Health Care Reform Update 12/09/09
The Senate Democratic leadership has released HR 3590, the 2,074-page Patient Protection and Affordable Care Act. The bill combines the Senate Health, Education, Labor, and Pensions (HELP) Committee bill marked up this summer and the Senate Finance Committee bill marked up earlier this fall. On the whole, the combined bill resembles the Finance bill more closely than the HELP bill, but it does include important elements from the HELP bill, the most prominent of which is provision for the community health insurance (public) option – though currently there is a great deal of debate looking to modify this option to get to the needed 60 votes for passage.
Most recently, Democratic Senate negotiators struck a tentative agreement to drop the controversial government-run insurance plan from their overhaul of the health-care system, hoping to remove a last major roadblock preventing the bill from moving to a final vote in the chamber." The Post reports that the deal would allow the government's Office of Personnel Management to negotiate with insurers to create private, national plans much like those available to federal employees. It would also open Medicare to some people 55 to 64 years old.
As has been widely reported, the CBO(Congressional Budget Office) has scored the gross cost of the coverage provisions of the Senate bill at $848 billion over 10 years, less than the cost of the House bill, and as reducing the budget deficit by $130 billion over 10 years. The CBO also projects that the bill would reduce the number of uninsured by 31 million by 2019, leaving 24 million nonelderly Americans uninsured. The bill would cover 92% of the nonelderly population–94% of the nonelderly population excluding unauthorized immigrants.
The two areas of greatest concern for Volunteers of America and its affiliates would be the mandated requirements as an employer and opportunities or cuts to vital funding areas – including Medicare and Medicaid programs.
The Individual and Employer Mandates
Individuals are required to maintain “minimal essential coverage” under HR 3590. This can be public insurance (Medicare, Medicaid, VA, etc.), individual coverage purchased through or outside of the exchange, employment-based coverage, or grandfathered coverage. Individuals who are not covered face a penalty of $95 in 2014, $350 in 2015, and $750 in 2016 and indexed thereafter. An additional penalty equal to half the penalty amount is imposed for each uninsured dependent of an individual up to 300% of the normal penalty.
Excepted from the individual coverage requirement are persons who belong to religious groups that object to insurance (such as the Amish), individuals not lawfully present in the United States, persons who belong to religious sharing ministries, and incarcerated individuals. The penalty does not apply to persons who have to pay more than 8% of their income for insurance after applying the affordability credits, those uninsured for less than three months, persons with incomes under 100% of poverty, members of Indian tribes, and persons who receive a hardship waiver. A person who refuses to pay the penalty cannot be criminally prosecuted.
The penalty is calculated differently than that in the House bill. The House penalty is 2.5% of income above the filing limit (currently $8,350 for a single person, $18,700 for a married couple filing jointly) up to the average cost of a basic insurance policy. It would seem that the penalty would be higher under the Senate bill for lower-income persons, lower for higher-income persons. The CBO scores the Senate penalty as producing $8 billion in revenue, the House, $33 billion.
The Senate bill asserts that it does not have an employer mandate. Employers who do not insure their employees, however, face stiff penalties. Employers who have more than 50 employees who do not offer health insurance and who have at least one full-time employee who receives a premium assistance tax credit must pay an assessment of $750 times the number of its full-time employees.
An employer who offers insurance, but who has at least one full-time employee who receives a premium assistance tax credit because employment-related insurance is not affordable or adequate must pay the lesser of $3,000 for each employee who receives a credit or $750 for each full-time employee. Employers are prohibiting from firing or otherwise discriminating against employees who receive tax credits. It is hard to imagine that many large employers that do not offer health insurance coverage will have no employees earning less than 400% of poverty, so the bill effectively imposes a mandate.
Large employers who impose waiting periods in excess of 30 days before employees become eligible for insurance also face penalties; of $400 per employee for 30-60-day periods, $600 per employee for periods over 60 days. This provision will probably have a major impact on retailers and others who have high employee turnover. Employers with more than 200 employees must automatically enroll new full-time employees in insurance coverage with an opportunity to opt out. Employers must also notify employees of their potential coverage through the exchange and of the possible availability of affordability subsidies if the employment-based insurance is inadequate.
Potential Tax on Employee “Cadillac” Health Insurance Plans
Whether an employer’s benefits are subject to the tax depends on the combined cost of all medical benefits, including health, dental, vision and other benefits, such as worker and employer contributions to flexible spending or health savings accounts. Workers and employers can put pre-tax money into health savings accounts, helping cover deductibles, for example.
In general, excess annual costs under the legislation are those above $8,500 for employee-only coverage or $23,000 for family coverage, starting in 2013. Higher annual cost thresholds –$9,850 and $26,000 – would apply to retiree plans, coverage for certain workers in high-risk jobs and coverage in certain high-cost states.
In all cases, annual costs include employer-paid, employee-paid, pre-tax and after-tax premium or premium-equivalent amounts for the health, dental and vision coverage. Annual expenses also include pre-tax (not after-tax) contributions to flexible health spending, and employer contributions to health reimbursement and health savings accounts.
As health care costs continue to trend upwards, the proposed tax is predicted to apply to about a fifth of all employers if it becomes effective in 2013. The percent of employers impacted by the cap would increase annually because the Act proposes that the baseline trend be inflated by the annual consumer price index (CPI) plus 1 percent, which is about half the average health care trend.
Premium Tax Credits and Cost-Sharing Reductions
Among the most expensive provisions of the Senate bill, and those most important for expanding coverage to the uninsured, are those providing for premium and cost-sharing subsidies. Premium assistance tax credits are available to help cover premium costs for American citizens and aliens lawfully present in the United States whose household income does not exceed 400% of the federal poverty level (FPL). The premium subsidy is intended to reduce the cost of insurance to 2% of income for those at 100% of the FPL increasing to 9.8% at 400% of the FPL. The subsidies are quite generous at the upper end (compared to 12% of income in the House bill and 12.5% in the Senate HELP bill), but less generous at the lower end (compared to 1% in the HELP bill and 1.5% in the House bill).
Cost-sharing subsidies are on the whole less generous than those in the House bill, reducing the standard out-of-pocket maximum (based on the Health Savings Account (HSA)-linked high-deductible health plan) to one-third for persons between 100% and 200% of the FPL, one-half for those 200% to 300%, and two-thirds for those at 300% to 400% of FPL.
Premium subsidies would be available to the uninsured, but also to persons who are offered employer coverage where the employee’s share of the premium would exceed 9.8% of income or where the plan’s share of the total allowed costs under the employee benefit plan is less than 60%. Eligibility for credits will normally be decided by HHS, subject to an appeal process.
Medicaid
If adopted, the legislation will introduce the most revolutionary changes in Medicaid in the program’s forty-three year history. Medicaid was built on the model of the New Deal public welfare cash assistance programs and has always been a categorical program (covering the elderly, blind, disabled, and pregnant, and dependent children and their families), although Medicaid categories have become increasingly numerous and complex over time. Under the Senate bill, the program would be extended as of 2014 to cover all poor Americans whose household income is below 133% of the federal poverty level (FPL). If states want to expand coverage earlier, they could do so as early as January 1, 2011. The Medicaid expansion would be less than that found in the House bill (which expands to 150% of FPL) and would go into effect a year later.
Newly eligible recipients will not necessarily receive the same benefits as traditional Medicaid recipients, as the states can limit coverage to “benchmark” coverage as they can now for certain categories under the Deficit Reduction Act. Benchmark coverage must cover at least all essential benefits available through the Exchange. Asset tests would no longer apply in Medicaid after 2013 except for the elderly and disabled and for long term care services. Medicaid eligibility for non-elderly and non-disabled would after 2013 be determined based on modified gross income without current income or expense disregards, which means that for many persons the actual increase in the eligibility ceiling will be much less than it would appear at first glance because more income would be counted.
The federal government will cover 100% of the cost of expanded coverage from 2014 to 2106. For 2017 and 2018 the level of additional federal assistance (FMAP) a state would receive would depend on whether the state had already covered some non-elderly, non-pregnant individuals. After 2019, all states would receive a FMAP increase of 32.3 percentage points for the expansion populations, up to a total of 95% FMAP. States would be required to maintain CHIP eligibility levels through 2019, but FMAP for CHIP (Children’s Health Insurance Plans) would also increase for FY 2014 through 2019 by 23 percentage points, subject to a 100% cap.
Medicaid Home and Community-based Services
The bill would cover a number of new Medicaid benefits, including community-based attendant services and supports to disabled beneficiaries who would otherwise need institutional care, expanded home and community-based services, expanded prevention services, tobacco cessation services for pregnant recipients (the House bill would cover tobacco cessation for all recipients), and health homes for recipients with chronic conditions. Prescription drug rebates would increase, but disproportionate share hospital payments to the states would decrease as the rate of uninsurance dropped because of implementation of other insurance reforms.
Medicare
The Senate bill contains over 500 pages of changes in the Medicare program. Some of these provisions would reduce Medicare payments, including reductions in payments for home health, disproportionate share hospitals, advanced imaging services, and, above all Medicare Advantage plans (which would transition to a payment system based on competitive bids by 2015 at a savings over 10 years of $118 billion). Productivity adjustments in market basket updates and additional reductions in market basket updates would save Medicare another $150 billion over 10 years. Freezing the income threshold at which higher income Medicare beneficiaries pay increased Part B premiums at 2010 levels through 2019 for would bring in another $25 billion. The vast majority of the Medicare provisions, however, are directed at improving the quality, effectiveness, and in some instances, benefits of the Medicare program.
The Medicare title of the bill begins with a number of pay-for-performance and quality initiatives that have no exact equivalent in the House bill. These include value-based purchasing programs for hospitals and physicians and payment penalties for hospital-acquired conditions. The bill also requires HHS to establish and update annually a national strategy for health care quality measurement and improvement. The Senate bill establishes accountable care organization and hospital readmission reduction programs, a national pilot program for payment bundling, and a demonstration program for chronically-ill beneficiaries to receive home-based primary care. The bill also includes a host of payment extensions and improvements, including several for rural areas, but it includes only a one year 0.5 percent positive update for physician payment (in place of the 21 point reduction that was otherwise scheduled), leaving for another bill the inevitable sustainable growth rate fix.
Although the bill cuts Medicare Advantage payments, it provides performance bonuses for Medicare Advantage plan care coordination and management and for quality achievements. It prohibits Medicare Advantage plans from charging beneficiaries higher cost sharing for specific services than is allowed in the fee-for-service program and requires plans that offer extra benefits to give priority to cost-sharing reductions and wellness and preventive care services over benefits not covered by Medicare. HHS is given authority after 2011 to refuse to offer Medicare Advantage and prescription drug plans that significantly increase beneficiary cost sharing or decrease benefits. For traditional Medicare beneficiaries, the bill removes cost-sharing obligations from most preventive services, including an annual wellness visit and personalized prevention plan. The bill would also require Medigap policies C and F, two of the most popular offerings, to include nominal cost-sharing to reduce use of Part B services.
The Senate bill makes a number of changes in the Part D outpatient drug program, which resemble changes in the House bill but are not as generous. The Senate bill would require drug manufacturers to provide a 50% discount for brand-name drugs and biologics purchased in the donut hole after July 1, 2010, but would not allow beneficiaries to count the discount against the out-of-pocket limit, as would the House bill. The bill reduces the donut hole by increasing the initial coverage limit by $500 for 2010, but only for 2010, as compared to the House bill, which takes an immediate $500 bite out of the donut hole, and then proceeds to eliminate it by 2019.
A signature feature of the Senate bill is the creation of a new 15-member independent Medicare Advisory Board composed of health care, health policy, and health economics experts as well as representatives of employers, third-party payors, consumers, and the elderly appointed by the President that is responsible for presenting Congress with proposals for reducing excess Medicare cost growth. In years when Medicare costs are projected to exceed a target rate, the Board will be required to make a proposal to reduce cost growth, which will go into effect unless Congress, following expedited procedures develops an alternative proposal. The Board’s proposals cannot ration care; raise taxes or Part B premiums; change Medicare benefit, eligibility, or cost-sharing standards; or reduce payments for providers whose payments have already been reduced by the market-basket adjustments, which will limit the Board largely to reducing Part C or Part D expenditures. The CBO scored the Board as saving $23.4 billion over 10 years.
PACE Programs and other Medicare Home Health Care Programs
As an area of interest and expansion, it is important to look at how the bill is treating PACE programs. Thus far, even though PACE programs are funded under Medicare Advantage, much work has been done to keep PACE programs as separate and distinct entities and not subject to the harsh cuts laid out to Medicare Advantage as described earlier.
However, there are deep cuts to home health care. The House bill projects cutting almost $57 billion, while the Senate is targeting $42 billion. That’s roughly 10 percent of all the estimated Medicare savings. Unfortunately, the Medicare Payment Advisory Commission (MedPAC)—a reliable source of objective analysis–has found that home health agencies have been very profitable. These nearly 10,000 agencies receive payments averaging over 16 percent above costs, discouraging any need to provide care more efficiently, and thus became a target for cuts.
The CLASS program.
Finally, the bill would establish Senator Kennedy’s signature national voluntary insurance program for purchasing community living assistance services and supports. The program is supposed to be self-funded and actuarially sound and would provide cash benefits of not less than $50 a day to a plan member who develops specific functional limitations.
The Senate bill will undoubtedly be amended further as it progresses through the Senate and will change even further in conference.
