What Direction Healthcare Reform? A Federal Update

By Wayne Sakamoto

Southwest Florida Association of Health UnderwritersJanuary 6, 2010

Overview of House ActionHouse of Representatives passed HR 3962 220-215 on November 7House passage is just one step in a lengthy political process The Senate still has yet to formalize a merged bill, go through what is expected to be a protracted an intense Senate floor debate and amendment process lasting, probably, into 2010Whatever passes the Senate must be combined with the House billDifferences between the two bills must be resolved in such a way that the legislation will pass both chambers (Another Conference Committee)The health reform effort is still a long way from over.

HR 3962Affordable Healthcare for America ActReplaced HR 3200, which had passed the 3 Committees of jurisdiction for healthcare legislation in the House of Representatives in July.CBO estimated the cost at $894 billion over 10 years, but conceded that estimates are subject to substantial uncertainty.

HR 3962Individuals would be required to obtain and maintain health insuranceEmployers would be required to provide coverage or pay a fineMarket reforms such as modified community rating, guaranteed issue, no pre-existing condition exclusionsEstablishes a government-run public plan

HR 3962An exchange would be established under a new independent federal agency (Health Choices Administration) headed by an appointed commissioner to offer private coverage and public plan coverageTax subsidies for those below 400% of FPLFunded by taxes on high-income earners and funding for Medicare Advantage

HR 3962Individual MandateIndividuals would be required to obtain and maintain acceptable health insuranceAcceptable coverage includes qualified health benefit plans (QHBP), an employer-based plan, a grandfathered individual plan, Medicare (Part A), Medicaid, or TRICARE/VA coverageNonresident aliens, individuals residing outside of the US, etc are exempt

HR 3962Individual MandateIndividuals that do not maintain acceptable coverage would be subject to tax penalty equal to 2.5% of modified adjusted gross income or the national average premium for applicable single or family coverage as determined by the SecretaryHardship waivers are included

HR 3962Employer MandateEmployers must offer coverage through QHBP or grandfathered plans as permittedEmployers would be required to pay 72.5% of the cost of applicable coverage for individuals and 65% for family coveragePart time employees must be covered on a pro-rated basis based on average hours worked

HR 3962Employers that do not offer applicable coverage could be subject to fine equivalent to 8% of payrollSmall employers with annual payroll up to $500,000 are exemptEmployers with payroll up to $585,000 would pay a fine equal to 2%Employers with payroll between $585,000 and $670,000 would pay fine equal to 4%8% fine kicks in at payroll above $750,000

HR 3962Market ReformsAll health plans, fully insured or self funded, would be required to issue coverage regardless of health statusElimination of pre-existing condition exclusionsProhibition on annual or lifetime limitsDependent coverage to age 26

HR 3962Applies HIPAA guaranteed renewability and guaranteed issue small group market rules to all health insurance markets.Imposes modified community rating to all qualified plans regardless of size. Allows variances only for family enrollment, geographic area and age (2:1 age band)Prohibits premium variation based on health status, gender, class of business, or claims experience

HR 3962 CBO estimated the bill would cost $894 billion over 10 years, but that may be optimistic and does not measure true costThe Centers for Medicare and Medicaid Services Chief Actuary estimated that the House bill would actually increase health care costsBy 2019, health costs would rise to 21.1% of GDP compared to 20.8% under current law

HR 3962CMS concluded that : With the exception of proposed reductions in Medicare payments rates for providers, HR 3962 would not have a significant impact on future health care cost growth rates. In addition, the longer-term viability of the Medicare reimbursement rate reductions is doubtful.

HR 3962Bill is basically dead on arrival in SenateHouse will have little leverage in conference committee negotiations with such a small vote margin

Overview of Senate Action

Senate passed their reform bill 60-39 on December 24CBO estimates that bill would cost $850 billion over 10 yearsSignificantly different than House billTwo bills need to be merged into one and pass each chamber before sent to the president for his signature

HR 3590The Patient Protection and Affordable Care ActWould establish a government-run public plan option to be sold through new state exchanges with the opportunity for states to opt out. Payment rates to providers would be determined by HHS and capped at the average rate of private plans.

HR 3590Start-up funds are provided for the creation of co-ops and states are allowed to offer their own public programs for those between 133% and 200% of the Federal Poverty Level (FPL) Calls for the creation of state-based exchanges beginning in 2013 and limited to individuals and small groups until 2017, when large-group participation will be allowed.Policies sold through the exchange would have be done by licensed agents or brokers

HR 3590Establishes an employer mandate for groups of 50 or more to provide qualified coverage with a $750 fine, indexed for premium growth, for non-covered employees Requires individuals to obtain qualified coverage with a fine that begins at $95 in 2014, rises to $750 by 2016, and is indexed for inflationExpands Medicaid eligibility to those earning up to 133% of the FPL

HR 3590Includes insurance market reforms such as guaranteed issue and renewability of all policies, no preexisting condition limitations or lifetime or annual limits, prohibitions on rating based on health status and gender, and only allowing rating factors of age (3:1), tobacco use (1.5:1), family status and geographyIncludes a limited small-business tax credit to help the smallest of businesses with low-income employees with the cost of coverage

HR 3590CBO recently completed analysis of premium impact of the billPremiums per person in the nongroup market would be 10-13% higher in 2016 than projected under current lawHalf of enrollees would receive subsidies that would reduce costs well below premiums that would be charged under current law

HR 3590The CBO estimates smaller premium effects in the group market.Premiums could range from a 1% percent increase to 2% reduction in the small group market (less than 50 employees)In the large group market, premiums would remain essentially flat, ranging from zero to 3% lower in 2016 relative to current lawAnalysis does not factor in effect of small business tax credit or surtax on high cost benefit plans

Where Do We Go From Here? Congressional leadership has multiple options to proceed so it remains a very fluid situationTypically, different versions of House and Senate bills are reconciled through a Conference CommitteeHouse and Senate negotiators then agree on a single bill (called a conference report) that each chamber must passFillibuster rules would still apply in the Senate, so 60 votes would be necessary to pass

Where Do We Go From Here?Congressional leadership may forgo formal conference committee to iron out the differences between the billsHouse and Senate leadership could agree on changes and then submit revised bill to each chamber for voteApproach might make passage easier, but is inconsistent with the pledge of transparency and opennessFinal bill will likely closely resemble Senate bill

TimelineAdministration and congressional leadership would like to have a bill signed by the president before his State of the Union address, but that may not happenIf congressional leaders go through a formal conference committee, negotiations would not start until mid-late January and bill would likely not be finalized until sometime in FebruaryMerging the bills outside the conference committee likely would not expedite the process much, but would prevent some delaying tactics.

Key Issues In A Final BillHealth Care Cost ContainmentNone of the bills adequately address underlying cost driversFocus of the legislation is coverageCoverage AffordabilityNew rules in all of the bills will make private health insurance premiums go upRating requirements could particularly impact middle-size employersIneffective individual mandate Strict mandated benefit requirements and a minimum level of required coverage that far exceeds typical market offerings today

Key ConcernsPublic program expansionShould be limited to medically needyWill also impact the cost-shift and state budgetsFinancingHouse BillDisproportionably impacts our nations small business owners and also will cause more than 6 million privately insured seniors to lose their Medicare Advantage coverage SenateIs their financing sustainable? Will all plans eventually be Cadillac plans? Also cuts Medicare (but will this happen?)

Key ConcernsGovernment-run public plan optionNo matter how limited, never can truly be level and will cause cost-shiftEmployer mandate to provide coverage is unnecessary and would have a devastating economic impactHouse Bill72.5% employee coverage, 65% dependents, part-time workers, kicks in at $500K payroll, 8% payroll penaltySenate HELP60% premiums, part-time workers, 50+ employeesSenate FinanceNo direct mandate. Requires employers of 50+ to pay a fine for low income employees who arent offered affordable coverage

NAHU ActionHouse Formal letter and press statement opposing H.R. 3962Grassroots support to thank no votersMeetings and HUPAC action to key House moderates to prepare for conferenceSenateTargeted action to grass tops and members with Moderate SenatorsSenate meetings and HUPAC action to key moderatesBehind the scenes suggestions to negotiating staff Working on potential floor amendmentsAssisting with value of the agent materials for floor debate

OverallOutreach to employersWork with coalition partnersMedia interviewsPress StatementsOp-Eds / Letters to the EditorSocial media

COBRACOBRA Subsidy provisions enacted as part of American Recovery and Reinvestment Act of 2009 were set to expired at the end of the yearSubsidy program allows Fed. Govt to pay 65% of COBRA or state continuation premiums for up to nine months for employees involuntarily let go between Sept 1, 2008-Dec 31, 2009Senators Brown (D-OH) and Casey (D-PA) introduced S. 2730: COBRA Subsidy Extension and Enhancement Act that President signed on December 19Extend subsidy timeframe by 6 months (from 9 to 15)Extend subsidy to individuals involuntarily terminated between Jan 1, 2010-June 30, 2010Extend to employees whose hours are reduced so they no longer qualify for employer-group planIncrease subsidy amount from 65% to 75% of the employees premium

2010 ElectionsMid Term Elections set for November 2010All House Seats1/3 of Senate SeatsIncluding Senators Reid, Dodd, Lincoln, Bayh 37 Governors RacesMay effect timing of health care reform in 2010Hesitant to take on such major legislation in an election year

ConclusionReconciling House and Senate bills will be difficult, but some kind of legislation will emergeWill Democrats in the House support a watered-down Senate bill?What will the Obama Administration accept and what kind of pressure will be brought to bear?

ConclusionWith so much political capital invested, some kind of healthcare reform bill will be passed.Administration and Congressional leadership will accept some reforms and declare victoryFinal bill will surely be less ambitious than was originally introducedReforms are needed, but reform must be done right.

Upcoming NAHU EventsCOBRA Subsidy Seminar Jan 6th & 7th NAHU Legislative Town Hall Webinar January 8thFAHU & NAIFAs Florida Health Care Summit in Tallahassee Jan 11th NAHUs 2010 Capitol Conference March 8th 10th

Unauthorized EntitiesThe State of Florida has taken a very strong position on the issue of unauthorized entities. An unauthorized entity is an insurance company that is not licensed by the Florida Department of Financial Services. Agents and brokers have responsibility for conducting reasonable research to ensure that they are not writing policies or placing business with unauthorized entities. Lack of careful screening can result in significant financial loss to Florida residents due to unpaid claims and/or theft of premiums. Agents may be held liable when representing these unauthorized entities. It is the agents and brokers responsibility to give fair and accurate information regarding the companies they represent. Any questions about the authorized status of a company can be checked by calling the Florida Department of Financial Services at 1-877-693-5236 or 850-413-3089.

Wayne Sakamotowayne@healthii.com, (239) 591-1199

Michael J. KeeganNAHU Dir of State Affairs Reg 5 mkeegan@nahu.org, (703) 276-3809

********************Average premiums in the individual market in 2016 would be roughly $5,800 for single policies and $15,200 for family policies under the proposalUnder current law, average premiums would equal roughly $5,500 and $13,100 for family policies

********Grassroots communication is key. Interest groups on both sides of the debate have begun running ads and staging events in key congressional districts. Insurance agents and brokers have a unique perspective on healthcare, and how to get reform right. Legislators need to hear from NAHU members*******