Archive | Health Care Bill – Washington

Kaiser Study Shows Less Confusion, Fading Enthusiasm over PPACA

In the past month, fewer and fewer Americans have said that they are confused about the new health reform law. Though more than four in 10 continue to struggle, and just over one-third say they don’t understand how the law will affect them personally, the basic shape of opinion overall on the reform law remains unchanged, with the nation still firmly divided along partisan lines.

According to the May Kaiser health tracking survey, there is less enthusiasm about health reform. Those who look upon the law favorably tend to focus on the ways it will increase access to coverage and care, while those who view the law unfavorably have a more splintered array of reasoning – beginning with concerns about cost and government control.

Less confusion

While more than half of the public (55 percent) said that the word “confused” aptly described their feelings about the new health reform law in April, that proportion dropped by 11 percentage points in May. The drop was particularly evident among women, who are more likely to be making health care decisions for the household; 60 percent felt confused in April compared with 45 percent in May, bringing them more in line with the results among men.

Those with more education and higher incomes also dispelled their confusion at a higher rate this spring than those with less education and lower incomes. Even with the decrease, however, a substantial minority – 44 percent – say they remain confused about the health reform law.

Overall, a solid majority of Americans (61 percent) say they feel like they “understand what the impact of the health reform law will be” on themselves and their families, while 35 percent say they do not understand how they will be affected.

Americans living in households that bring in less than $40,000 a year and those who are uninsured are somewhat more likely than their counterparts to say they do not understand how the law will affect their own families, even though many components are specifically targeted at lower-income households.

Waning enthusiasm

Overall, the public continues to be divided in their views of the health reform law, with the poll finding 41 percent holding favorable views, 44 percent unfavorable views, and 14 percent undecided or unsure. These views continue to differ markedly by party, with most Democrats holding favorable views, most Republicans unfavorable views, and political independents tilting toward a negative viewpoint. As was true in April, voters who say they are likely to vote in the midterm elections are somewhat more likely to tilt negative in their views of health reform.

In terms of the trend in opinion, between April and May, there was a falloff in strong supporters, with 23 percent in April saying they held “very favorable” views of the new law, compared with 14 percent now. Most of this falloff came from Democrats themselves, whose “rally round the flag” sentiments may be waning as passage fades into the rearview mirror. In April, 43 percent of self‐identified Democrats said they had “very favorable” views of the reform law, compared with 30 percent now. Only time can tell whether this is a blip or the start of a trend.

Meanwhile, the percentage with “very unfavorable” views of the legislation hasn’t changed appreciably since April, hovering at around three in 10 overall, and rising to seven in 10 among Republicans. Feelings continue to be stronger, then, among opponents than among proponents of the law.

When asked to explain the main reason for their favorable views in their own words, supporters offered reasoning that related to increasing Americans’ access to health insurance and to health care itself (47 percent). Others offered answers focusing on their hope that costs will come down under reform (12 percent), and some focused on such insurance reforms as the end of exclusions based on pre‐existing conditions (4 percent).

Those with unfavorable views of the law had a much more disparate group of reasons for their negative perceptions. Topping the list were concerns about the cost of the reforms (27 percent) and opposition to the government’s perceived role in the changes (17 percent).

There has been little change since April in the proportion that expects to benefit from the new law. About three in 10 say they do believe they’ll benefit from the provisions, while just as many expect to suffer in some way and another one-third don’t expect to be affected.

Calming emotions

As health reform is replaced by other pressing policy issues on the front pages of newspapers and websites, it may also be ceding its place in the forefront of people’s minds. The Kaiser survey suggests that fewer Americans report holding strong emotions – either positive or negative – about the new law. In addition to the drop in the proportion who said they were confused, there was also a drop in the proportion who said they felt relieved or pleased (down 8 percentage points to 32 percent and down 6 percentage points to 39 percent, respectively), as well as a drop in those who reported feeling anxious (down 6 percentage points to 36 percent). The proportion who felt disappointed, however, did not change, remaining at 45 percent and now roughly tied with confusion as the most predominant emotion. Neither did the proportion who felt angry change, which hovered at 30 percent. 

Source: Kaiser Family Foundation

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Goodbye, Employer-Sponsored Insurance

Companies are discovering that it’s cheaper to pay fines to the government than to cover workers.

Wall Street Journal – May 21, 2010

By JOHN C. GOODMAN

Millions of American workers could discover that they no longer have employer-provided health insurance as ObamaCare is phased in. That’s because employers are quickly discovering that it may be cheaper to pay fines to the government than to insure workers.

AT&T, Caterpillar, John Deere and Verizon have all made internal calculations, according the House Energy and Commerce Committee, to determine how much could be saved by a) dropping their employer-provided insurance, b) paying a fine of $2,000 per employee, and c) leaving their employees with the option of buying highly-subsidized insurance in the newly created health-insurance exchange.

AT&T, for example, paid $2.4 billion last year to cover medical costs for its 283,000 active employees. If the company dropped its health plan and paid an annual penalty for each uninsured worker, the fines would total almost $600 million. But that would leave AT&T with a tidy profit of $1.8 billion.

Economists say employee benefits ultimately substitute for cash wages, which means that AT&T employees would get higher take-home pay. But considering that they will be required by federal law to buy their own insurance in an exchange, will they be net winners or losers? That depends on their incomes.

A Congressional Budget Office (CBO) analysis of the House version of ObamaCare, which is close to what actually passed in March, assumed a $15,000 premium for family coverage in 2016. Yet the only subsidy available for employer-provided coverage is the same one as under current law: the ability to pay with pretax dollars. For a $30,000-a-year worker paying no federal income tax, the only tax subsidy is the payroll tax avoided on the employer’s premiums. That subsidy is only worth about $2,811 a year.

If this same worker goes to the health-insurance exchange, however, the federal government will pay almost all the premiums, plus reimburse the employee for most out-of-pocket costs. All told, the CBO estimates the total subsidy would be about $19,400—almost $17,000 more than the subsidy for employer-provided insurance.

In general, anyone with a family income of $80,000 or less will get a bigger subsidy in the exchange than the tax subsidy available at work.

But will the insurance in the exchange be as good? In Massachusetts, people who get subsidized insurance from an exchange are in health plans that pay providers Medicaid rates plus 10%. That’s less than what Medicare pays, and a lot less than the rates paid by private plans. Since the state did nothing to expand the number of doctors as it cut its uninsured rate in half, people in plans with low reimbursement rates are being pushed to the rear of the waiting lines.

The Massachusetts experience will only be amplified in other parts of the country. The CBO estimates there will be 32 million newly insured under ObamaCare. Studies by think tanks like Rand and the Urban Institute show that insured people consume twice as much health care as the uninsured. So all other things being equal, 32 million people will suddenly be doubling their use of health-care resources. In a state such as Texas, where one out of every four working age adults is currently uninsured, the rationing problem will be monumental.

Even if health plans in the exchange are identical to health plans at work, the subsidies available can only be described as bizarre. In general, the more you make, the greater the subsidy at work and the lower the subsidy in the exchange. People earning more than $100,000 get no subsidy in the exchange. But employer premiums avoid federal and state income taxes as well as payroll taxes, which means government is paying almost half the cost of the insurance. That implies that the best way to maximize employee subsidies is to completely reorganize the economic structure of firms.

Take a hotel with maids, waitresses, busboys and custodians all earning $10 or $15 an hour. These employees can qualify for completely free Medicaid coverage or highly subsidized insurance in the exchange.

So the ideal arrangement is for the hotel to fire the lower-paid employees—simply cutting their plans is not an option since federal law requires nondiscrimination in offering health benefits—and contract for their labor from firms that employ them but pay fines instead of providing health insurance. The hotel could then provide health insurance for all the remaining, higher-paid employees.

Ultimately, we could see a complete restructuring of American industry, with firms dissolving and emerging based on government subsidies.

A much better approach was proposed by Sen. John McCain in the last presidential election. The principle behind that plan is enshrined in the legislation sponsored by Sens. Tom Coburn (R., Okla.) and Richard Burr (R., N.C.), and Reps. Paul Ryan (R., Wis.) and Devin Nunes (R., Calif). This approach would replace the current subsidies with a system that gives every family, regardless of income, the same number of dollars of tax relief for health insurance.

Under this approach, all insurance would be subsidized the same way, regardless of where it is purchased. All taxpayers would be subsidized the same way, regardless of how they obtain their insurance. Unlike the president’s scheme, it makes sense both in terms of equity and economics.

Mr. Goodman is the president and CEO of the National Center for Policy Analysis.

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Poll: Schedule fails to sway public

The White House has, for weeks now, rolled out popular health reform benefits well ahead of schedule, items like coverage for young adult children and tax credits for small business, hoping these early deliverables would shore up public support.

But a new poll, released this morning by the Kaiser Family Foundation, suggests the accelerated implementation schedule has failed to sway a skeptical public — or even keep health reform’s most ardent supporters on board.

Two months after the health care overhaul became law, Americans remain as deeply divided as ever about it, according to a new Kaiser Family Foundation poll released Friday.

While overall attitudes were roughly unchanged from last month, the percentage of people who reported that they have “very favorable” opinions of the legislation fell from 23 percent to 14 percent during the month. At the opposite end of the spectrum, 32 percent of people reported “very unfavorable” opinions, up slightly from the 30 percent reported last month.

The Health Tracking Poll found that 41 percent of respondents hold favorable views of the law and 44 percent hold unfavorable views, with 14 percent unsure. It’s a slight difference from last month’s poll, which found 46 percent had favorable opinions and 40 percent unfavorable.

Proponents of the law have struggled to win over a skeptical public. During the contentious debate on Capitol Hill, Democrats argued that support for the overhaul would improve once the bill became law and the public got to take advantage of its benefits.

Two months after enactment, many of the benefits have yet to go into effect. But the Obama administration has tried to speed up implementation of some of the most popular provisions. Secretary of Health and Human Services Kathleen Sebelius  asked insurance companies to move up implementation of allowing young adults to stay on their parents’ plans until age 26 and ending the practice of rescissions — canceling plans once a patient gets sick — except in cases of fraud.

Predictably, the support and opposition to the legislation are divided largely along partisan lines.

Seventy-two percent of Democrats had a favorable view of the legislation, and 14 percent had an unfavorable view. Only 8 percent of Republicans had a favorable view of the legislation, and 85 percent had an unfavorable view. Among independents, 37 percent had a favorable view, and 49 percent had an unfavorable view.

While Americans remain split on whether they like the legislation, fewer said they’re confused about what it means. Forty-four percent of people said they don’t fully understand the legislation, down from 55 percent last month.

The poll of 1,210 people was conducted May 11 to May 16.

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No, You Can’t Keep Your Health Plan

Insurers and doctors are already consolidating their businesses in the wake of ObamaCare’s passage.

Wall Street Journal – May 18, 2010

By SCOTT GOTTLIEB

President Obama guaranteed Americans that after health reform became law they could keep their insurance plans and their doctors. It’s clear that this promise cannot be kept. Insurers and physicians are already reshaping their businesses as a result of Mr. Obama’s plan.

The health-reform law caps how much insurers can spend on expenses and take for profits. Starting next year, health plans will have a regulated “floor” on their medical-loss ratios, which is the amount of revenue they spend on medical claims. Insurers can only spend 20% of their premiums on running their plans if they offer policies directly to consumers or to small employers. The spending cap is 15% for policies sold to large employers.

This regulation is going to have its biggest impact on insurance sold directly to consumers—what’s referred to as the “individual market.” These policies cost more to market. They also have higher medical costs, owing partly to selection by less healthy consumers.

Finally, individual policies have high start-up costs. If insurers cannot spend more of their revenue getting plans on track, fewer new policies will be offered.

This will hit Wellpoint, one of the biggest players in the individual market, particularly hard. The insurance company already has a strained relationship with the White House: Earlier this month Mr. Obama accused Wellpoint of systemically denying coverage to breast cancer patients, though the facts don’t bear that out.

Restrictions on how insurers can spend money are compounded by simultaneous constraints on how they can manage their costs. Beginning in 2014, a new federal agency will standardize insurance benefits, placing minimum actuarial values on medical policies. There are also mandates forcing insurers to cover a lot of expensive primary-care services in full. At the same time, insurers are being blocked from raising premiums—for now by political jawboning, but the threat of legislative restrictions looms.

One of the few remaining ways to manage expenses is to reduce the actual cost of the products. In health care, this means pushing providers to accept lower fees and reduce their use of costly services like radiology or other diagnostic testing.

To implement this strategy, companies need to be able to exert more control over doctors. So insurers are trying to buy up medical clinics and doctor practices. Where they can’t own providers outright, they’ll maintain smaller “networks” of physicians that they will contract with so they can manage doctors more closely. That means even fewer choices for beneficiaries. Insurers hope that owning providers will enable health policies to offset the cost of the new regulations.

Doctors, meanwhile, are selling their practices to local hospitals. In 2005, doctors owned more than two-thirds of all medical practices. By next year, more than 60% of physicians will be salaried employees. About a third of those will be working for hospitals, according to the American Medical Association. A review of the open job searches held by one of the country’s largest physician-recruiting firms shows that nearly 50% are for jobs in hospitals, up from about 25% five years ago.

Last month, a hospital I’m affiliated with outside of Manhattan sent a note to its physicians announcing a new subsidiary it’s forming to buy up local medical practices. Nearby physicians are lining up to sell—and not just primary-care doctors, but highly paid specialists like orthopedic surgeons and neurologists. Similar developments are unfolding nationwide.

Consolidated practices and salaried doctors will leave fewer options for patients and longer waiting times for routine appointments. Like the insurers, physicians are responding to the economic burdens of the president’s plan in one of the few ways they’re permitted to.

For physicians, the strains include higher operating costs. The Obama health plan puts expensive new mandates on doctors, such as a requirement to purchase IT systems and keep more records. Overhead costs already consume more than 60% of the revenue generated by an average medical practice, according to a 2007 survey by the Medical Group Management Association. At the same time, reimbursement under Medicare is falling. Some specialists, such as radiologists and cardiologists, will see their Medicare payments fall by more than 10% next year. Then there’s the fact that medical malpractice premiums have risen by 10%-20% annually for specialists like surgeons, particularly in states that haven’t passed liability reform.

The bottom line: Defensive business arrangements designed to blunt ObamaCare’s economic impacts will mean less patient choice.

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Health reform threatens to overwhelm already crammed emergency rooms

By Jay Heflin – 05/15/10  – THE HILL.COM

The new healthcare law will pack 32 million newly insured people into emergency rooms already crammed beyond capacity, according to experts on healthcare facilities.

A chief aim of the new healthcare law was to take the pressure off emergency rooms by mandating that people either have insurance coverage. The idea was that if people have insurance, they will go to a doctor rather than putting off care until they faced an emergency.

People who build hospitals, however, say newly insured people will still go to emergency rooms for primary care because they don’t have a doctor.

“Everybody expected that one of the initial impacts of reform would be less pressure on emergency departments; it’s going to be exactly the opposite over the next four to eight years,” said Rich Dallam, a healthcare partner at the architectural firm NBBJ, which designs healthcare facilities.

“We don’t have the primary care infrastructure in place in America to cover the need. Our clients are looking at and preparing for more emergency department volume, not less,” he said.

Some Democrats agree with this assessment.

Rep. Jim McDermott (D-Wash.) suspects the fallout that occurred in Massachusetts’ emergency rooms could happen nationwide after health reform kicks in.

Massachusetts in 2006 created near-universal coverage for residents, which was supposed to ease the traffic in hospital emergency rooms.

But a recent poll by the American College of Emergency Physicians found that nearly two-thirds of the state’s residents say emergency department wait times have either increased or remained the same.

A February 2010 report by The Council of State Governments found that wait times had not abated since the law took effect.

“That is not an unrealistic question about what’s going to happen in the next four years as you bring all these people on; who are they going to see?” McDermott said.

The Washington congressman tried to include a provision in the healthcare bill he thought would increase the number of doctors.

McDermott’s legislation would have required the government to pay for students’ medical education in return for students serving four years as a primary care physician. The measure did not make it on the final bill that eventually became law.

McDermott stressed that creating a “whole new cadre of doctors” needs to begin now to meet the rising need from patients in the future.

While the measure wouldn’t prevent the infrastructure crunch, it would have provided new doctors for people seeking care.

Richard Foster, Chief Actuary at the Centers for Medicare and Medicaid Services, told The Hill that the current dearth of primary care physicians could lead to greater stress on hospital emergency rooms.

“The supply of doctors can’t be increased very quickly – there’s a time lag,” he said, adding, “Is the last resort to newly covered people the emergency room? I would say that is a possibility, but I wouldn’t say anybody has a very good handle on exactly how much of an infrastructure problem there will be or exactly how it might work out.”

The Academy of Architecture for Health predicts hospitals will need at least $2 trillion over the next 20 years to meet the coming demand.

“As more people have access, you have to deal with the increased capacity,” said Andrew Goldberg, senior director of federal relations at the American Institute of Architects. “At the moment there is not a lot of building going on because of the economy and a lot of health care facilities can’t get the financing. We’ve been working on the Hill to try to address that issue.”

The group has called on Congress to beef-up bonding authorities and expand energy efficient tax breaks for professional buildings. The vehicle targeted is the green energy legislation making its way through the House Ways and Means Committee and Senate Finance.

Dan Noble, a principal at the Dallas-based architecture firm HKS Inc., which also specializes in designing health care facilities, believes the only remedy to meet the coming demand on hospitals is to start projects immediately.

“We would have to get very busy soon,” he said. “It would take a fairly aggressive building campaign for the next decade.”

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ObamaCare’s Fuzzy Math: High Risk Pools Will Cost 8 Times What Is Budgeted

By: Tom Tobin
One feature of the health overhaul that the President is touting as an immediate benefit is the expansion of so-called “high risk pools” for people who want to buy insurance but can’t because of their poor health.

Right now in 34 states, 200,000 people are covered at a cost of $2B in these pools. Health Reform legislation requires Health and Human Services (HHS) to expand these pools and cover 2 million more people–creating a bridge between now and 2014 when the rest of the Health Reform legislation rules kicks in.

The problem is that there’s no way that $5 billion, which is what’s been budgeted, will cover the cost of covering 2 million people. The real cost will be more like $40 billion. The $5B allocation attached to the High Risk Pool initiative appears to represents a number dictated more by political feasibility than a fair assessment of true program cost.

According to the Kaiser Family Foundation, high risk-pools are currently in operation in 34 states and, in aggregate, cover approximately 200,000 individuals. Eligibility and benefit offerings vary by state with premiums costs generally ranging from 125% to 200% percent of standard rates charged to individuals without illness/pre-existing conditions.

The typical program structure ties premium costs for the enrollee to income as a percentage of the poverty level, which, in effect, creates a sliding subsidy scale offering more support to low income individuals. The percentage of total cost of coverage paid by premiums varies from a low of 26% in New Mexico to 106% in West Virginia, with the bulk of states clustered in the 50-75% range. Put differently, premiums paid by high risk individuals only cover about 50% of the actual cost of the medical care and services utilized – leaving the states to pick up the tab on the balance.

In 2008, according to Kaiser & the Government Accountability Office, claims per person averaged $9,437 annually with total claim outlays of $1.9B. The strategy proffered by Sebelius et al. is to operate the program through the existing state infrastructure. If the existing program costs ~$2B annually to cover only 200K individuals, Health Reform legislation proposing to use $5B over the balance of 3 years to cover a n estimated 2M eligible individuals, it is easy to wonder what will happen when the money runs out. The simple calculus using the 2008 average cost per enrollee & the directive to cover 65% of a participant’s health costs puts the total potential expense at $12.3B per year. Multiply that by three years, and you get $37 billion.

To have the intended effect of providing meaningful and expansive coverage to the estimated 2M individuals eligible, Obama will have to increase funding substantially. While the potential for an additional $40B in stimulus is a welcome sight for health care stocks, the bigger question will be the consequences inflaming the political debate over costs.

Thomas W. Tobin is the Managing Director of Healthcare at Hedgeye, a research firm based in New Haven, Conn. His colleague Christian Drake contributed to this column. Tobin also operates a proprietary network of health care professionals.

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U.S. lawyers file explanation of why health reform is constitutional

The U.S. Justice Department, in its first defense of sweeping federal health care reform, argues in court papers that the legislation is constitutional, in part because it addresses a national problem.

Responding to a suit filed in Michigan by a conservative public interest group, U.S. Justice Department officials said in a 46-page brief that Congress has the authority to act on a national problem, and with that power, Congress may set minimum coverage requirements.

“Congress engaged in comprehensive regulation of the vast, national health care market, including regulation of the way in which health care services are paid for,” according to the filing, which adds, that Congress was “recognizing that the pervasive ills in the health care system cannot be cured state by state” so it adopted “wide-ranging national solutions.”

The federal government has a “long recognized interest” in the regulation of interstate commerce, including health insurance. It also must address the problems associated with cost-shifting, citing $43 billion in uncompensated care for the uninsured in 2008, according to the filing.

Federal lawyers also say in the filing that the Thomas More Law Center’s suit was filed prematurely since the law, passed in March, has not harmed anyone.

“They bring this suit four years before the provision they challenge takes effect, demonstrate no current injury, and merely speculate whether the law will harm them once it is in force,” according to the Justice Department’s filing. “Enjoining it would thwart this reform and reignite the crisis that the elected branches of government acted to forestall.”

The Democrat-led Congress and President Barack Obama passed the law after a year of heated discussion and debate, obstensibly over how to provide coverage to the estimated 44 million people who lack health insurance.

Since its passage, a number of suits have been filed. In most of the suits, plaintiffs, including attorneys general and two states, Florida and Virginia, say the mandates requiring individuals to obtain health insurance or pay a fine are unconstitutional, and as many as 31 other states, according to the Washington Post, are weighing legal challenges. In Missouri, the legislature has approved a referendum, to be held in this summer, when state residents will vote on whether to abide by the mandates included in the law.

In Michigan, the Thomas More Law Center sought an injunction blocking the government from implementing the law, whose provisions are already taking effect. The biggest changes come in 2014, when the individual coverage mandate takes hold.

Insurance companies and other advocates of the reform law say the individual mandate is vital to ensure that people don’t jump into coverage only when they are sick, thus depleting funds, which are offset by premiums paid by healthy people.

In its suit, filed shortly after the passage of the law, the Thomas More Law Center said requiring most Americans to buy health insurance or pay the fine exceeds Congress’ power and constitutes an unconstitutional tax. The group also said that because federal tax dollars could be used to fund abortions that the law violates members’ constitutional rights.

U.S. lawyers said in court papers that suits filed to halt the federal government from collecting taxes are illegal and that law provides the opportunity for people to qualify for exemptions.

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Documents reveal AT&T, Verizon, others, thought about dropping employer-sponsored benefits

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By Shawn Tully, senior editor at largeMay 6, 2010: 11:52 AM ET

(Fortune) — The great mystery surrounding the historic health care bill is how the corporations that provide coverage for most Americans — coverage they know and prize — will react to the new law’s radically different regime of subsidies, penalties, and taxes. Now, we’re getting a remarkable inside look at the options AT&T, Deere, and other big companies are weighing to deal with the new legislation.

Internal documents recently reviewed by Fortune, originally requested by Congress, show what the bill’s critics predicted, and what its champions dreaded: many large companies are examining a course that was heretofore unthinkable, dumping the health care coverage they provide to their workers in exchange for paying penalty fees to the government.

That would dismantle the employer-based system that has reigned since World War II. It would also seem to contradict President Obama’s statements that Americans who like their current plans could keep them. And as we’ll see, it would hugely magnify the projected costs for the bill, which controls deficits only by assuming that America’s employers would remain the backbone of the nation’s health care system.

Hence, health-care reform risks becoming a victim of unintended consequences. Amazingly, the corporate documents that prove this point became public because of a different set of unintended consequences: they told a story far different than the one the politicians who demanded them expected.

Why the write-downs happened but the hearings didn’t

In the days after President Obama signed the bill on March 24, a number of companies announced big write downs due to some fiscal changes it ushered in. The legislation eliminated a company’s right to deduct the federal retiree drug-benefit subsidy from their corporate taxes. That reduced projected revenue. As a result, AT&T (T, Fortune 500) and Verizon (VZ, Fortune 500) took well-publicized charges of around $1 billion.

The announcements greatly annoyed Representative Henry Waxman, who accused the companies of using the big numbers to exaggerate health care reform’s burden on employers. Waxman, chairman of the House Energy and Commerce Committee, demanded that they turn over their confidential memos, and summoned their top executives for hearings.

But Waxman didn’t simply request documents related to the write down issue. He wanted every document the companies created that discussed what the bill would do to their most uncontrollable expense: healthcare costs.

The request yielded 1,100 pages of documents from four major employers: AT&T, Verizon, Caterpillar and Deere (DE, Fortune 500). No sooner did the Democrats on the Energy Committee read them than they abruptly cancelled the hearings. On April 14, the Committee’s majority staff issued a memo stating that the write downs were “proper and in accordance with SEC rules.” The committee also stated that the memos took a generally sunny view of the new legislation. The documents, said the Democrats’ memo, show that “the overall impact of health reform on large employers could be beneficial.”

Nowhere in the five-page report did the majority staff mention that not one, but all four companies, were weighing the costs and benefits of dropping their coverage.

AT&T produced a PowerPoint slide entitled “Medical Cost Versus No Coverage Penalty.” A document prepared for Verizon by consulting firm Hewitt Resources stated, “Even though the proposed assessments [on companies that do not provide health care] are material, they are modest when compared to the average cost of health care,” and that to avoid costs and regulations, “employers may consider exiting the health care market and send employees to the Exchanges.” (Under the new bill, employees who lose their coverage will purchase health care through state-run exchanges.)

Kenneth Huhn, vice president of labor relations at Deere, said in an internal email that his company should look at the alternatives to providing health benefits, which “would amount to denying coverage and just paying the penalty,” and that he felt he already had the ability to make this change under his company’s labor agreement. Caterpillar felt it would have to give “serious consideration” to the penalty option.

It’s these analyses — which show it’s a lot cheaper to “pay” than to “play” — that threaten to overthrow the traditional architecture of health care.

The cost side

Indeed, companies are far more likely to cease providing coverage if they predict the bill will lift rather than flatten the cost curve. Deere, for example said, “We do expect double digit health care increases as most Americans will now have insurance and providers try to absorb the 15% uninsured into a practice.”

Both Caterpillar (CAT, Fortune 500) and Verizon believe the requirement to allow dependents to remain on their parents’ policies until age 26 will prove costly. Caterpillar puts the added expense at $20 million a year.

How two new taxes and the employer penalty change the health care calculus

First, there is the “Cadillac Tax” on expensive plans. This is a 40% excise tax on policies that cost over $8,500 for an individual or $23,000 for a family. Verizon’s document predicts the tax will cost its employees $255 million a year when it starts in 2018, and rise sharply from there. Hewitt also isn’t sure that Verizon can pass on the full tax to its employees; so it could impose a heavy weight on the company as well. “Many [have] characterized this tax as a pass-through to the consumer,” says the Verizon document. “However, there will be significant legal and bargaining risks to overcome for this to be the case for Verizon.”

In a statement to Fortune, Verizon said it is not, “considering or even contemplating” the plans laid out in the report, though records show the company did send the report to its board shortly after the reform plan was passed by Congress.

Second, the bill imposes new taxes on drug manufacturers, medical device-makers, and health insurance providers. Hewitt leaves little doubt Verizon will be paying for them: “These provisions are fees or excise taxes that will be shifted to employers through increased fees and rates.”

Caterpillar and AT&T actually spell out the cost differences: Caterpillar did its estimate in November, when the most likely legislation would have imposed an 8% payroll tax on companies that do not provide coverage. Even with that immense penalty, Caterpillar stated that it could shave $25 million a year, or almost 10% from its bill. Now, because the $2,000 is far lower than 8%, it could reduce its bill by over 70%, by Fortune’s estimate. Caterpillar did not respond to a request for comment.

AT&T revealed that it spends $2.4 billion a year on coverage for its almost 300,000 active employees, a number that would fall to $600 million if AT&T stopped providing health care coverage and paid the penalty option instead. AT&T declined comment.

So what happens to the employees who get dropped?

And why didn’t these big employers drop employee coverage a long time ago? The Congressional Budget Office, in its crucial cost estimates of the bill, projected that company plans will cover more employees ten years from now than today. The reason the bill doesn’t add to the deficit, the CBO states, is that fewer than 25 million Americans will be collecting the subsidies the bill mandates in 2020.

Those subsidies are indeed big: families of four earning between $22,000 and $88,000 would pay between 2% and 9.5% of their incomes on premiums; the federal government would pay the rest. So policies for a family making $66,000 would cost them just $5,300 a year with the government picking up the difference: more than $10,000 by most estimates.

As bean counters know, that’s not a bad deal for a company’s rank-and-file, and it’s a great deal for the companies themselves. In a competitive labor market, the employers that shed their plans will need to give their employees a big raise, and those raises could be higher, even after taxes, than the premiums the employees will pay in the exchanges.

What does it mean for health care reform if the employer-sponsored regime collapses? By Fortune’s reckoning, each person who’s dropped would cost the government an average of around $2,100 after deducting the extra taxes collected on their additional pay. So if 50% of people covered by company plans get dumped, federal health care costs will rise by $160 billion a year in 2016, in addition to the $93 billion in subsidies already forecast by the CBO. Of course, as we’ve seen throughout the health care reform process, it’s impossible to know for certain what the unintended consequences of these actions will be. To  top of page

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Actuary: Act Fast, Or Individual Health Insurers Will Flee

Published 5/3/2010
If regulators do not come up with a realistic medical loss ratio rule transition plan for individual heath insurance, insurers may start to abandon the market in June.
Rowen Bell, chair of the medical loss ratio regulation work group at the American Academy of Actuaries, Washington, issued that warning in a letter sent to officials at the National Association of Insurance Commissioners, Kansas City, Mo.

The Accident and Health Working Group at the NAIC has posted the letter in a collection of background materials on efforts to implement the minimum medical loss ratio provision in the new federal Affordable Care Act.

ACA is the legislative package that includes the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act.

The ACA will require providers of individual health insurance to spend at least 80% of premium revenue on paying insureds’ medical claims.

Bell, who is now an actuary at an independent accounting firm and who once worked for the Blue Cross and Blue Shield Association, Chicago, has written to recommend that regulators work quickly to come up with transition rules.

“Some carriers may seek to exit the individual market out of concern about the impact that rebate requirements in 2011 may have on their existing book of business and potentially on their solvency,” Bell writes in the letter.

To get out of the individual market by Jan. 1, 2011, an insurer may have to announce its intent to withdraw by June, to give insureds a 6-month warning, Bell writes.

“Consequently, any transitional alternatives will be more effective, in terms of minimizing potential individual market disruption, if they are announced in the next several weeks,” Bell writes.

In theory, insurers could reduce administrative costs and other non-claims costs to meet the 80% medical loss ratio requirement.

In the real world, insurers may have a hard time cutting non-claims costs that much that quickly, and they may prefer to leave the individual market, Bell writes.

The NAIC working group also has posted a copy of a comment letter that Jeffrey Smedsrud, a senior vice president at Independence Holding Company (NYSE: IHC), sent to U.S. Health and Human Services Secretary Kathleen Sebelius.

Small carriers account for about 15% of the health coverage market, Smedsrud writes.

One small insurer dropped out of the market last week, and “more will follow unless you take action,” Smedsrud writes.

Because small health insurers tend to charge less than large carriers do for comparable coverage, and because small health insurers tend to have relatively high marketing costs, they have administrative costs that tend to be about 5 percentage points higher than the administrative costs at larger carriers, Smedsrud writes.

One solution might be to set lower minimum medical loss ratios for insurers with a small market share, or for insurers that sell high-deductible plans or other low-cost plans, Smedsrud writes.

“Another possible solution is to allow a portion of the agent commission to be a service fee,” Smedsrud writes.

 


 

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GOP governors opting out of health reform pool for high-risk uninsured

By Julian Pecquet – 05/01/10   The Hill.Com

The decision whether to operate their own high-risk pool for sick people who can’t get insurance has become a highly politicized issue in some states, with a number of Republican governors blasting the $5 billion set aside for the provision as insufficient.

As of mid-day Friday, 21 states and the District of Columbia had decided to run their own pool while 11 states had opted to let the federal government take over. Of the latter, all have Republican administrations save for Tennessee and Wyoming.

Conversely, all but five of the 21 states that opted to run their own pools are led by Democrats. The exceptions: Connecticut, Rhode Island, South Dakota, Vermont and California, where Arnold Schwarzenegger on Thursday became the first Republican governor to endorse the health reform law.

In an April 2 letter to governors and insurance commissioners, Health and Human Services (HHS) Secretary Kathleen Sebelius set an April 30 deadline for states to decide whether to run their own pool.

In states that choose not to run their own programs, the federal government will use their share to cover that state’s uninsured itself. HHS unveiled each state’s share of the $5 billion last week.

California would get the most, $761 million, while North Dakota, Vermont and Wyoming would each get $8 million. The high-risk pools are scheduled to begin operating July 1 and aim to cover sick people who can’t find insurance until 2014, at which point the comprehensive health coverage provisions kick in.

A number of state officials and health experts expect that the $5 billion will run out long before then, however, raising concerns that states that choose to run their own pool will be forced to foot the bill until 2014 once the money runs out. Rick Foster, the chief actuary for the Centers for Medicare and Medicaid Services, pointed out in an April 22 analysis of the health reform law that “by 2011 and 2012 the initial $5 billion in federal funding for this program would be exhausted, resulting in substantial premium increases to sustain the program; we anticipate that such increases would limit further participation.”

An insurance industry source told The Hill that health plans are also concerned that states that choose to run their own pools could raise taxes on insurance plans once they run out of money, potentially raising premiums for everyone.

The squabble over the high-risk pool has become particularly heated in Nevada, where Senate Majority Leader Harry Reid (D) has begun to run on his healthcare record just as Gov. Jim Gibbons (R) on Wednesday called the $61 million set aside for his state “grossly inadequate.”

While Gibbons told Sebelius that Nevada’s share would only cover 2,900 of the 100,000 or so Nevadans who may be eligible, Reid blasted Gibbons’ decision not to run a state pool.

Other Republican governors have also been vocally critical. In a letter sent to Sebelius Friday, Indiana Gov. Mitch Daniels (R) said he couldn’t allow “exposing Indiana taxpayers to an open-ended and potentially enormous new burden.”

Meanwhile, Wyoming’s Democratic governor Dave Freudenthal opted for a more conciliatory tone in a letter he sent to Sebelius on Wednesday.

“I am aware that this allocation [of $8 million] is in addition to the premiums paid by enrollees to the program; however, I still worry that the allotted money may prove to be insufficient to fully operate this program until 2014.”

Other state officials have embraced the opportunity to run their own pools.

Asked about California’s commitment to running its own high-risk pool during a press conference Thursday, the state’s Health and Human Services Secretary Kimberly Belshe called it a “great opportunity.”

“We are confident,” Belshe said, “that working with the legislature and with stakeholders we can make this expanded high-risk pool a reality for Californians, tens of thousands who we think will be able to enroll as a result of these federally funded planning, administration and coverage dollars.”

At the federal level, some Democratic lawmakers have also drawn attention to the program and the money it means for their states.

Sen. Tom Harkin (D-Iowa) may have been the first lawmaker to tout the $35 million set aside for his state.

“Health reform will offer coverage to thousands of Iowans who, until now, have been locked out of the system,” Harkin said in an April 22 statement. “Having a pre-existing condition, whether it was a congenital heart problem, diabetes, or even arthritis, often meant that basic healthcare was out of reach”

He added, “Every American family should have access to the affordable, quality coverage they deserve and as these reforms take effect, we are moving towards that goal.”

Democratic Sens. Chris Dodd has also highlighted that the provision will benefit his state of Connecticut to the tune of $50 million.

Here’s the breakdown, as of mid-day Friday on states that intend to operate their own high-risk pool program:

Arkansas
California
Colorado
Connecticut
Delaware
District of Columbia
Illinois
Kansas
Kentucky
Maine
Maryland
Michigan
Missouri
Montana
New Jersey
North Carolina
Ohio
Oklahoma
Rhode Island
South Dakota
Vermont
Washington State

States that have elected to have HHS run the high-risk pool program:

Georgia
Hawaii
Idaho
Indiana
Louisiana
Minnesota
Mississippi
Nebraska
Nevada
Tennessee
Wyoming

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