Health Care Law Reform : Health Care Lawyer & Attorney : McDermott Will & Emery Law Firm : Managed Care, Product Regulations

The Facts

The most recent markup of the health care reform plan put forth by Senator Max Baucus (D-MT), Chair of the Senate Finance Committee, contains a new $6.7 billion annual sector fee imposed on health insurers. Starting in 2010—well before the individual coverage mandate would go into effect—each affected insurer would pay a portion of the sector fee corresponding to its market share, measured by net health insurance premiums.  The fee would hit not only traditional for-profit insurers, but also tax-exempt organizations, such as fraternal beneficiary societies, that provide health insurance.  Only two forms of health insurance would be exempted:  insurance directly offered by government entities, and businesses’ self-insurance of their employees’ health risks.

What’s at Stake

• The costs of private insurance would likely increase as a result of this fee and other features of the proposed legislation, such as the proposed tax on high-priced "Cadillac" policies.   
• The fee would not be tax deductible, thus magnifying its after-tax effect.
• Businesses that currently buy private insurance for their employees may find it more cost-effective to self-insure.

Steps To Consider

Affected entities should carefully evaluate this fee’s potential impact.  In particular, insurers should consider their current and projected market share, as well as their elasticity of demand, which would determine their ability to pass on this fee.

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The Facts

On July 31, 2009, the House Energy and Commerce Committee approved HR 3200, the America’s Affordable Health Choices Act, by a 31-28 vote. Five Democrats joined all committee Republicans in voting against the measure. Passage followed lengthy negotiations with Democrats on the committee, first with fiscally conservative “Blue Dog” Democrats and then with liberal Democrats in the Congressional Progressive Caucus. Modifications to the underlying bill include the following:

• Requirements that a new public health insurance option must use a formulary and must negotiate payment rates with providers rather than setting rates at 5 percent above Medicare payment levels
• A requirement that insurers selling plans in the new health insurance exchange obtain government approval for premium increases exceeding 150 percent of the annual medical inflation increase
• A provision allowing the Secretary of Health and Human Services to negotiate drug prices with pharmaceutical companies under the Part D prescription drug benefit
• A provision allowing 12 years of market exclusivity for new brand name biologic drugs
• An increase in the small businesses exemption from “pay or play” requirements (the new penalties will be phased in, beginning at 2 percent for businesses with annual payrolls of $500,000 to $585,000, rising gradually to 8 percent for businesses with payrolls over $750,000)
• An expansion of the accountable care organization pilot program to include Medicaid

What’s at Stake

All three House committees with jurisdiction have now approved systemic health reform legislation. The three work products will be merged, and House floor action will occur after the congressional recess, which ends September 7, 2009. This means that systemic health reform is moving forward, although the Energy and Commerce Committee experience demonstrated that the fractious Democratic Caucus in the House has not yet coalesced around a shared vision for health reform legislation. 

Steps to Consider

Examine the legislation approved by the three House committees and the Senate HELP Committee, and assess the impact on your operation. Consider attending your legislators’ home state town hall meetings on health reform during the recess. Continually evaluate ongoing business decisions in light of the direction health reform is taking.

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The Facts

Draft health care reform bills circulating on Capitol Hill would seek to expand access to health insurance by creating “health insurance exchanges” or “gateways” (Exchanges) at the state or local level. Qualified individuals and small businesses could purchase health insurance offered by a private entity participating in an Exchange, or, if adopted, a public plan option.

• Covering essential benefits:   The draft House “Tri-Committee” bill released on June 19, 2009, would require qualified health benefits plans to cover “essential” benefits through defined benefit packages that would vary by the insured’s cost-sharing obligation. Plan sponsors could elect to offer benefit plans that include additional benefits, such as vision care. The amended Senate bill proposed by Democrats on the HELP Committee would permit sponsors of qualified health plans to provide “essential” benefits through benefit plans with one of three cost-sharing variations. States could require these plans to cover additional benefits.
• Sponsors of Qualifying Health Plans:  Both bills anticipate that private entities (including health insurers and HMOs) would participate in the Exchanges by sponsoring these qualified health plans. The House bill contemplates a bidding process with selected entities entering into a minimum one-year contract to offer plans in the Exchanges. The Senate bill would authorize the Exchanges’ administrators to permit participation of “certified” sponsors that are “determined” to offer plan(s) that are “in the interests of qualified individuals and qualified employers.”

What’s at Stake

For health care providers, whether their services would be part of the “essential” benefits defined for these qualifying health plans, and the terms and conditions (including payment) of participation will be key. For health insurers and other managed care organizations, a significant question is the extent to which the conditions of participation in the Exchanges—including mandatory acceptance of all enrollees and participation in the risk-pooling mechanism established for the Exchanges—affect the ability to offer the essential benefits (and any permissible additional benefits) at an affordable rate. 

The role of a public plan option, if any, will be critical for all potential participants.

Steps to Consider

Both bills offer general parameters for defining the “essential” benefits, setting provider network requirements, and adopting criteria for qualifying health plan sponsors. The details, however, likely will be addressed through the administrative rulemaking process, albeit in accordance with any requirements included in the final legislation.

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The Facts
In May 2009, the leadership of the Senate Finance Committee announced a set of options for financing a mammoth health care reform proposal, including capping the exclusion from income for health insurance, reducing the tax benefits of flexible spending accounts and health savings accounts, and limiting the definition of qualified medical expenses. Under current tax laws, employer contributions towards health insurance and health care for active and retired employees are excluded from an individual’s income and employment taxes. The Senate Finance Committee proposals would limit these tax exclusions in several important ways:

• Place a cap on the income tax exclusion for employer provided health insurance based on various indices, with some proposals phased out for taxpayers with high adjusted gross incomes (AGI)
• Repeal the Code Section 213 deduction for medical expenses in excess of 7.5 percent of AGI
• Eliminate the exclusion from income and employment taxes for contributions made through health flexible spending accounts and health reimbursement arrangements

What’s at Stake
The Congress’ Joint Committee on Taxation estimated that as stand-alone proposals, each of the proposals would result in a reduction in the number of people receiving employer sponsored health insurance in the range of 10 to 12 million people based on a full repeal of the tax exclusions, and in the range of one million people if the tax exclusions for health insurance were to be capped. Of course, the outcome could be different if the tax proposals were included as part of a comprehensive reform of the health care system. 

Steps to Consider
Employers should analyze the impact of these proposals on the group health plans they sponsor for employees. Employers should also consider analyzing the effect of these proposed tax changes on additional employee income and employment taxes. 

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The Facts
This week Senator Edward Kennedy (D-MA), chairman of one of two Senate Committees with responsibility for advancing a health care reform proposal, released the first comprehensive draft of health care reform legislation, the Affordable Health Choices Act.  Note that final decisions on such critical issues as a public plan and an employer coverage mandate are described in the bill merely as “policy under discussion.”  Below are selected highlights of the draft: 

• Creates state-based insurance exchanges called “American Health Benefit Gateways”
• Requires insurers to report expenditures to the government, which could trigger mandatory rebates to plan members
• Stipulates that insurance premiums may only vary based on family structure, community rating, the actuarial value of the benefit and age 
• Prohibits pre-existing conditions exclusions
• Requires guaranteed availability and renewability of coverage
• Prohibits lifetime or annual limits on coverage
• Mandates individual coverage, with certain exceptions
• Significantly expands Medicaid

What’s at Stake
Senator Kennedy’s decision to table inclusion of a public plan and employer mandate reflects his effort to leave ground for forging a compromise with Republicans.  However, Senate Republicans continue to vociferously object to the public plan, and many other elements of the Kennedy proposal.  President Obama, sensing the rocky debut of the first health reform bill, summoned Senate leaders June 10, 2009, to the White House, where he reiterated his insistence that a bipartisan bill be achieved this year and made clear his flexibility on all aspects of the legislation.

Steps to Consider
Evaluate how reform proposals may require changes in the operations of your organization, and consider working with policy makers and key stakeholders to shape the ultimate outcome of health reform.

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The Facts
House Democrats released the broad parameters of their comprehensive health reform bill June 8, 2009.  The three House committees with jurisdiction over health reform plan to work from this common framework to develop a systemic reform proposal.  Click here for a health reform timeline.  Below are highlights of the plan: 

• Protects current coverage and preserves choice of doctors, hospitals and plans
• Creates a new national health insurance plan
• Creates a national health insurance exchange and allows for regional or state exchanges
• Initiates delivery system reforms, such as accountable care organizations, to incentivize quality and restrain health spending growth
• Imposes individual coverage requirement and employer “pay or play”
• Prohibits insurers from excluding pre-existing conditions and forbids rating based on gender, health status or occupation, and limits premium variation based on age 
• Reforms Medicare’s sustainable growth rate formula for physician payment
• Eliminates perceived overpayments to Medicare Advantage Plans

What’s at Stake
Reporting out a House bill by the August recess is at stake. While the House Democrats have united the three key House committees in producing this common framework, considerable dissension within the Democratic party remains.  A core area of disagreement is whether to include a public plan.  Pressure to achieve reform this year is considerable, as the Democrats do not want to risk spilling into next year’s congressional cycle.

Steps to Consider
Providers should assess the impact of a public plan option and expanded coverage, among other proposals.  Insurers should examine the impact of a Medicare-like public plan option on provider payments and the ultimate competitiveness of private plans, review the concept of the insurance exchange and assess the business impact of the proposed new insurance market reforms.  Insurers that act as Medicare Advantage Plans should monitor proposals to reduce payments.  Both providers and insurers should assess the potential impact of accountable care organizations.  Finally, employers should carefully monitor “pay or play” proposals and prepare to adapt to potential requirements.

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