Archive | Health Care Bill – Washington

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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ObamaCare Mulligan

About those lower insurance costs we promised . . . .

Wall Street Journal – Opinion Journal – April 26, 2010

When President Obama signed his health-care reform last month, he declared it will “lower costs for families and for businesses and for the federal government.” So why, barely a month later, are Democrats scrambling to pass a new bill that would impose price controls on insurance?

In now-they-tell-us hearings on Tuesday, the Senate health committee debated a bill that would give states the power to reject premium increases that state regulators determine are “unreasonable.” The White House proposed this just before the final Obama- Care scramble, but it couldn’t be included because it violated the procedural rules that Democrats abused to pass the bill.

Some 27 states currently have some form of rate review in the individual and small-business markets, but they generally don’t leverage it in a political way because insolvent insurers are expensive for states and bankruptcies limit consumer choices. One exception is Massachusetts: Governor Deval Patrick is now using this regulatory power to create de facto price controls and assail the state’s insurers as cover for the explosive costs resulting from the ObamaCare prototype the Bay State passed in 2006.

National Democrats now want the power to do the same across the country, because they know how unrealistic their cost-control claims really are. Democrats are petrified they’ll get the blame they deserve when insurance costs inevitably spike. So the purpose of this latest Senate bill is to have a pre-emptive political response on hand.

ObamaCare includes several new cost-driving mandates that take effect immediately, including expanding family coverage for children as old as 26 and banning consumer co-payments for preventive care. Democrats are bragging about these “benefits,” but they aren’t free and their cost will be built into premiums. And those are merely teasers for the many Washington-created dysfunctions that will soon distort insurance markets.

In Massachusetts, Mr. Patrick says his price-control sally will be followed by reviewing what doctors and hospitals charge—or in other words for price controls on the medical services that make up most health spending. ObamaCare will gradually move in the same direction.

Or maybe not so gradually, judging by the study released last last week by Richard Foster, the Obama Administration’s Medicare actuary. Mr. Foster predicts net national health spending will increase by about 1% annually above the status quo that is already estimated to be $4.7 trillion in 2019. This is one more rebuke to the White House fantasy that a new entitlement will lower health costs.

“Although several provisions would help to reduce health care cost growth, their impact would be more than offset through 2019 by the higher health expenditures resulting from the coverage expansions,” Mr. Foster writes—and that’s assuming everything goes according to plan. He considers it “plausible and even probable” that prices in the private market will rise as greater demand due to subsidized coverage runs into the relatively fixed supply of doctors and hospitals.

Most of ObamaCare’s unrealistic “savings” come from cranking down the way Medicare calculates its price controls, and Mr. Foster writes that they’ll grow “more slowly than, and in a way that was unrelated to, the providers’ costs of furnishing services to beneficiaries.” He expects that 15% of hospital budgets may be driven into deficits, thus “possibly jeopardizing access to care for beneficiaries.” Isn’t reform grand?

The official who will preside over this fiscal trainwreck is Donald Berwick, the Harvard professor and chief of the Institute for Healthcare Improvement who the White House has nominated to run Medicare. Dr. Berwick explained in an interview last year that the British National Health Service has “developed very good and very disciplined, scientifically grounded, policy-connected models for the evaluation of medical treatments from which we ought to learn.” He added that “The decision is not whether or not we will ration care—the decision is whether we will ration with our eyes open. And right now, we are doing it blindly.”

In fact, the real choice with medical care, as with any good or service, is between rationing via politics and bureaucratic lines or via a competitive market and prices. As Democrats are showing by trying to pass a new insurance bill, they want all U.S. health care to function like price-controlled Medicare. Dr. Berwick’s job as the country’s largest purchaser of health care will be to find ways to offset the higher insurance and medical costs that ObamaCare’s subsidies and mandates will cause, which will inevitably mean political rationing of care.

In a 17-minute, 2,600-word answer to a question about tax increases in Charlotte, North Carolina earlier this month, Mr. Obama mentioned that “what we’ve done is we’ve embedded in how Medicare reimburses, how Medicaid reimburses, all these ideas to actually reduce the costs of care.” The embedding via price controls is already underway.


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Why Physicians Oppose The Health Care Reform Bill

Daniel Palestrant, 04.28.10

Daniel Palestrant, MD, is founder and chief executive officer of Cambridge, Mass.-based Sermo, the largest online physician community, where more than 112,000 physicians collaborate to improve patient care.

Health care without active physician participation is no health care at all.

After the debate has ended and the lobbyists have moved on to their next clients, health care will be left the way it started, a physician and a patient sitting in a room trying as best as they can to prolong health and forestall sickness. Fortunately the many victories and losses claimed by both ends of the political spectrum will not change this shared pursuit.So then why has reform that promises to get millions more in a discourse with their doctors been so polarizing? Making sure more Americans have health insurance can only be a major victory, right? Too bad the medical establishment is not celebrating. In fact, the mood in those exams rooms is downright morose.

In tens of thousands of exam rooms all over the country physicians are struggling to make sense of the 2,000-plus pages of the reform bill. A recently released poll of more than 2,000 physicians, conducted by Athenahealth and Sermo, is alarming. The poll, part of a broader Physician Sentiment Index, indicates that 79% of physicians are less optimistic about medicine since the passage of health care reform. Fifty-three percent indicate they will consider opting out of insurance plans with passage of the bill. Worst of all, 66% indicate that they will consider opting out of all government-run programs. The same reform bill that will provide “care for all” may drive away more physician caregivers than attract previously uninsured patients. What a predicament that would be.

Many may find the data from the poll puzzling. How could physicians be so pessimistic about a bill that clearly has so many positives? For one, the bill addresses none of the issues most consistently ranked by physicians as the most critical for lowering costs and improving access. Tort reform, streamlining billing and payment, and fixing the flawed government formula for calculating physician reimbursement are given little, if any, serious attention.

What physicians knew then and certainly know now is that instead of fixing these issues, the government will be forced to take the path of least resistance to save money (that is to say the path with the least special interest resistance). That means reducing physician reimbursement, just as the country is counting on even more physicians to be available.

Physicians knew the health care bill had a “gotcha” buried deep inside. The only way it could be called “budget-neutral” was to implement significant reductions in physician payments. So just as we are hoping more physicians become available to treat the influx of 31 million more patients, the government is implementing a massive reduction in physician reimbursement (a 21% reduction in physician reimbursement went into effect April 1 after several years of no adjustments for inflation, meaning physician reimbursement has been declining for several years already).

In a moment of complete legislative hypocrisy, the proponents were touting one health care bill that included cost estimates that assumed a massive reduction in payments while another bill moved its way through Congress that would reverse those cuts (the bill reversing the cuts was ultimately defeated, meaning the cuts did go into effect). At some point, basic supply and demand will kick in, and there will be insufficient physician resources for treating patients.

But what of the much-touted American Medical Association’s support for the bill? The AMA, which counts less than 10% of its $300 million dollars in revenue from physician membership dues (the rest comes from a government sanctioned monopoly whereby the AMA sells the billing codes upon which the entire health care system relies) had little choice but to endorse the bill, lest the government retract its exclusive license on billing codes. Again physicians know what the public does not: Less than 15% of practicing physicians are AMA members, so any AMA support is more a reflection of the AMA’s financial interests than what physicians in this country truly want. This is a situation that proved opportunistic to proponents of the bill but could prove painful for America’s health care system.

Indeed this might be a pyrrhic victory. Health care without active physician participation is no health care at all. Many physicians are investing in electronic health records and billing technologies that alleviate some of the huge administrative brunt that threatens the independent medical office and enables them to fare better in the uneven fight with insurers. These technologies do hold great promise in ensuring these projections remain just that, projections, and not reality.

But still, as the Athenahealth-Sermo poll shows, many physicians are ultimately faced with the choice of opting out of government insurance programs or going out of business. A significant number of physicians are realizing they cannot stay in business–let alone remain independent–if they continue to accept artificially low government reimbursement rates.Many states are recognizing this impending crisis, and rather than addressing the causes of medical inflation are resorting to an “easy,” short-sighted fix: Make participation in state and federal insurance programs a condition of medical licensure. Far from a theoretical proposition, Massachusetts’ health care system is so over budget that the state legislature is considering a bill that would mandate physician participation, in effect making physicians state employees.

Can anyone say socialized medicine?


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HEALTH REFORM: COMPLEX SERIES OF ISSUES, SUB-ISSUES, COULD PLAY OUT FOR YEARS

BestWire Services –

Apr. 20: Since the birth of Medicare, there hasn’t been a federal rewrite of health care rules as far-reaching and market-changing as the new reforms settling in as the law of the land. Health insurance companies are now digging into the details, trying to work out how they’ll approach their epic lists of new requirements and responsibilities.

There are several provisions of the new system that for reasons of either looming deadline or depth of impact are especially urgent for health insurers. The state-based insurance exchanges may not arrive until 2014, but they promise change that could leave the individual and small-group markets unrecognizable. Profit limitations could leave insurers especially smaller firms reeling. Cuts to Medicare Advantage could jeopardize that popular program. And coverage requirements such as covering dependents up to age 26 and eliminating annual and lifetime coverage caps begin soon, leaving insurers with more questions than answers.

“I don’t think the administration understands the level of questions there are,” said Janet Trautwein, president and chief executive officer of the National Association of Health Underwriters. “This is just crazy,” she said, adding there is “a lot of misinformation out there.”

Peter Lee, executive director of national health policy for Pacific Business Group on Health, said, “Every one of these issues has a series of sub-issues beneath it. And those sub-issues will be played out in state and federal regulatory process and potentially in cleanup legislation for years to come.”

Meanwhile, the reforms, set to cost $940 billion over 10 years, will charge the insurance industry $47 billion in the decade starting 2011. And one underlying protest from the insurance industry is dramatic though these changes will be, they don’t do enough to attack the core problem: the escalation in how much medical care costs.

“I would suggest that price control on insurers is a very, very bad way to control the rising cost of health care,” said Peter Straley, CEO of insurer Health New England. Four years ago, Massachusetts adopted a similar system, he said, and now insurers are struggling against politicians inclined to oppose actuary-backed rate changes. These new federal reforms are very familiar, Straley said. “It looks just like Massachusetts.”

STATE EXCHANGES

WHAT: Central shopping sites for standardized plans under four designations based on coverage levels bronze, silver, gold and platinum
WHEN: Established by 2014
WHO: Individuals and small groups will have access initially, with large groups potentially added in 2017

In fewer than four years, all states will have shopping hubs for health plans, where insurers will sell the same pre-set levels of individual and small-group coverage and compete with each other on price. Because the states will be designing these exchanges for themselves or potentially for multistate cooperative regions many of the details won’t be clear for some time. But the basics have already been laid out in the new law, and the initial rules have some insurance professionals such as brokers worried.

The idea of the exchanges is that individuals and businesses with 100 or fewer employees will have a place where they can band together and obtain the benefit of involvement with a larger pool. Federal money is available to the states to set up the new systems, but for those who don’t want to build exchanges, the federal government will step in and do it for them. And in 2017, larger groups can be allowed into the system.

Companies can still do business in the states without being involved in the exchanges, but if they do opt in, they’ll have to offer at least two levels of the standardized, government-set plans. And those plans will also have to be available for sale outside the exchanges for the same price.

If the individual mandate penalties and lower-income subsidies are effective in driving a lot of people into the exchanges, “maybe this could work well for insurers,” said Joel Michaels, a partner in charge of the health industry advisory practice at McDermott Will & Emery law firm.

At this point, a number of analysts aren’t expecting the exchanges to lure many companies out of the traditional employer insurance system. “We don’t think we’re going to see a huge migration from the employment system to these exchanges,” said Mark Holloway, director of compliance services for the Lockton Benefit Group. “We’re not talking about a mass exodus.”

That assertion would seem to be backed up by the experience in Massachusetts. “It has had very little impact on employer-based insurance,” said Straley.

It may be brokers who could face the greatest immediate hit, depending on how the exchanges work. “Insurers are going to have to take a look at their current structures and say, ‘Is that broker-agent model still going to work for us?'” said Maureen Fahey, a health care practice partner at professional service firm KPMG. “I think many brokers right now are pretty nervous,” she said, though she thinks there will be “a place for them,” even in the midst of greater consumer-friendly automation.

“Do we have a threat from exchanges? Well, sure, if they’re not set up correctly,” said Trautwein. The brokers will just go on helping clients figure out what’s best for them, she said, though they’ll certainly keep lobbying in the coming months and years as states build the exchanges. “We’re going to be very involved, hopefully, in the state implementation process.”

“A lot of states are in panic mode; they’re already in crisis,” said Jason Beans, CEO of Rising Medical Solutions Inc. “Every single state is going to have to build this up pretty much from scratch.” And Beans wonders if the exchanges will draw enough carriers to make them worthwhile. “Having an exchange won’t do much good if it’s just the same three players I already have access to.”

But the process may end up bestowing significant power to the states, depending on how much of a free hand they are given by the federal government. Straley said Massachusetts’ exchange, the Health Connector, has set the standards for the small group market there. “In a sense, the Connector defined what was insurance,” he said. “It is complex and challenging, and it does create an administrative complexity for the insurers.”

Though the exchanges don’t start for years, changes are coming sooner that will start preparing the way, including high-risk pools to get uninsured people into plans while they wait for the exchanges and new administrative rules aimed at easing consumer access to the markets. Insurers are already preparing for language consistency requirements — new rules pending this year that will regulate the words plans use to describe their coverage.

MEDICAL LOSS RATIO RULES

WHAT: Small-group and individual plans must spend at least 80% of premiums on medical costs, and large-group insurers 85%
WHEN: Starting this September
WHO: Doesn’t affect self-insured companies

Starting this year, the health insurance industry will be limited in how much money it can make. Because the new law demands the companies spend a certain percentage of their premium income on medical care, it is also handing them a percentage limit in what can be devoted to administrative expenses and profits.

The reforms will require, starting in September, that health insurance companies spend 80% of their incoming premiums for small-group and individual plans and 85% for large-group plans. Starting in 2011, they will be required to report the results each year to the government, and if they exceed the maximum spending on administrative costs, they must pay rebates to customers to meet the requirement.

“The big question with the MLR will be the standard,” said Michaels, with McDermott Will & Emery. “How do you define what’s included under claims costs and non-claims costs?”

The general wording from the U.S. Department of Health and Human Services to describe what constitutes medical expense is summed up as “clinical services and activities that improve health care quality.” The agency must still write the detailed specifics on exactly what that means, and it’s currently petitioning the National Association of Insurance Commissioners and the insurers themselves to get input on what it should include.

Defining MLR may not be an easy task for the agency. “It’s often been such an easily gamed number that its meaning as a significance is unclear,” said Lee of the Pacific Business Group on Health.

Some insurers, said KPMG’s Fahey, “are already at those MLR floors or close to it. The smaller ones are the ones that are going to be most challenged. I think we’ll definitely see consolidation among some of the smaller plans.”

On the bright side, Fahey said, the companies finally know what they have to deal with. “It’s now no longer a mystery.” However, Robert Zirkelbach, spokesman for America’s Health Insurance Plans, called the numbers “arbitrary caps.” And he pointed out this is already an industry with relatively tight profits. “The average profit in the health insurance industry is 3 to 4%,” he said.

Rising’s Beans painted this effort as another political attack on insurers. “Everything’s about targeting insurers, as if insurers are the cause,” he said.

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Government report: Health law could hike prices, make employers drop coverage

By Bob Cusack – 04/22/10 10:45 PM ET    The Hill.com

A new government report from Rick Foster, the chief actuary of the Centers for Medicare and Medicaid Services (CMS), finds that President Barack Obama’s new healthcare reform law would cost $828 billion over the next decade while saving $577 billion.

Foster notes that CMS’s projections do not take into account changes to the tax code that have been enacted. The Congressional Budget Office (CBO) reported that over the next 10 years, the healthcare package would decrease the deficit.

The CMS analysis, provided to The Hill on Thursday, concludes that the healthcare overhaul will reduce the number of the nation’s uninsured from 57 million to 23 million.However, the report raises several warnings about the impact of healthcare reform.Foster states, “The additional demand for health services could be difficult to meet initially with existing health resources and could lead to price increases, cost shifting, and/or changes in providers’ willingness to treat patients with low-reimbursement health coverage.”

The report also suggests that some employers will stop offering their employees healthcare coverage benefits: “A number of workers who currently have employer coverage would likely become enrolled in the expanded Medicaid program or receive subsidized coverage through the [Health] Exchanges. For example, some smaller employers would be inclined to terminate their existing coverage, and companies with low average salaries might find it to their — and their employees’ — advantage to end their plans…”

Foster claims that the law’s penalties on employers who don’t offer their workers health insurance “are relatively low compared to prevailing health insurance costs.”

The CMS analysis projects that the Hospital Insurance trust fund would last until 2029 under the new law — a dozen years more than the prior assessment of 2017. But Foster suggests that some of the savings in the law are unrealistic, indicating Congress will adjust the law’s new provider reimbursements in the coming years.

Republicans in March criticized Democrats for moving forward with a vote on the controversial health legislation before CMS finalized its projections. Foster informed lawmakers that his office needed time to assess the law, and was unable to complete its analysis by the time Congress voted on the bill. Congress is bound by numbers released by CBO, which released its cost estimates before the final House and Senate votes.

Foster became embroiled in controversy in 2003 when his assessment of the Medicare drug law was significantly higher than CBO’s. That cost estimate did not surface until the bill had been cleared by the GOP-led Congress.

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Health care overhaul spawns mass confusion for public

By Margaret Talev | McClatchy Newspapers

WASHINGTON — Two weeks after President Barack Obama signed the big health care overhaul into law, Americans are struggling to understand how — and when — the sweeping measure will affect them.

Questions reflecting confusion have flooded insurance companies, doctors’ offices, human resources departments and business groups.

“They’re saying, ‘Where do we get the free Obama care, and how do I sign up for that?’ ” said Carrie McLean, a licensed agent for eHealthInsurance.com. The California-based company sells coverage from 185 health insurance carriers in 50 states.

McLean said the call center had been inundated by uninsured consumers who were hoping that the overhaul would translate into instant, affordable coverage. That widespread misconception may have originated in part from distorted rhetoric about the legislation bubbling up from the hyper-partisan debate about it in Washington and some media outlets, such as when opponents denounced it as socialism.

“We tell them it’s not free, that there are going to be things in place that help people who are low-income, but that ultimately most of that is not going to be taking place until 2014,” McLean said.

Adults with pre-existing conditions are frustrated to learn that insurers won’t have to cover them until 2014 (though those under 18 will be protected in late September); then they become both hopeful and confused upon learning that a federal high-risk pool for them will be established in the next few months. “Health insurance is so confusing. You add this on top of it and it makes it even more confusing,” McLean said.

The Obama administration is embarking on a years-long public education campaign about the overhaul, including a Web component. However, much of the guidance will depend on Department of Health and Human Services regulations that are still being developed.

Parents of young adults, including those who are preparing to graduate from college this spring, have heard that the overhaul will let them keep their children on their insurance plans until they reach age 26. That starts in September, however; they have to determine how to cover them until then.

A new wave of inquiries could come next month as federal COBRA subsidies for laid-off workers dry up.

Ann Wooten of Austin, Texas, a breast cancer survivor, said she didn’t understand whether the health insurance overhaul law meant that she should try to access private coverage again someday. She was diagnosed with breast cancer in 2008 after she lost her insurance in a divorce, and soon after she lost her job at a convenience store as a result of the economic crisis.

Medicaid has covered her treatments but she must apply regularly to renew the coverage. She went back to school to learn hotel management and is seeking a good-paying job with benefits. She doesn’t know how the health overhaul will affect her options, and hasn’t yet found the time or energy to investigate.

Americans who already have good coverage aren’t so worried about the immediate implications, but some admit that they’re plenty confused.

“Why does it take so long for certain health care things to take effect?” said Sandra Preston, a state employee in Paterson, N.J.

Ben Wiesen, a software engineer who works for a small company in Tarrytown, N.Y., said he’d read up on the overhaul but remained concerned about the unknowns.

“The timelines have been pretty clearly stated,” he said. “It’s the execution and the details: How are they really going to roll out the changes, and who ultimately will be the arbiter and decision-maker?”

Actor Sam Robards, the son of Lauren Bacall and the late Jason Robards, was visiting Washington last week with his children and Danish-born wife. Chatting in front of the White House gate, he said he tried to follow news coverage of the overhaul but conceded that “I’m not totally clear” on the details. He said he was glad that he got good coverage through the Screen Actors Guild so he didn’t have to worry about it.

The couple previously lived in Denmark, which has universal health coverage. They applauded the overhaul’s aim of extending coverage to nearly all Americans.

Many small business owners are nervous about requirements being phased in.

“Members are still trying to wrap their head around everything that’s in this law,” said Michelle Dimarob, the manager of legislative affairs for the National Federation of Independent Business, the small-business lobby.

Dimarob said the lobby’s primary concern was that its costs would rise over the next four years as a result of fees, taxes and coverage mandates related to the overhaul.

“The next question that comes out of their mouths is: ‘What do I have to do right now?’ They need to start talking with their accountant, depending on how they’re organized, what industry they’re in and whether they’re offering insurance now and what kind they’re offering. We’re suggesting they talk to their agent or broker.”

Suntan businesses face a new excise tax starting in July as part of the overhaul. Other business owners are trying to understand new Internal Revenue Service reporting requirements related to business-to-business transactions that will kick in as a result of the new law. Others are looking ahead to coverage mandates for 2014 and calculating how many part-time versus full-time employees they should have to best contain costs.

While Obama has been touting a tax credit for small businesses that offer employees health coverage, Dimarob said many small businesses wouldn’t be able to participate. First they must do research to see whether they qualify. “It requires them to understand the intricacies,” she said.

The president has begun traveling the country to talk about the new law to ordinary Americans. In Maine last week, he explained many highlights of the four-year phase-in. However, Obama’s remarks were laced with enough political rhetoric to dilute his policy message.

Many organizations have produced timelines explaining when provisions are to be phased in. Still, it’s confusing for consumers, and until the administration issues more regulations, many details can’t be pinned down.

“The first meeting the president held with the team post-passage was on implementation,” White House Press Secretary Robert Gibbs said. “Obviously this is a big task, and a campaign to ensure that people understand what benefits are coming online when obviously will be tremendously important.”

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Health Care Reform: Tax Changes for Small Businesses

Wednesday 4/7/10 by Insurance Newscast

Healthcare laws and health insurance have long been areas of contention for small businesses. The expense of issuing health care insurance would often be the factor small businesses would consider before hiring a permanent employee versus a temporary contract employee.

Now, healthcare laws have changed and reform has arrived. And the Obama Administration promises to take the pain out of healthcare insurance for small businesses.

Two pieces of legislation were passed to that extent: The Patient Protection and Affordable Care Act (PL 111-148) and the Health Care and Education Reconciliation Act of 2010 (PL 111-152). The budget reconciliation process essentially amended certain provisions of the first act and added some new provisions of its own.

The thing about budget reconciliation is this: The budget reconciliation act must deal with budgetary issues. As such, it’s no surprise to anyone that the new health care laws will have an impact on the Internal Revenue Code. But how does all this shape up for the business owner?

Let’s have a look:

Employers must offer coverage. After December 31, 2013, certain large employers who fail to offer adequate health coverage for their full-time employees could face penalties. This applies to employers who have at least 50 full time employees within the preceding calendar year.

Tax credits for small businesses. For the 2010 tax year up until the 2013 tax year, the credit will gradually be phased in. Businesses with fewer than 26 employees and average annual wages under $50,000 will eventually be eligible for credit in an amount up to 50% of nonelective contributions that the business makes, on behalf of its employees, for insurance premiums. Here’s the good news for tax exempt nonprofit organizations: They would get a 35% credit against payroll taxes!

Employers with ten or fewer employees and average wages below $25,000 ill have better luck under these new rules. They will benefit from a 100% credit. Leased employees will be counted as employees, although 2% S corporation shareholders will not be included in the definition of employee.

New reporting requirements. If an employer self-insures its employees, the employer must report certain information, including details on each individual obtaining the coverage, their coverage dates and various other information. These reporting requirements will become effective after 2013.

Furthermore, starting in January 2011, employers will be required to disclose, on each employee’s Form W2, the value of the individual employee’s health insurance coverage, sponsored by the employer.



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Verizon, Exelon Are Latest to Record Charge

By JOHN KELL – Wall Street Journal

Verizon Communications Inc. said Thursday it expects to record a one-time noncash charge of $970 million in the first quarter, to account for the anticipated impact of the recently enacted U.S. health-care overhaul.

Recording an Impact

Charges firms are taking to account for the effect of the health bill on retiree drug benefits.

Company $ in millions
AT&T 1,000
Verizon 970
John Deere 150
Boeing 150
Caterpillar 100
Prudential Financial 100
Lockheed Martin 96
3M 85-90
Illinois Tool Works 22
Xcel Energy 17
AK Steel 31
Valero 15-20
Honeywell 13
Goodrich 10
Allegheny Technologies 5

Source: Dow Jones Newswires

The telecommunication company, which disclosed the charge in a Securities and Exchange Commission filing, is the latest company to take a charge to account for increased costs related to changes that will come from the health-care law. Specifically, the overhaul prevents companies from deducting tax-free subsidies it receives from the federal government for providing retirees with prescription-drug benefits.

Last week, rival AT&T Inc. said it planned to take a one-time noncash charge of $1 billion. The charges are more significant for companies with a large retiree base.

In a separate SEC filing Thursday, electric and gas utility Exelon Corp. disclosed it expects to record a noncash charge of about $65 million in the first quarter, also related to the health-care overhaul. Exelon said the reduction of the tax deductions was estimated to increase the company’s total annual income tax expense by about $10 million to $15 million.

The companies are taking the charges now even though changes in the health-care law don’t take effect until 2013. Administration officials have said companies are exaggerating the impact of the loss of the deduction because of their general opposition to the new law.

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