recent Kaiser Family Foundation poll (conducted before the special election in Massachusetts), Americans are somewhat evenly divided over pending congressional health reform proposals. This is not news.

What is news is that, in the same survey, many people became far more supportive of the health reform measures after having them explained. “Majorities reported feeling more favorable toward the proposed legislation after learning about many of the key elements, with the notable exceptions of the individual mandate and the overall price tag,” the survey found.

In fact, a majority of respondents felt more positively about 17 of the 27 health reform bill elements tested in the poll after the provisions were explained. Examples of provisions that were viewed more favorably, when explained, include tax credits for small business, health insurance exchanges, efforts to close the Medicare prescription drug “doughnut hole,” and the elimination of coverage denials for pre-existing conditions.

Better awareness of many lesser-known provisions could have a huge impact in changing minds, the survey suggests. For instance, the fact that the Congressional Budget Office has said health reform would reduce the deficit could substantially change minds. According to the survey, only 15 percent of respondents expected the legislation to reduce the deficit, but 56 percent said hearing that the bills would reduce the deficit makes them more supportive of it.

What does this all mean? Regardless of what method the Democrats choose to advance health reform, if any, they should make it a priority to explain exactly what is and isn’t included in the proposals. Americans can't support health reform if they don't understand it.

Not So Fast—It Aint Over ‘Til It’s Over

Mark Twain’s comment that “The reports of my death are greatly exaggerated” can easily apply to health reform. Many media outlets, and health reform opponents, have proclaimed the “death” of, or at the very least, ”critically-ill” and on life-support, the Democrats’ and President Barack Obama’s health reform legislation.

The Economist magazine and Minority leader Kentucky Sen. Mitch McConnell, on NBC’s Meet the Press on January 24, said that the Democrats need to “Rip it up and start again.” Republican leaders claim gleefully that Scott Brown’s election to fill Democratic icon Sen. Edward Kennedy’s Senate seat for Massachusetts “will prove the death blow” for national health reform.

And The Chicago Tribune, a traditionally conservative daily newspaper, in a January 20 editorial wrote that “Had Obama taken a tougher stance toward his own party—shown a bit more audacity—…the health care plan might have focused on incremental, broadly popular [with whom?] changes that could have attracted significant Republican support. Instead, he now finds himself…in danger of losing the health care battle anyway.”

Even Michael Winship, senior writer for Bill Moyers’ “Journal,” bemoaned in a January 24 truthout op-ed the “collapse of health care reform as Democrats scurried for the exits,” in the aftermath of Scott Brown’s win in Massachusetts. The U.S. Chamber of Commerce was said to have bragged about all the dollars it poured into Mr. Brown’s campaign and that his victory "could pay immediate dividends by throwing into question the future of health care reform legislation pending in Congress."

But, as Mr. Winship writes, “this is no time to run and hide,” and, using labor activist Joe Hill’s final words, he urges: “Don't mourn, organize.” Progressives are doing just that. Don’t count health reform out just yet.

Reform's status is cloudy

Political reporting from our mainstream media indicates that to the extent that "health reform" happens at all in 2010, it will be a much smaller package than we would have predicted just a week ago.

Certainly the White House isn't vowing to fight on for what it once described as a top domestic policy priority. Instead, WH staffers speaking on background previewed the announcement of only "modest initiatives" (none of them relating to health care) in the State of the Union Address on Wednesday.

Congressional leaders continue to weigh their options as to what they might do next with the competing House and Senate bills, but they are also struggling to take steps to protect their majority.

Meanwhile, problems in the existing health care system continue to dominate the headlines. And so it goes.

What Were Those Reasons For Wanting Health Reform?

If the recent election in Massachusetts dooms health care reform this year, the number of uninsured is likely to increase, and the largest effects likely will be among employees in companies that do not provide health insurance.

According to the Kaiser Family Foundation, more than eight in ten of the uninsured are in working families—about two thirds are from families with one or more full-time workers and 14% are from families with part-time workers. Only 19% of the uninsured are from families that have no connection to the workforce.

Here are just two of the expected effects of increasing numbers of uninsured among the employed without health care reform:

Greater risk of death. In 2002, the Institute of Medicine (IOM) estimated that 18,000 Americans died in 2000 because they were uninsured. Since then, the number of uninsured has grown. Based on the IOM's methodology and subsequent Census Bureau estimates of insurance coverage, 137,000 people died from 2000 through 2006 because they lacked health insurance, including 22,000 people in 2006.

More individuals in bankruptcy. 62.1% of all bankruptcies in 2007 were medical; 92% of these medical debtors had medical debts over $5000, or 10% of pretax family income. The rest met criteria for medical bankruptcy because they had lost significant income due to illness or mortgaged a home to pay medical bills. Most medical debtors were well educated and owned home. The odds that a bankruptcy had a medical cause was 2.38-fold higher in 2007 than in 2001.

Of course, even if health reform is enacted, without sufficient cost controls, employers will remain conflicted over health reform. Here are some problems employers face, according to the Council on Foreign Relations in a report on health care costs and U.S. competitiveness:

“The United States spent 16% of its GDP in 2008 on healthcare, higher than any other developed nation. The nonpartisan Congressional Budget Office (CBO) estimates that number will rise to 25% by 2025 without changes to federal law. Employer-funded coverage is the structural mainstay of the U.S. health insurance system. According to the U.S. Bureau of Labor Statistics, about 71% of private employees in the United States had access to employer-sponsored health plans in 2006. A November 2008 Kaiser Foundation report says access to employer-sponsored health insurance has been on the decline among low-income workers, and health premiums for workers have risen 114% in the last decade. Small businesses are less likely than large employers to be able to provide health insurance as a benefit. At 12%, healthcare is the most expensive benefit paid by U.S. employers, according to the U.S. Chamber of Commerce.

“Some economists say these ballooning dollar figures place a heavy burden on companies doing business in the United States and can put them at a substantial competitive disadvantage in the international marketplace. For large multinational corporations, footing healthcare costs presents an enormous expense. General Motors, for instance, covers more than 1.1 million employees and former employees, and the company says it spends roughly $5 billion on healthcare expenses annually. GM says healthcare costs add between $1,500 and $2,000 to the sticker price of every automobile it makes. Health benefits for unionized auto workers became a central issue derailing the 2008 congressional push to provide a financial bailout to GM and its ailing Detroit rival, Chrysler.”

Only Available In Massachusetts

A clear majority of the Massachusetts electorate voted on January 19 to send the 41^st Republican to the Senate, effectively killing the health reform compromise that was close to passage in the U.S. Congress.

At stake in the election were increases in healthy care coverage for most of the uninsured, requirements for both individuals and employers to purchase health insurance, and a comprehensive exchange program to allow all individuals to purchase health insurance in a fair and open market.

All of which Massachusetts citizens already have and are satisfied with in large part. So let’s take a brief look at health reform in Massachusetts, which the voters there get to keep but were unwilling to let the rest of the nation have a crack at.

Between the fall of 2006 and the fall of 2008, the percentage of working-age adults without health insurance in Massachusetts dropped from 13% to 4%, according to a September 2009 report from Blue Cross and Blue Shield of Massachusetts, the Commonwealth Fund, and the Robert Wood Johnson Foundation. This compares with a national uninsurance rate of 19.7% for nonelderly adults. The report, Health Reform in Massachusetts: An Update on Insurance Coverage and Support for Reform, found the uninsurance rate was down to 7.6% among lower-income adults and 1.4% among higher-income adults. The remaining uninsured adults in Massachusetts are disproportionately young, male, single, and/or healthy (54.5%). The report noted that these groups can be difficult to convince about the need for insurance.

The report also found that employer-sponsored coverage remains strong under the health care reform law in Massachusetts. Employer-sponsored coverage rose from 66.5% to 71.4% among all adults, and from 37.4% to 43.5% for lower-income adults. The report noted that "with [employer-sponsored insurance] coverage higher under health reform, there continues to be no evidence that any expansion in public insurance coverage under health reform is 'crowding out' or replacing [employer-sponsored insurance] coverage, as is often the case in reform efforts that focus on public expansions.”

A new poll by the Harvard School of Public Health and The Boston Globe finds 59% of Massachusetts residents who are aware of the state's health reform legislation, which was enacted in 2006, support it. A little more than one in four oppose it (28%), and 13% are not sure. The level of public support for the law has declined somewhat in the last year, from 69% saying they support the law in 2008 to 59% in the current poll. The current number is similar to the 61% found in 2006. Support for the law varied by party affiliation, with 76% of Democrats, 56% of Independents, and just 35% of Republicans saying they support the legislation.

Here are some key elements of health reform in Massachusetts (from the state’s health reform website):

• Provides for legal residents who are not eligible for other public or employer-sponsored health insurance:

• Completely subsidized, comprehensive health insurance to adults earning up to 150% of the federal poverty level (fpl).


• Substantial premium subsidies to people earning above 150% and up to 300% of fpl.


• Completely subsidized comprehensive coverage to children of parents earning up to 300% of fpl.

• Reforms the non-group and small-group health insurance markets to effectively lower the price and offer more choices for individuals purchasing unsubsidized products on their own.

• Requires adults in Massachusetts who can obtain affordable health insurance to do so.

• Requires employers of 11+ full-time equivalent employees in Massachusetts to make a fair and reasonable contribution toward coverage for full-time employees, or pay a Fair Share Assessment, and to offer both full-time and part-time employees a pre-tax IRC Sec. 125 plan) for their own health insurance premium payments.

For Dems, it's back to the drawing board

With Scott Brown's stunning victory in the Massachusetts Senate race last night, many today will be quick to declare health reform dead. After all, once Brown is seated, the Republicans will have 41 seats in the U.S. Senate giving them the opportunity to block anything that the Democrats try to do.

In the coming days and weeks, much will be written about the irony of how the successor to long-time health reform champion, the late Senator Ted Kennedy, is the one to drive the nail into the coffin of health reform.

But is health reform really and truly dead? The massive, complex 2000 plus page version that we've been talking about for the past year is almost absolutely certainly dead. I say "almost absolutely certainly dead" only because, with Congress, it's best to never say never but yes, I'd agree that you could probably shred your copy.

What they could do. The Democrats, of course, are not without options. It's just that, at this point, none of these options look very good for them.

--The Democrats could try to beat the clock and race to suddenly resolve all their differences, get a speeded-up Congressional Budget Office scoring, and pass reform before Senator-Elect Brown is seated. Putting aside the legal, ethical, and political issues, this just won't happen. On a practical level, how could they ever become so unified, overnight?

--Because the Senate Democrats passed health reform on Christmas Eve, they don't really need to vote on it again. In theory, the House could pass the Senate version and then send it on to President Obama for his signature. Again, very unlikely. Though there are many similarities between the House and Senate versions, there are substantial, and key, differences and it seems doubtful that the House would just cave in on this.

--The Senate Democrats could go ahead, reconcile their differences, and attempt to bring a bill to the floor, forcing the Republicans go beyond a mere filibuster threat to actually conduct a full-scale Mr. Smith goes to Washington-type filibuster. Again, extremely unlikely, though possible, I suppose.

--The Senate Democrats could try to convince a moderate Republican to join their side. It could happen, though it almost certainly won't.If this were possible, they probably would've done it by now.

--Democrats can use the reconciliation process to pass a scaled-back version of the finance-related health reform provisions with only a simple majority in the Senate. Possibly not though this is a distinct possibility, not some theoretical possibility.

--Democrats can abandon health reform, altogether, for probably another generation. Again, this is a distinct possibility, though, due to all the time and effort they put into health reform during the past year, this would be extremely embarrassing to them, politically, this fall, in the mid-term elections.

--Democrats could attempt to pass small healthcare reforms, on a piecemeal basis, declare victory, and then move on to something easier, such as trying to achieve world peace. Personally, I think this is the most likely option. Pass the noncontroversial reforms that are easy for the American public to understand--this might just happen.

What's next? Only time will tell what the future holds for health reform but it's been a wild and entertaining ride so far. Somehow, I don't think we've seen the last of health reform.

Will We Settle For Bronze?

In response to Maine Sen. Olympia Snowe’s request for information about“expected premiums under that proposal for policies that would meet the minimum requirements necessary to avoid paying a penalty for not having insurance," the Congressional Budget Office projected that premiums for Bronze plans purchased individually in 2016 would probably average between $4,500 and $5,000 for single policies and between $12,000 and $12,500 for family policies. The Senate’s Patient Protection and Affordable Care Act would require individuals to purchase at least a minimum coverage, “Bronze” health insurance policy.

The Senate bill would require uninsured individuals to pay a tax penalty of the greater of $750 per year up to a maximum of three times that amount ($2,250) per family or 2% of household income. The House bill would require a penalty of 2.5% of the uninsured’s adjusted income above the filing threshold up to the cost of the average national premium for self-only or family coverage under a basic plan in the Health Insurance Exchange.

“Average premiums for Bronze plans would be lower than average premiums for all plans because the actuarial value of Bronze plans would be 60 percent, compared with an estimated average actuarial value for all individually purchased plans of roughly 72 percent,” CBO wrote Ms. Snowe. .”That lower actuarial value would reduce premiums for Bronze plans directly, because the policy would pay for a smaller share of enrollees’ costs for covered services, and indirectly, because enrollees would use slightly fewer or less-expensive services when faced with the higher cost-sharing requirements included in Bronze plans.”
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In its January 12, Politics and Markets Blog, “Bronze Age Health Care,” the Investors Business Daily, cites the America’s Health Insurance Plans (AHIP, the insurance industry’s lobbying organization) study released in October 2009, that the average policy bought in the individual market in 2009 cost $2,985 for an individual and $6,328 for a family policy. Comparing the AHIP numbers with the CBO estimates for “Bronze” coverage, IBD concludes that “the Bronze Plan’s costs would rise faster than recent trends in private insurance.”

The IBD article continues: “Perhaps the problem is all the benefits that Bronze Plans will have to cover: ambulatory patient services; emergency services; hospitalization; maternity and newborn care; mental health and substance use disorder services, including behavioral health treatment, prescription drugs; rehabilitative and habilitative services and devices; laboratory services; preventive and wellness services and chronic disease management; and pediatric services, including oral and vision care.” And, of course, why would any “reasonable” person need all that coverage?

And, as discussed in previous posts (here, and here) low actuarial value coupled with premium expenses, equal underinsurance, and great financial exposure. How does this fit in with President Obama’s original goal for health care reform to “protect families' financial health through reduced insurance premiums and related costs for individuals and businesses”?

Will multi-State plans lower costs?

Slowing the growth in health care costs is one goal of health reform. Under the Senate bill (scroll to page 2086), at least two multi-State qualified health plans must be available as part of the Exchange in each State. The multi-State plans (one of which must be non-profit) would provide coverage in the individual and small employer markets. The Director of the Office of Personnel Management would enter into contracts with private insurers to offer the multi-State plans. (OPM currently administers the Federal Employee's Health Benefit Program.)

Now, the multi-State idea was adopted as a replacement for the Senate version of the "public option," which would have required the Secretary of Health and Human Services to operate a qualified health plan in the Exchanges of all States that agreed to participate. After much debate, this provision (former Act Sec. 1323) was stripped from the final version of the bill.

So, what impact will the multi-State option have on the cost of health care? Not much, according to the Congressional Budget Office. In a December letter to Majority Leader Harry Reid, the CBO was skeptical that that such nationwide plans would be offered, especially one including only nonprofit insurers. CBO predicted that insurers offering a multi-State plan would probably participate in the State Exchanges anyway. Thus, said CBO, "the inclusion of this provision did not have a significant effect on the estimates of federal costs or enrollment in the exchanges" CBO used when it "scored" the bill.

Goodbye Executive Medical Reimbursement Plans (Updated March 20,2010)

For a full three decades, employers with fully insured health plans have been able to provide tax-free medical benefits just to executives because discrimination laws are different for insured plans than for self-funded plans. However, under the Patient Protection And Affordabke Care Act (which adds a new Sec. 2716 to the Public Health Service Act), this plan design will be prohibited.

Because of the preemption provisions of ERISA, there had been no federal laws for fully insured health plans that prevent discrimination in favor of the highly compensated (ERISA Sec. 514(a)). Insured health care plans do have to comply with applicable state insurance laws, and general discrimination laws regarding age, gender, race, and disability apply.

In other words, employers couldestablish fully-insured medical reimbursement plans for a select group of employees, such as key employees.

Self-insured health care plans are different—they have been subject to nondiscrimination rules since 1980. Health plans that are not insured (or are partially insured) must comply with the nondiscrimination requirements that limit discrimination in favor of highly compensated employees. In any "self insured medical reimbursement plan" that fails to meet the nondiscrimination requirements, highly compensated employees lose their tax advantages.

New Provision Would Eliminate Discrimination

Under the health reform law, insured group health plans must comply with the nondiscrimination requirements for self-funded plans (IRC Sec. 105(h)(2)), including rules that the plan does not discriminate in favor of highly compensated individuals as to eligibility to participate or to benefits provided under the plan.

Since the discrimination rules for self-funded plans were issued in 1980, employers have adopted fully insured plans to provide executives and key employees with tax-free reimbursements for out-of-pocket medical, dental, and vision expenses. These new prohibitions against discrimination in fully insured plans will compel employers to use other methods to reward executives.

This is one of the few provisions in the health reform proposal that takes effect almost immediately (plan years beginning on or after September 23, 2010).

It’s about time.

Employers Take Note, Part Five: Additional Taxes On HSAs, Limits On FSAs

As the House and Senate leadership begin to discuss their differing health care reform proposals, Health Reform Talk continues a series examining health reform provisions that will affect employer-sponsored health plans and would take effect soon after enactment of any legislation. This series will look at features of the legislation already passed in the House (H.R. 3962) and in the Senate (H.R. 3590). These are features likely to survive in final health reform legislation and which will directly affect employers. Today, an increase in taxes on HSA distributions and a contribution limitation on flexible spending arrangements (FSAs) are discussed.

Additional Taxes On HSAs and MSAs

H.R. 3590: Sec. 9004 would increase the existing excise tax on non-medical distributions from HSAs and MSAs from 10% to 20%

This provision is effective for distributions made after Dec. 31, 2010

H.R. 3962: Sec. 533 also would increase the tax on HSAs (but not MSAs) to 20%.

The House provision is effective for taxable years beginning after Dec. 31, 2010

Limitation On Health Flexible Spending Arrangements Under Cafeteria Plans

H.R. 3590: Sec. 9005 would limit the annual salary reductions in a health flexible spending arrangement (FSA) to $2,500.

This provision is effective for years beginning after Dec. 31, 2010

H.R. 3962: Sec. 532 also would limit FSA salary reductions to $2,500 annually. The House provision, however, takes effect in taxable years after Dec. 31, 2012, and is adjusted for inflation thereafter.

Controversial mammogram recommendation rejected

Think back to last November. Besides health reform, one of the hot news items involved a controversial new recommendation from U.S. Preventive Service Task Force regarding mammograms for women in their 40s. Under the recommendation, women in their 40s with a normal cancer risk were said not to need routine mammograms. Instead, for women ages 50 to 74 who have a normal cancer risk, the Task Force recommended routine mammography screenings every two years. Previously, the Task Force’s recommendation was for routine mammography screenings every year or two for women age 40 and older. There was a firestorm of protest over this recommendations and, overnight, mammograms became a political football.

Fast forward to today. The public furor over the Task Force’s mammogram recommendation has seemed to die down quite a bit. Even so, Congress has gotten involved in the mammogram debate.

Specifically, the Senate-passed version of health reform provides that group health plans and health insurance issuers are required to provide coverage, without cost-sharing, for certain preventive services, including mammograms. However, here’s the twist: Under an amendment from Senator Barbara Mikulski (D-MD), for purposes of breast cancer screening, mammography, and prevention, the current recommendations of the U.S. Preventive Service Task Force are considered the most current, other than those issued in November of 2009. In one brief provision, the Senate is rejecting the controversial new mammogram recommendations.

According to the Wall Street Journal, “the final health-care bill is likely to require coverage for more mammograms than the new guidelines recommend after women's groups, doctors and imaging-equipment makers stepped up pressure on lawmakers.” Further, the Wall Street Journal reports, congressional staffers say that the Mikulski provision on mammograms is expected to make it into the final bill. This should not come as a surprise since, right before Christmas, the House also voted unanimously, 426-0, in favor of a nonbinding resolution that would bar the task force guidelines from being used by insurers to deny coverage for routine mammograms.

I guess the people (and Congress) have spoken.

Who Will Pay For “Play-Or-Pay”?

Members of Congress and lobbyists for employers have been concerned about the potential effects on employers of the House and Senate’s “play-or-pay” provisions. But, if several recent studies are to be believed, it is workers who ultimately will pay to play.

The House and Senate bills each include the following “assessments” or “penalties” on employers that do not offer their workers health insurance:

• House—Effective Jan. 1, 2013, employers with annual payrolls exceeding $750,000 would be assessed a tax of 8% of their payroll.. Employers with an annual payroll of less than $500,000 are exempt and the “penalty” grows at 2% increments for payrolls between $500,000 and $750,000.

• Senate—Effective Jan. 1, 2014, employers that have at least one full-time worker who receives a tax credit for health insurance obtained through a health insurance exchange would have to pay a tax of either $750 for each full-time employee or $3,000 for each full-time employee who is receiving the tax credit. Employers with 50 or fewer employees are exempt.

Although these assessments on employers are labeled as “penalties” on employers, it is workers who most likely will pay for the “penalty” through reduced wages, contended Bradley Herring and Mark V. Pauly, professors at the Johns Hopkins University Bloomberg School of Public Health and at the University of Pennsylvania Wharton School’s Health Care Systems Department, respectively.

They further argued in the article, “Play-or-Pay: Insurance Reforms for Employers—Confusion and Inequity,” that those health care reform provisions not only would not address existing inequities, but that they also “could add further inequities to our system.” The article was published in the January 6 New England Journal of Medicine. Mr. Herring and Mr. Pauly pointed out that workers would prefer “play” over “pay” as their wages rose because the higher the worker’s income, the greater the tax preferences for employer-provided health insurance, while the tax subsidy to purchase health insurance through the exchange decreases and eventually would not be available.

“Empirical economic research has provided strong evidence that there is an implicit tradeoff between cash wages and health insurance benefits…workers actually pay for the cost of their employers’ contributions to their health insurance by receiving wages below what they would have received had not employer health insurance been offered,” according to a report prepared by the Urban Institute and released at the end of last year. “The lower wages of small-firm workers imply that they are far less able to pay for health insurance through wage reductions; consequently, their employers are less likely to offer them such benefits.”

The report, “What Would Health Care Reform Mean for Small Employers and Their Workers?,” also concludes that neither of the two bills’ tax provisions would impose “substantial new financial burdens on small businesses.”

With respect to the health reform funding scheme, the House’s 5.4% surcharge on families with incomes over $1 million and individuals with incomes over $500,000, analyses by the joint Urban Institute-Brookings Institution Tax Policy Center (TPC) found that just 0.2% of all tax “units” and 0.9% of tax “units with business income potentially would be affected should the surtax become effective, as proposed, in 2011. Those figures would rise to 0.5% of all tax units and 1.6% of all tax units with business income in 2019. The Senate proposal to increase the Medicare hospital insurance (HI or Part A) tax, potentially would apply to 1.5% of all tax units and 3.4% of all tax units with business income in 2013, the proposed first year of implementation, and to 2.4% of all tax units and 5.1% of all tax units with business income in 2019.

For all practical purposes, the proposed tax assessment/penalty that would be imposed on employers that do not offer health insurance to their employees would affect very few employers, the Urban Institute researchers concluded based on available data. According to Census Bureau data on U.S. businesses, 87% of the more than six million firms in the U.S. in 2006 had annual payrolls below $500,000 and that proportion would increase by 2013. These small firms would face no tax assessment (or penalty) for not providing health insurance to their workers.

Another 4% of businesses in 2006 had annual payrolls that fell between $500,000 and $750,000, and would have been subject to a reduced tax assessment, had it been in place in 2006. The 9% of firms with payrolls exceeding $750,000 (the very largest firms), in 2006 and who would have been subject to the full tax assessment had it been in place, represented 77% of total employment that year. Because the larger firms typically offer health insurance anyway, they would not face a tax assessment for not offering health insurance.

So, what’s to worry?

The NAIC's role in health care reform

Do you ever wonder how all the changes required by both the Senate and House reform bills will be implemented (assuming they become law)? Do you envision dozens and dozens of federal and state workers, busily crafting new regulations and procedures?

If so, remember that those government workers will have some help from the National Association of Insurance Commissioners. The NAIC is a voluntary organization of the chief insurance regulatory officials of the States. First established in 1871, the NAIC has a long history of developing model insurance laws that have enjoyed widespread adoption by the States.

In several instances in both the House and the Senate bills, Congress directs new initiatives to be developed in conjunction with guidelines or model laws developed by the NAIC.

In H.R. 3590, the Senate calls on the help of the NAIC in these areas:

--Under Act Sec. 1001 (adding new PHSA Sec. 2715), the Secretary of Health and Human Services must consult with NAIC (among others) to develop new uniform explanation of coverage documents;
--Under Act Sec. 1311, HHS must also consult with NAIC as it develops standards for the State Exchanges;
--Under Act Sec. 1333, the NAIC would help HHS create a framework for interstate health insurance compacts, which would be designed to facilitate the purchase of individual health insurance coverage across state lines (the House bill contains a similar concept at Sec. 309);
--Under Act Sec. 1341, the NAIC is tasked with helping HHS develop model regulations to govern a transition reinsurance program for the individual health coverage markets in each State; and
---Under Act Sec. 3210, the NAIC would aid in the development of new standards for certain Medigap plans.

In H.R. 3962, the House utilizes the NAIC’s help in the following ways:
---Under Act Sec. 101, the NAIC would help to develop the rates for premiums to be charged for coverage under the temporary national high-risk pool program;
---Under Act Sec. 243, the new Health Choices Commissioner is directed to consult with NAIC in the development of standards relating to access to affordable coverage and consumer protections;
---Under Act Sec. 309, the NAIC would help HHS create the framework for interstate health insurance compacts (similar to the concept in the Senate version discussed at Act Sec. 1333); and
---Under Act Sec. 1173, the NAIC would help to develop standards for reporting on the administrative costs of Medicare Advantage plans.

A Second Amendment In Health Care Reform

The National Basketball Association may frown on firearms possession and use, but don’t expect a basketball wellness program to know about firearms possession, at least not if one of my favorite provisions in the Senate health reform bill becomes law.

That provision would be Sec. 2717(c)(1) of the Patient Protection and Affordable Care Act, an amendment first proposed by Sens. Charles Grassley (Iowa), Tom Coburn (Okla.), Sam Brownback (Kan.), Saxby Chambliss (Ga.), Johnny Isakson (Ga.), Lisa Murkowski (Ark.), Jim Bunning (Ken.), Robert Bennett (Utah), George LeMieux (Fla.), John Barrasso (Wyo.), and Michael Enzi (Wyo.); and later agreed to by majority leader Harry Reid (Nev.).

The provision adds to a quality of care and wellness section the following odd duck:

Protection of Second Amendment Gun Rights. Wellness and prevention programs provided by group health plans and insurers may not require the disclosure of information relating to the possession or use of lawful firearms or ammunition.

In addition, HHS is prohibited from authorizing the collection of any information or the maintaining of records relating to the following:

• lawful ownership or possession of a firearm or ammunition;


• lawful use of a firearm or ammunition;


• lawful storage of a firearm or ammunition.

The lawful possession, use, and storage of lawful firearms or ammunition also may not be used to increase health coverage premium rates, deny health insurance, or reduce or withhold wellness program discounts, rewards.

Why is this one of my favorite provisions?  Because reactions to it say a lot about how differently liberals and conservatives view the world and how difficult compromise has become.

Liberals I know (I am one of them) typically react to hearing about this provision with “Really! You are kidding, aren’t you?”

On the other hand, conservatives I know react with “Oh, sure, I understand why that’s there.”

Here’s the liberal take, from Slate Magazine.

Here’s the conservative take, from Gun Owners of America.

There is an almost palpable conservative fear of the future here, a fear of government takeovers, of confiscation of all firearms, and of an imminent socialist (if not communist) state). And there is an appalling inability of the liberals in power to allay these fears.

A health reform bill that enlarges the privatization of health care delivery, reinforces restrictions on abortion, and extends gun rights to wellness programs feels a lot like attempts to appease conservatives—attempts that clearly are failing. They also underscore the widening (and frightening) chasm between liberals and conservatives.

In 1992 Rodney King issued his iconic plea, “Can we all get along?” In health care reform, the answer is no.

Employers Take Note, Part Four: Employers Must Report Costs, FSA Distributions Are Limited To Prescribed Drugs In Health Reform

As the House and Senate leadership begin to discuss their differing health care reform proposals, Health Reform Talk continues a series examining health reform provisions that will affect employer-sponsored health plans and would take effect soon after enactment of any legislation. This series will look at features of the legislation already passed in the House (H.R. 3962) and in the Senate (H.R. 3590). These are features likely to survive in final health reform legislation and which will directly affect employers. Today, an employer requirement to report health care costs and a distribution limitation on flexible spending arrangements (FSAs) are discussed.

Health Care Cost Determinations

H.R. 3590: Sec. 9002 requires employers to identify and report the annual cost of employer-sponsored health care coverage. This cost, which excludes salary reduction amounts in an FSA, will be included on an annual W-2 and is to be determined using the cost calculation methods for COBRA continuation of coverage under IRC Sec. 4980B(f)(4).

This provision is effective for taxable years beginning after Dec. 31, 2010.

H.R. 3962: There is no similar provision in the House bill.

Distributions Restricted To Prescribed Drugs, Insulin

H.R. 3590: Sec. 9003 would limit distributions from health savings accounts under IRC Sec. 223, medical savings accounts under IRC Sec. 220, and FSAs and health reimbursement arrangements (HRAs) under IRC Sec. 106 would be limited to prescribed dugs and insulin. Existing law also allows reimbursements for over-the-counter medications.

This provision is effective for taxable years beginning after Dec. 31, 2010.

H.R. 3962: Sec. 531 contains the same limits and the same effective date as the Senate provision.

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Congress likely to play ping pong

I always thought that ping pong was a sport people played with paddles and a small ball. Some people even called it table tennis. Silly me. Now I know better. It looks increasingly likely that Congress will be playing ping pong with health reform.

After both the House and the Senate passed their own versions of health reform late in 2009, many presumed that each chamber would appoint representatives to a formal House-Senate conference committee. This committee would then iron out the differences between the two versions and come up with a final health reform bill to be voted on, yet again, by each chamber and then, at long last, sent to the President for his signature.

Now, it looks like Democratic leaders will not go the conference committee route and will instead “ping pong” (and not the game also known as table tennis). Under ping ponging, “the chambers send legislation back and forth to one another until they finally have an agreed-upon version of the bill. But even ping-ponging can take different forms and some people use the term generically to refer to any informal negotiations.” In fact, there could still be full negotiations but no formal conference.

At this point, you might be asking yourself what difference all of this makes. Formal conference committee or ping pong, who cares? Apparently, by ping ponging, instead of having a formal conference committee with all that entails, Democratic leadership can bypass a number of procedural hurdles and deliver a final bill to President Obama’s desk much more quickly than it otherwise could. In fact, some people suggest that it could all happen by late January/early February. We’ll have to wait and see about that but there’s no doubt that things could start to happen quickly now. Almost as fast as the game of ping pong itself.

Waiting Periods Limits

Among the provisions included in the Senate’s recently passed health reform bill is a limit on waiting periods for new employees to be able to enroll in a their employer’s health benefits coverage. The Senate provision, which is not included in the House bill, would prohibit group health plans from applying any waiting periods exceeding 90 days. It also would require employers with more than 50 employees to pay a $600 tax assessment for each full-time employee who must meet a waiting period of more than 60 days. Employers would have some time to comply with the waiting period limits provision, if it survives the Senate/House reconciliation process—the provision only would be effective for group health plans effective on or after Jan. 1, 2014.

Many employers currently apply waiting periods to minimize the expense involved in providing health insurance to short-term employees. According to the Kaiser Family Foundation’s Annual Employer Health Benefits 2009, waiting periods range from 30 days to six months, but the most common waiting period is 90 days and the average is just over two months.

However, 29% of workers face a waiting period of three months or more, Kaiser found. Some three-quarters of new workers face a waiting period, but new workers at small firms (those with fewer than 200 workers) are more likely than workers at larger firms to face a waiting period (80% versus 70%). Also more likely to face waiting periods are workers in the retail (93%), wholesale (88%), and, ironically, the health care industry (87%).

The longest “average” waiting periods (nearly three months) are found among workers in the agriculture/mining/construction, and the retail industries, while workers for state and local governments have the shortest average waiting period (less than two months). Workers at small firms are much more likely than workers at large firms to have a waiting period of three months (37% versus 12%), but 6% of workers at all firms have waiting periods of four or more months. But among workers at large firms, the largest proportion have either no waiting period (30% of firms) and 36% have one month.

After examining these statistics, it appears that the waiting period limits and penalties would have a greater effect on small employers that offer health insurance, an already small group, than on large employers. Small employers also are much more likely than large employers to buy health insurance, rather than to be self-insured—15% of workers iat small employers are covered under a self-funded plan, compared with 77% of workers at larger employers.

Whether or not the Senate’s waiting period provision survives in health reform, will it make much difference in extending coverage?

COBRA extension: news and predictions

Happy New Year!

As we wait for House-Senate negotiations on health reform to progress, we have news to report and predictions to offer on the COBRA continuing health coverage front.

First, the news. In late December President Obama signed legislation that extends both the duration of the COBRA premium subsidy for unemployed workers already receiving the benefit, and the period of eligibility for newly unemployed workers to receive subsidized coverage. The extension, tucked inside the Defense Appropriations Act (P.L. 111-118) became law on December 19 (scroll down to page 65 for Sec. 1010).

Under the new law, assistance eligible individuals may now receive up to 15 months of subsidized coverage, rather than the nine months of coverage provided under the American Recovery and Reinvestment Act (P.L. 111-5) enacted in February 2009. The change applies retroactively, which means that those whose benefits began to expire at the end of November 2009 may maintain uninterrupted coverage, so long as they pay the reduced premium in a timely manner.

The Act also expands the definition of "assistance eligible individual" to include those terminated involuntarily during the period that begins September 1, 2008 and ends with February 28, 2010. Under the original law, the period of eligibility ended on December 31, 2009.

And now for the prediction.



As you may recall, the House bill (H.R. 3962) touts as an "immediate" reform an expansion of COBRA benefits to help bridge the transition to near-universal coverage. Under the proposal, former employees could continue coverage under their former employer's plan until the Health Insurance Exchange is up and running (either in 2013 or 2014). Note that there's no subsidy provided for these extended benefits--employees could still have to pay up to 102% of the premium.

Back in November, we were skeptical that this provision would make it into final legislation. No comparable Senate provision exists, and employers won't relish the expanded administrative duties the provision would bring.

Now, some are suggesting it's to the Democrat's advantage to load the final package with as many "immediate" reforms as possible. Why? New taxes to help defray the cost of the reforms kick in earlier than do the market reforms and subsidized coverage. Thus, as David Herszenhorn of the New York Times reports, "some Republicans have criticized the bill as akin to legislation on a layaway plan: pay now for benefits later."

So, will this political pressure help to push the COBRA expansion into the final package? We continue to predict that it won't. If it had a chance to get 60 votes in the Senate, presumably the provision would already be in the bill.