Upon achievement of final health system reform legislation, McDermott Will & Emery will host a special half-day web-based program in early 2010. McDermott's distinguished health care and employee benefits lawyers will identify your business' most urgent and significant concerns under the legislation. Our focus will be to assist your strategic decision making in the immediate aftermath of this historic legislation.
More information will be available soon.
The Facts
On January 14, 2010, congressional leaders and the White House announced that they had reached a compromise with labor unions to proceed with the excise tax on so-called Cadillac, or high-cost, health plans. The excise tax was included in the Patient Protection and Affordable Care Act (H.R. 3590) passed by the Senate. The provisions of that bill called for a 40 percent excise tax on insurance companies and plan administrators for any employer-sponsored health coverage whose value exceeded $8,500 per year for individuals and $23,000 for families. The tax was to take effect in 2013.
The compromise reached last week with the labor unions dictates that the thresholds for the tax will be slightly higher than in the Senate bill—$8,900 for individuals and $24,000 for families. These threshold levels would be increased based upon age, gender and geography to prevent the tax from disproportionately affecting people in high-cost groups. Additionally, starting in 2015, dental and vision coverage will not contribute to the thresholds. Most importantly for the labor unions and their employers, the new compromise exempts collectively bargained health plans and state and local government employees from the tax until 2018. This exception was made to accommodate for the fact that many unions negotiated better health benefits for their members at the expense of wage increases.
The tax is expected to raise $90 billion in revenue over the next 10 years. By contrast, the original Senate bill would have raised $149 billion over 10 years.
What’s at Stake
Businesses with high-cost health care plans hiring non-union employees would feel the effects as early as 2013 under this compromise proposal. Businesses with collectively bargained health care plans are likely to benefit from the exemption from the excise tax until 2018, which gives unions time to renegotiate their agreements with employers.
Steps to Consider
Businesses should evaluate their health care plans to determine to what extent they will be affected by this tax. Insurers should assess the impact of the tax on the coverage they offer.
The Facts
Both the recently passed Senate and House health care reform bills contain provisions that affect retiree health benefits. Both bills remove the tax exemption for Medicare Part D subsidies received by employers who provide retiree prescription drug coverage. In addition, the House bill prohibits employers from changing a retiree’s available benefits once the individual has retired, and the Senate bill contains a 40 percent excise tax on retiree health benefits that exceed certain thresholds ($9,850 for single coverage and $26,000 for family coverage). Both bills decrease the Medicare prescription drug coverage gap by $500 (with the House bill completely eliminating the gap by 2019) and provide a 50 percent discount on brand-name drugs to retirees affected by the coverage gap.
What’s at Stake
These provisions have the potential to decrease employer-provided retiree health and prescription drug benefits. Employers will find it much more expensive to provide these benefits without the tax exemption for the prescription drug coverage subsidy and with the threat of a 40 percent excise tax on health coverage beyond the stated threshold. This extra cost may serve as a deterrent to providing such benefits. In addition, the inability to alter the benefits offered to retirees provides an incentive to decrease or eliminate retiree benefits so employers are not obligated to provide such coverage indefinitely. Further, the reduction in the Medicare coverage gap and discount on drugs will influence employers to eliminate prescription drug coverage because these increases bring the Medicare drug benefit to a level closer to that of employer-provided coverage.
Steps to Consider
The Facts
Both the Senate and House health reform bills would impose Medical Loss Ratio (MLR) requirements on insurers. MLR measures the percentage of an insurer’s premium revenue spent on health care services. In the House bill, the Secretary of HHS would have to establish the MLR at or above 85 percent. Any issuer with a lower MLR would have to provide “rebates to enrollees of the amount by which the issuer’s medical loss ratio is less than the level so specified.” The House bill also would impose MLR requirements on Managed Care Organizations (MCOs) and Medicare Advantage Plans (MA Plans). The Senate bill is less onerous for insurers because the MLR is currently set at 80 percent and state taxes would be excluded from the MLR determination. Note, however, that potential revisions to the Senate bill reportedly include a 90 percent MLR. In the House bill, the MLR provision would expire January 1, 2013 (excepting the MA Plan and MCO requirements), while the Senate’s would remain in effect until December 31, 2013.
What’s at Stake
Health insurance issuers could potentially be forced to provide significant rebates. The cost of these rebates will greatly depend on which costs are excluded from the MLR determination. Also, the MLR provisions in the House bill applicable to MA Plans and MCOs have no sunset provisions, thus increasing their potential long-term impact.
Steps to Consider
The Facts
The Senate health care bill, the Patient Protection and Affordable Care Act, includes provisions (detailed in Sections 6301 and 6302) establishing a nonprofit corporation, the Patient-Centered Outcomes Research Institute (PCORI). The PCORI will conduct research and disseminate findings with respect to “the relative health outcomes, clinical effectiveness, and appropriateness” of medical treatments, services and items. The PCORI will not be permitted “to mandate coverage, reimbursement, or other policies for any public or private payer.” However, the government may use comparative clinical effectiveness research in coverage decisions “if such use [of the research] is through an iterative and transparent process which includes public comment and considers the effect on subpopulations” and under other constraints.
What’s at Stake
Regardless of whether this particular bill is passed, comparative effectiveness research is likely to become an ever greater part of how government determines whether and what it will choose to reimburse. Companies with a stake in governmental reimbursement will need to be aware of the direction of comparative effectiveness research and be prepared to justify services and products on that basis.
Steps to Consider
The Facts
Health reform legislation approved by the House would extend COBRA coverage until the earlier date on which a COBRA-eligible individual becomes eligible for coverage under an employer plan, or is eligible for coverage under a plan offered in an insurance exchange. Under current COBRA rules, COBRA-eligible individuals may elect COBRA for up to 18 months based on the employee’s termination of employment or loss of coverage due to a reduction in the employee’s work hours, or up to 36 months for divorce, death or loss of dependent eligibility. The reform bill would not extend the 65 percent COBRA subsidy program that is scheduled to sunset December 31, 2009, although other legislation pending in the House (H.R. 3930) and Senate (S. 2730) would extend and expand this subsidy. President Obama supports extending the COBRA subsidy.
H.R. 3930 would extend the eligibility period to June 30, 2010, and would increase the maximum period of the subsidy from nine to 15 months. H.R. 3930 would not increase the amount of the government subsidy beyond 65 percent or expand the eligibility criteria, but it would extend the current 18-month period of COBRA coverage to 24 months for eligible individuals terminated from employment between April 1, 2009, and December 31, 2009. S. 2730 also would extend the subsidy period but would additionally increase the subsidy amount from 65 percent to 75 percent of the COBRA premium. S. 27390 would expand eligibility for the subsidy to include workers who experience a loss of health coverage as a result of an involuntary reduction in hours.
What’s at Stake
Because COBRA is typically elected by less healthy participants, extending COBRA beyond the typical 18-month period and increasing the government subsidy may drive up the cost to group health plans for this extended coverage.
Steps to Consider
Although it is unclear whether these COBRA extensions and expansions will be added to the health reform legislation, group health plans should carefully monitor developments and plan for the possibility of these changes.
The Facts
While the reform plan unveiled on November 18, 2009, by Senate Majority Leader Harry Reid (D-NV) contains revenue-raising provisions that closely track those of the Senate Finance Committee bill put forth by Chairman Max Baucus (D-MT), the Reid bill also includes new revenue raisers not seen in earlier versions of either Senate or House reform proposals. Like the Senate Finance bill, Reid’s bill relies most heavily on a 40 percent excise tax on “Cadillac” policies. By contrast, the House bill would impose no such excise tax, instead relying primarily on a 5.4 percent income tax hike on high-earning individuals. Reid’s bill incorporates all three sector excise taxes from the Senate Finance bill, with annual levies of $2 billion on medical device manufacturers, $6.7 billion on health insurers, and $2.3 billion on branded pharmaceutical manufacturers. By contrast, the House bill imposes only a 2.5 percent excise tax on medical devices. The Reid Bill has several provisions in common with both the House and Senate Finance bills:
Reid’s bill adds several new revenue raisers present in neither the Senate Finance nor the House bills:
Unlike the House Bill, the Reid bill lacks provisions codifying the economic substance doctrine, repealing the reform of interest allocation for multinationals, limiting tax treaty benefits or excluding “black liquor” from the cellulosic biofuel tax credit.
What’s at Stake
The tax impact of the Senate bill will fall mostly on health-care-related sectors, while the House bill would have more effect on businesses far removed from health care.
Steps to Consider
All businesses should carefully monitor the progress of the health reform debate and consider the possible impact of competing revenue raising proposals.
The Facts
Both the House health reform bill, H.R. 3962 (Affordable Health Care for America Act), and the Senate version (Patient Protection and Affordable Care Act), include provisions (House Section 1301 and Senate Section 3022) establishing Accountable Care Organizations (ACOs). ACOs are provider-centric organizations focused on the costs and quality of care received by a designated population of patients over time. ACOs can consist of vertically and horizontally positioned providers, including physician groups and hospitals. In its most basic concept, although paid on a fee-for-service basis, ACOs that meet quality-of-care targets and reduce the aggregate costs of care rendered to their patient population relative to a spending benchmark are rewarded with a share of the savings they achieve for the Medicare program.
What’s at Stake
Regardless of whether health reform legislation is passed, providers will be increasingly challenged to adopt operating models through which they are responsible and accountable for the quality, cost and overall care of a defined population of patients. Emphasis will be placed on clinical processes and outcomes, the patient care experience and utilization.
Steps to Consider
The Facts
On October 30, 2009, the U.S. Department of Health and Human Services issued an Interim Final Rule (the Rule) to amend the existing administrative simplification enforcement regulations adopted pursuant to the Health Insurance Portability and Accountability Act of 1996 (HIPAA). The Rule implements amendments to HIPAA made by the Health Information Technology for Economic and Clinical Health Act (HITECH Act) enacted as part of the American Recovery and Reinvestment Act of 2009. Prior to enactment of the HITECH Act, covered entities under HIPAA (health care providers that conduct certain transactions in electronic form, health plans and health care clearinghouses) were subject to HIPAA civil money penalties of up to $100 per violation, with an annual cap of $25,000 for identical violations within a calendar year. The Rule preserves this structure for violations occurring prior to February 18, 2009. Violations occurring on or after February 18, 2009 are subject to a new penalties scheme, which ranges from a minimum per-offense penalty of $100 to $50,000, depending on the level of culpability. The Rule also increases the annual cap for identical violations from $25,000 to $1.5 million, and alters the available affirmative defenses to a HIPAA enforcement action. Business associates are directly subject to the new enforcement scheme beginning February 17, 2010. HIPAA’s criminal penalties remain unchanged.
What’s at Stake
The new HIPAA civil money penalties scheme that will be enforced under the Rule substantially increases the potential penalties for HIPAA violations by covered entities occurring on or after February 18, 2009. Business associates will be directly subject to HIPAA, including the new enforcement scheme, for the first time beginning February 17, 2010. Prior to February 17, 2010, business associates are only subject to HIPAA requirements through contracts with covered entities.
Steps to Consider
Covered entities and business associates should review their current HIPAA compliance policies and procedures to ensure they are meeting amended requirements. Business associates that previously lacked HIPAA privacy and security policies and procedures should implement policies and train their work force. McDermott has prepared HIPAA privacy policies and forms for covered entities and business associates. A preview of the manual's table of contents for covered entities can be viewed here, and the business associates table of contents can be viewed here.
The Facts
On November 18, 2009, Senate Majority Leader Harry Reid of Nevada put forth the Democrats’ health reform plan, the Patient Protection and Affordable Care Act. The more than 2,000 page bill was crafted by merging, tweaking and augmenting health reform legislation approved by the Senate Finance Committee in October and the Senate Committee on Health, Education, Labor and Pensions in July. Set forth below are some of the bill’s principal provisions.
What’s at Stake
Given the sweeping nature of the bill, every aspect of health care in the United States would be affected.
Steps to Consider
The Facts
The Senate’s Patient Protection and Affordable Care Act mirrors the Senate Finance Committee’s proposal to modify local Medicare Advantage (MA) Plan payments by moving to an enrollment-weighted average competitive bidding system.
Currently, local benchmarks reflect Adjusted Community Rate for each county, as updated annually over the past several years. To calculate Plan payments, MA Organizations annually submit bids for their plan benefit packages that are compared to the benchmark for the county/counties in the Plan’s service area.
Under the Senate bill, by CY 2015, benchmarks would equal enrollment-weighted averages of local MA Plan bids for the service area. A ceiling would be established in each area so that local benchmarks could not exceed the levels that would have existed under current law.
What’s at Stake
The Senate proposal is markedly different from H.R. 3962, which would phase in benchmarks equal to the adjusted average per capita cost estimate payable under traditional Fee-For-Service Medicare. Importantly, the House bill would initiate the transition beginning with the 2011 benefit year, as compared to the Senate proposal, which would initiate the transition with the 2012 benefit year.
Steps to Consider
The Senate bill is estimated to reduce MA Plan payments by $118 billion between 2010 and 2019, the traditional 10-year cost estimate period. The Congressional Budget Office estimates that H.R. 3962 would reduce MA Plan payments by $170 billion in the same period.
In anticipation of these reforms, MA Organizations should begin to analyze their plan benefit packages, provider payment arrangements and member populations, and to discern the extent to which they can modify operations and/or develop and implement new initiatives.
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