Friday, December 17, 2010

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.

Wednesday, December 15, 2010

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.

Monday, December 13, 2010

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.

Friday, December 10, 2010

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.

Wednesday, December 8, 2010

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.

Monday, December 6, 2010

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.

Friday, December 3, 2010

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.

Wednesday, December 1, 2010

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.