Health Care Reform Blog : Health Care Law Reform : McDermott Will & Emery Law Firm

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

• Follow the legislation closely because it is a very fluid process, and assess its impact.
• Understand the impact of the proposed MLR requirements and be prepared to adapt quickly to their requirements.
• Closely analyze which details are left to the Secretary of HHS to define by regulation. The rulemaking process will provide an opportunity for advocacy, should MLR provisions be enacted.

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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

• Evaluate whether the products and services you offer have a comparative advantage over other products or services promising the same outcome. 
• Evaluate what the clinical basis is for your comparative advantage, including any effect on subpopulations.
• Keep informed about the direction of the PCORI’s research agenda and initiatives to decide whether your area is under review.
• Be prepared to establish comparative clinical effectiveness if the PCORI’s research does not agree with the results of your own research on your products or services.
• Be prepared to participate in the public comment and review process if the government chooses to use comparative effectiveness in its coverage decisions, as allowed.

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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.

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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:

• Placing new restrictions on Health Savings Accounts, including capping them at $2,500 per year
• Eliminating the deduction for expenses allocable to Medicare Part D prescription drug plans for retirees
• Requiring information reporting on most payments over $600 to corporations

Reid’s bill adds several new revenue raisers present in neither the Senate Finance nor the House bills: 

• A 0.5 percent increase in the Medicare tax rate on taxpayers earning over $200,000 (or $250,000 for joint-filers)
• A 5 percent excise tax on elective cosmetic surgery
• Denying a deduction for compensation exceeding $500,000 for executives at insurers

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.

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