Current Status of Reform Efforts

What Direction Healthcare Reform?Michael KeeganFLAHU Healthcare SummitTallahassee, FLJanuary 11, 2010

Current Status of Reform Efforts • Bills have passed in House and Senate • Congress will likely not use formal conference committee to work out differences • Previous bills of this magnitude generally have held formal conference committees • Negotiations going on behind closed doors • Process being used called “ping-pong”

Current Status of Reform Efforts • Democratic leadership will still need 60 votes in the Senate • Although a vote on the final bill will only require 51 votes, the motion to proceed to a vote on the final bill will require 60 • Goal is passage by State of the Union Address (February 2nd), but this will be difficult to achieve

Overview of House Action • House of Representatives passed HR 3962 220-215 on Nov 7 • 39 Democrats voted against the bill; mostly centrist-moderate • House will have very little leverage in House-Senate negotiations • Differences between the two bills must be reconciled so that legislation will pass both chambers (Conference Committee or alternative ping-pong approach)

HR 3962 • Affordable Healthcare for America Act • Replaced 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 3962 • Individuals would be required to obtain and maintain health insurance • Employers would be required to provide coverage or pay a fine • Market reforms such as modified community rating, guaranteed issue, no pre-existing condition exclusions • Establishes a government-run public plan

HR 3962 • An 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 coverage • Tax subsidies for those below 400% of FPL • Funded by taxes on high-income earners and funding for Medicare Advantage

HR 3962 • Individual Mandate • Individuals would be required to obtain and maintain “acceptable” health insurance • Acceptable coverage includes “qualified health benefit plans” (QHBP), an employer-based plan, a grandfathered individual plan, Medicare (Part A), Medicaid, or TRICARE/VA coverage • Individuals that do not maintain acceptable coverage would be subject to tax penalty equal to 2.5% of modified adjusted gross income

HR 3962 • Employer Mandate • Employers must offer coverage through QHBP or grandfathered plans as permitted • Employers would be required to pay 72.5% of the cost of applicable coverage for individuals and 65% for family coverage • Part time employees must be covered on a pro-rated basis • Employers that do not offer applicable coverage could be subject to fine equivalent to 8% of payroll

HR 3962 • Market Reforms • All health plans, fully insured or self funded, would be required to issue coverage regardless of health status • Elimination of pre-existing exclusions • Prohibition on annual or lifetime limits • Dependent coverage to age 26 • 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 cost • The Centers for Medicare and Medicaid Services Chief Actuary estimated that the House bill would actually increase health care costs • By 2019, health costs would rise to 21.1% of GDP compared to 20.8% under current law

Overview of Senate Action • Senate passed their reform bill 60-39 on December 24 • CBO estimates that bill would cost $850 billion over 10 years • Significantly different than House bill

HR 3590 • The Patient Protection and Affordable Care Act • Would 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 3590 • Start-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 3590 • Requires employers of 50 or more to provide qualified health 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 inflation • Expands Medicaid eligibility to those earning up to 133% of the FPL

HR 3590 • Includes 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 geography • Includes a limited small-business tax credit to help the smallest of businesses with low-income employees with the cost of coverage

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

HR 3590 • The 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 law • Analysis 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 situation • Typically, different versions of House and Senate bills are reconciled through a Conference Committee • House and Senate negotiators then agree on a single bill (called a conference report) that each chamber must pass • Filibuster 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 bills • House and Senate leadership could agree on changes and then submit revised bill to each chamber for vote • Approach might make passage easier, but is inconsistent with the pledge of transparency and openness • Final bill will likely closely resemble Senate bill

Timeline • Administration and congressional leadership would like to have a bill to the president before his State of the Union address (Feb. 2), but that may not happen • If 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 February • Merging the bills outside the conference committee would prevent some delaying maneuvers, but would likely not dramatically speed up process

Key Issues In A Final Bill • Health Care Cost Containment • None of the bills adequately address underlying cost drivers • Focus of the legislation is coverage • Coverage Affordability • New rules in all of the bills will make private health insurance premiums go up • Rating requirements could particularly impact middle-size employers • Ineffective individual mandate • Strict mandated benefit requirements and a minimum level of required coverage that far exceeds typical market offerings today

Key Concerns • Public program expansion • Financing • House Bill—Disproportionably impacts small businesses and will cause more than 6 million privately insured seniors to lose their Medicare Advantage coverage • Senate—Is financing sustainable? Will all plans eventually be “Cadillac” plans? Medicare cuts • Government-run public plan option • Employer mandate would have devastating economic impact

What Needs to be Changed Clarifying the Role of the States • Minimum Loss Ratio Requirements • Structure of the Exchanges • Agent-Broker Language needs to be clarified • Regulatory authority overall

Additional Key Issues • Taxes need to be eliminated or delayed until major reforms begin • Effective dates need to be at least 12 months after enactment • High risk pool funding needs to focus on existing high risk pool and alternative mechanism structures rather than creating new federal entities.

Additional Key Issues • Personal responsibility requirements/individual mandate • Age rating • Insurance pooling requirements • Public Option still in House language

Conclusion • Reconciling House and Senate bills will be challenge, but some kind of legislation will emerge • Will 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?

Conclusion • With so much political capital invested, some kind of “healthcare reform” bill will be passed. • Administration and Congressional leadership will accept some reforms and declare victory • Final bill will surely be less ambitious than was originally introduced • Reforms are needed, but reform must be done right.

Michael J. KeeganDirector of State Affairsmkeegan@nahu.org(703) 276-3809

Current Status of Reform Efforts