Volume I, Issue 12 – November 4

UnitedHealth Group is pleased to bring you this issue of the Health Care Modernization News Flash to update you on health care issues under discussion in Washington, D.C. and in the states, and to share our perspectives on modernization of the health care system.  

Our Perspective

National Spotlight

House Releases Merged Health Reform Bill

On October 29th, leadership in the House of Representatives released a bill entitled the “Affordable Health Care for America Act” that merges legislation passed in July by the three House committees (Education and Labor, Energy and Commerce, and Ways and Means) with jurisdiction over health reform.  The CBO estimates that this bill will cost $894 billion over ten years and cover 36 million of the 54 million uninsured. To pay for the cost of the bill, the Committee places a 5.4% surcharge on adjusted gross income above $1 million for married couples and $500,000 for singles, reduces provider payment rates under Medicare, reduces spending for the Medicare Advantage program, obtains prescription drug rebates and discounts for Medicaid and Medicare Part D from pharmaceutical companies, places a 2.5% sales tax on medical devices, and makes changes to HSA and FSA rules. House leadership has stated that floor debate on the bill will likely start later this week or early next week. Details of the House bill include:

• Insurance Market Rules Effective in 2010:  Several insurance market rules take effect in 2010, including government review of health plan premiums and a requirement that 85% of premiums be spent on medical care, prohibition of lifetime benefit limits for individual and group plans, a requirement that health plans cover children as dependents through the age of 26, and prohibition of coverage cancellation or rescission except in cases of fraud. Prior to the implementation of new market rules and the Exchange in 2013, the House bill also establishes interim provisions between 2010 and 2013 that extend COBRA eligibility, shorten the pre-existing condition “look back” period to one month and the benefit exclusion period to three months, and establish high risk pool provisions for individuals who can not obtain coverage due to health status or a pre-existing condition.
• Insurance Market Rules Effective in 2013:  Beginning in 2013, the House bill makes additional insurance market changes that require guarantee issue and renewal of coverage, prohibit pre-existing condition exclusions and premium variation based on health status, and allow premium variation only for age, family size, and geographic area. The new market rules apply to all health plans inside and outside the Exchange.  Starting in 2015, states could pass legislation to form “Health Care Choice Compacts” to allow the purchase of individual insurance across state lines.
• Public Plan and CO-OPs:  The House bill establishes a national public plan in 2013 to compete with private insurers in the Exchange. Provider rates for the public plan would be negotiated and providers are presumed to participate unless they opt-out.  The House bill also provides start-up funding to states to establish not-for-profit member-governed cooperative health plans (CO-OPs) to compete with private insurers and the public plan in the Exchange. CO-OPs and the public plan must comply with the same rules as other plans in the Exchange.  States are not required to establish CO-OPs.
• Exchange:  A national health insurance “Exchange” is established in 2013 and would be operated by a new federal agency, the “Health Choices Administration (HCA).” The Exchange is designed to serve as a facilitator of comparison shopping, enrollment, and subsidy administration, a regulator of plan standards and rules, and a negotiator of premiums and contracts with health plans. All individuals who purchase coverage outside the group market or whose premiums are more than 12% of income (and are not eligible for Medicare or Medicaid) are eligible to purchase coverage through the Exchange.  Participation in the Exchange is voluntary, but no individual market exists outside the Exchange except for “grandfathered plans.”  Employers can purchase coverage through the Exchange if they have up to 25 employees in 2013, up to 50 employees in 2014, and up to 100 employees in 2015 (with the potential to open participation to all groups starting in 2015).
• Benefit Plans:  In 2013, individuals have a choice of four plan types including “Basic” (70% actuarial value), “Standard” (85% actuarial value), “Premium” (95% actuarial value), and “Premium Plus” (value over 95%). A new independent “Benefits Advisory Committee” is created to define and update the requirements for the minimum benefit plan or “Basic Plan.”  Plans are prohibited from having annual or lifetime benefit limits or establishing cost sharing above $5,000 individual/$10,000 family. Plans are required to cover a list of specified mandated benefits, but states may establish additional benefit rules. Individuals may keep their current coverage (“grandfathered plans”) instead of enrolling in one of the four new plans, as long as no change is made in cost-sharing, contract terms, or benefit levels.  Employers are required to at least meet the requirements of the “Basic Plan” by 2018.
• Coverage Mandates, Penalties, and Subsidies:  Beginning in 2013, individuals are required to have health insurance coverage that is either a “grandfathered plan,” a government plan (Medicaid, Medicare, and the like), an employer-based plan (until 2018), or an individual or group plan that meets or exceeds the qualifications of the federally-defined minimum benefit plan (“Basic Plan”), or pay a 2.5% of income tax penalty. Waivers are allowed for Native Americans, those with religious objections, dependents, and individuals with a financial hardship defined as premiums over 12% of income.  Individuals up to 400% of the federal poverty level ($88,000 for a family of four) are eligible for sliding scale premium and cost-sharing subsidies. In 2013, employers with an annual payroll over $500,000 are required to offer health insurance coverage to their employees or pay an 8% of payroll tax penalty. Employers must pay 72.5% for single and 65% for family coverage of the lowest cost qualified plan to avoid the penalty. Employers are also subject to the penalty for employees in the Exchange obtaining subsidies if the cost of employer-based coverage is higher than 12% of the employee’s income. Employers with an average wage below $40,000 and 25 or fewer employees are eligible for up to a 50% premium credit for two years.
• Medicaid and the Children’s Health Insurance Program (CHIP):  Medicaid eligibility is expanded to 150% of the federal poverty level for all individuals in 2013 with full federal funding of the expansion in 2013 and 2014 and 91% federal funding to states starting in 2015. States are required to maintain existing Medicaid eligibility; states are also required to maintain CHIP eligibility, but only until 2013 when CHIP beneficiaries will get coverage through the Exchange. The bill also extends enhanced federal Medicaid funding from the stimulus bill (ARRA) to states until June 2011.
• Medicare:  The House bill reduces payments for Medicare Advantage to 100% of Medicare fee-for-service spending by 2013 and establishes quality bonuses for plans with high quality scores in markets with low Medicare fee-for-service spending and high Medicare Advantage enrollment.  By 2019, the “donut hole” or coverage gap under Part D is eliminated. Pharmaceutical manufacturers are to provide a 50% discount for brand name drugs purchased in the “donut hole” and HHS is required to negotiate directly with manufacturers for Part D drug pricing. The income subsidy exclusion for employers who maintain prescription drug plans for Part D eligible retirees is eliminated. The House bill also creates pilot programs for coordinated care delivery models, establishes a new “Center for Medicare and Medicaid Innovation” to test and implement new provider payment methods, and changes payment incentives to reduce hospital readmissions. Annual provider payment updates are reduced for Medicare Part A and Part B and the Institute of Medicine is instructed to study geographic variation in payment rates and recommend changes.

CMS Actuary Estimates Cost and Coverage Impact of House Health Reform Legislation

In late October, the Chief Actuary for the Centers for Medicare and Medicaid Services (CMS) released a report analyzing the cost and coverage impacts of health reform legislation debated in July by the three House committees with jurisdiction over health reform.  The report states that total national health expenditures will increase under the House language and that “demand for health services could be difficult to meet initially with existing health provider resources and could lead to price increases, cost-shifting, and/or changes in providers’ willingness to treat patients with low-reimbursement health coverage.”  The CMS Actuary also states that the language does little to contain health care cost growth, “With the exception of the proposed reductions in Medicare payment updates for institutional providers, the provisions of H.R. 3200 would not have a significant impact on future health care cost growth rates.”  In addition to analyzing the impact of the House legislation on costs, the CMS actuary estimates the impact on coverage for Medicare beneficiaries, stating that the reduction in Medicare Advantage rates to 100% of Medicare fee-for-service would result in less generous benefit packages and enrollment in Medicare Advantage plans would decrease by 64%.

State Spotlight

Republicans Win Races in New Jersey, New York, and Virginia

In an off-year election with few offices up for election, Republicans won various state offices in New Jersey, New York, and Virginia.  In New Jersey, Republican Chris Christie beat incumbent Democratic Governor Jon Corzine. In New York City, Republican/Independent Mayor Michael Bloomberg won re-election. In Virginia, Republicans took the state with the election of Robert McDonnell for Governor, Bill Bolling for Lieutenant Governor, Ken Cuccinelli for Attorney General, and an increase in seats in the House of Delegates.  

Massachusetts: Connector Releases Annual Report Evaluating 2006 Health Reform Law

The Massachusetts Health Connector recently released its 2009 annual report to the State Legislature on the implementation of the health reform law enacted in 2006.  The report found that over 97% of residents have health insurance coverage (up from 93% prior to the reforms) and that 45% of the newly insured obtained coverage through the private employer or non-group market. Over 60% of the remaining uninsured are under the age of 40 and they are more likely to be single, low-income, male, and Hispanic. Over 98% of taxpayers are complying with state law requiring proof of health insurance coverage on income tax returns; among the 5% of filers without health insurance coverage, roughly 37% meet the affordability standard exempting them from the coverage requirement. The report also provides information on public support for the health reform law.  In a September 2009 survey, 59% of residents express support for the state health reform law, down from 69% in 2008 and 67% in 2007. Approximately 60% of residents want additional changes to the law; most focusing on the need to lower health care costs.

Massachusetts: Governor Announces Initiatives to Address Rising Small Employer Premiums

Governor Patrick recently announced several initiatives to reduce rising small employer health insurance premiums.  The Governor intends to introduce legislation next session that will require approval of small employer premium rates, give the Division of Insurance authority to eliminate unnecessary administrative costs in the small group market, and create small group purchasing cooperatives to allow small employers to pool together to form a larger group for purchasing coverage. Governor Patrick also announced that he is directing the Division of Insurance to hold hearings in November and December to discuss the structure and potential impact of purchasing cooperatives and to examine current insurer cost containment measures and future steps that may be needed to reduce premium increases in the small group market.  

Maryland: State Issues Report Estimating the Impact of Federal Health Reform Legislation

The Maryland Department of Legislative Services (DLS) has issued a preliminary report to the State Legislature on the impact of federal health reform legislation under debate in the House and Senate on the Maryland Medicaid program. Expansion of Medicaid eligibility to all individuals under 133% of the federal poverty level is estimated to cover 29% of the uninsured in Maryland. The DLS estimates that up to $283 million in additional state funds will be needed in fiscal year 2014 to comply with the new Medicaid provisions under discussion.  

California: Governor Takes Action on Health Care Bills

California recently ended its 2009 Legislative Session with Gubernatorial action on numerous health care bills related to underwriting, rescission, and benefit mandates.  The Governor signed legislation prohibiting insurers from establishing any premium variation based on gender and amending penalties for unlawful post-claim underwriting practices. Two of three rescission bills were vetoed by the Governor that would have established a system of third party review and new disclosure requirements; the Governor signed a bill prohibiting insurers from rescinding policies for any reason, or from canceling, limiting, or raising premiums after 24 months. Governor Schwarzenegger also signed one benefit mandate bill requiring coverage for reconstructive dental and orthodontic services for cleft palate, but vetoed all other benefit mandate bills passed by the Legislature, including mandates for maternity coverage, expansion of mental health parity, and pharmacy benefit coverage for chemotherapy services.

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