Kaiser Daily Health News –

Sept. 14: For many years, Ric and Jill Lathrop held their breath when the annual open enrollment period for their health insurance plan rolled around. Their two boys, now 12 and 14, have severe hemophilia, and each needs twice-weekly injections of a blood clotting replacement factor that costs roughly $250,000 per person per year. The couple lived in fear that their health plan would put a lifetime limit on their benefits.

In 2005, that’s what happened. The Oshkosh, Wis., hospital where Ric Lathrop worked as an MRI technician instituted a $2 million lifetime cap on benefits for the entire family. Rather than wait for their benefits to run out, the Lathrop family relocated to Illinois, where Ric Lathrop got a job at a hospital in Peoria; along with the job came insurance without lifetime limits.

If that coverage had changed, the Lathrops might have had to move again… and maybe again. But the federal health-care overhaul makes further wandering unnecessary. Starting Sept. 23, the new law requires that when health plans renew their coverage for the coming year, they eliminate lifetime limits on coverage.

“It gives us a lot of reassurance to know our kids can have more freedom,” says Jill Lathrop. The elimination of lifetime caps on benefits is one of several provisions that will begin to take effect Sept. 23, six months after enactment of the law. Health plans don’t have to implement the provisions until their next annual renewal date; since most plans begin their coverage year on Jan. 1, that’s when many consumers will start to see changes.

As you sign up for coverage this fall, here’s what to look for:

Extension Of Young Adult Coverage

All health plans must permit adult children to remain on their parents’ plans until age 26. It makes no difference if the young adults are married or financially independent. As long as children don’t have an offer of coverage from their own employer, parents can keep them on their plan.

If you want to put an adult child on your plan, you’ll be given an opportunity to do so during a special enrollment period. At most companies that will coincide with open enrollment, say benefits consultants. Even if it doesn’t, insurers and employers are required to notify you of the special enrollment period. Look for that notice.

Under the law, plans can’t charge more for adult children than for dependents younger than 19. But they can increase the cost of family coverage overall, and many will do so, according to an employer survey released last week by the benefits consulting firm Mercer. The survey found that more than half of employers that plan to shift more costs onto employees’ shoulders will do so by disproportionately increasing the cost of family coverage compared with employee-only coverage.

As part of their efforts to rein in costs, employers are also more likely than before to ask employees to verify that dependents are eligible for coverage, say experts. More than 40 percent of ineligible dependents are children younger than 19, says Karen Frost, health and welfare practice leader for human resources consultant Hewitt Associates.

Often the eligibility change is part of the fallout from divorce. Children may no longer live with or be financially dependent on the parent whose insurance covered them, for example, potentially making them ineligible under plan rules. “Most of the time, employees are covering ineligible dependents because they don’t know the rules” of their plan, says Frost.

This can also be true for adult children on their parents’ plans.

Prohibition On Coverage Exclusions For Children With Preexisting Conditions

Employer plans can no longer refuse to cover children younger than 19 because they were born with or develop a serious medical condition. The ban on coverage exclusions also applies to new individual policies purchased for a child.

However, even though the new law allows adult children to remain on their parents’ plan until age 26, once they are 19 they could be refused coverage for a preexisting condition, says Tracy Watts, a partner at Mercer.

A similar ban on coverage exclusions for adults goes into effect in 2014.

Restriction On Annual Dollar Coverage Limits

In general, employer plans can’t impose annual coverage limits of less than $750,000 for “essential” health benefits, including hospital services, drugs, emergency services and maternity and newborn care. The maximum limits increase every year and they are eliminated in 2014. These limits apply to new individual policies, too.

Additional provisions take effect on or after Sept. 23 for new plans offered by employers or purchased by individuals since March 23. These include requirements that insurers:

*Cover the full cost of preventive services that have the highest recommendation of the U.S. Preventive Services Task Force.

*Allow women to see an OB-GYN without a referral.

*Do not make plan members pay higher co-payments or coinsurance for out-of-network emergency services.


Health Insurers Plan Hikes

Rate Increases Are Blamed on Health-Care Overhaul; White House Questions Logic

Health insurers say they plan to raise premiums for some Americans as a direct result of the health overhaul in coming weeks, complicating Democrats’ efforts to trumpet their signature achievement before the midterm elections.

Insurers say they plan to raise premiums on some Americans due to the health overhaul, complicating Democrats’ efforts to trumpet their signature achievement before elections.

Aetna Inc., some BlueCross BlueShield plans and other smaller carriers have asked for premium increases of between 1% and 9% to pay for extra benefits required under the law, according to filings with state regulators.

These and other insurers say Congress’s landmark refashioning of U.S. health coverage, which passed in March after a brutal fight, is causing them to pass on more costs to consumers than Democrats predicted.

Insurers say the law mandates free preventive care that raises premiums.

The rate increases largely apply to policies for individuals and small businesses and don’t include people covered by a big employer or Medicare.

About 9% of Americans buy coverage through the individual market, according to the Census Bureau, and roughly one-fifth of people who get coverage through their employer work at companies with 50 or fewer employees, according to the Kaiser Family Foundation. People in both groups are likely to feel the effects of the proposed increases, even as they see new benefits under the law, such as the elimination of lifetime and certain annual coverage caps.

Many carriers also are seeking additional rate increases that they say they need to cover rising medical costs. As a result, some consumers could face total premium increases of more than 20%.

While the increases apply mostly to the new policies insurers write after Oct. 1, consumers could be subject to the higher rates if they modify their existing plans and cause them to lose grandfathered status.

The rate increases are a dose of troubling news for Democrats just weeks before an election in which they are at risk of losing their majority in the House and possibly the Senate.

In an interview with WSJ’s Alan Murray, Aetna Chairman and CEO Ronald Williams says that a side effect of the health-care reform bill is that costs will increase. He also criticizes leaders in Washington for the demagoguery of his industry that persisted during the health-care debate.

In addition to pledging that the law would restrain increases in Americans’ insurance premiums, Democrats front-loaded the legislation with early provisions they hoped would boost public support. Those include letting children stay on their parents’ insurance policies until age 26, eliminating co-payments for preventive care and barring insurers from denying policies to children with pre-existing conditions, plus the elimination of the coverage caps.

Weeks before the election, insurance companies began telling state regulators it is those very provisions that are forcing them to increase their rates.

Aetna, one of the nation’s largest health insurers, said the extra benefits forced it to seek rate increases for new individual plans of 5.4% to 7.4% in California and 5.5% to 6.8% in Nevada after Sept. 23. Similar steps are planned across the country, according to Aetna.

Regence BlueCross BlueShield of Oregon said the cost of providing additional benefits under the health law will account on average for 3.4 percentage points of a 17.1% premium rise for a small-employer health plan. It asked regulators last month to approve the increase.

In Wisconsin and North Carolina, Celtic Insurance Co. says half of the 18% increase it is seeking comes from complying with health-law mandates.

The White House says insurers are using the law as an excuse to raise rates and predicts that state regulators will block some of the large increases.

“I would have real deep concerns that the kinds of rate increases that you’re quoting… are justified,” said Nancy-Ann DeParle, the White House’s top health official. She said that for insurers, raising rates was “already their modus operandi before the bill” passed. “We believe consumers will see through this,” she said.

Previously the administration had calculated that the batch of changes taking effect this fall would raise premiums no more than 1% to 2%, on average.


After Regence mailed a letter notifying plan administrators of its intention to raise group insurance rates in Washington state, the White House contacted company officials and accused them of inaccurately justifying the increase. Kerry Barnett, executive vice president for Regence BlueShield, said the insurer is changing the letter to more precisely explain the causes of the increase.

The industry contends its increases are justified. “Anytime you add a benefit, there are increased costs,” said Karen Ignagni, president of America’s Health Insurance Plans, the industry’s lobbying group.

Massachusetts, which enacted universal insurance coverage several years ago, also has seen steadily rising insurance premiums since then. Proponents of that plan attribute the hikes there to an overall increase in medical costs, while insurers cite it as a cautionary example of what can happen when new mandates to improve benefits aren’t coupled with a strong enough provision to force healthy people to buy coverage.

Republicans, who have sought voter support by opposing the health law, say premium increases could help in November’s congressional races. “People are finding out what’s in [the law], they don’t like it, and I think it’s going to play a big factor in this election,” said Iowa Sen. Charles Grassley, the top Republican on the Senate Finance Committee.

About half of all states have the power to deny rate increases. Ms. DeParle pointed out that the law awards states $250 million to bolster their scrutiny of insurance-rate proposals, saying that will eventually curb premiums for people.

“In Kansas, I don’t have a lot of authority to deny a rate increase, if it is justified,” said Kansas Insurance Commissioner Sandy Praeger. She recently approved a 4% increase by Mennonite Mutual Aid Association to pay for the new provisions in the health law.

The process of reviewing rate increases varies by state. For instance, Ms. Praeger said she can deny only rate increases that are unreasonable or discriminatory.

Some regulators say not all insurers have adequately justified their increases. “A lot of it is guesswork for companies,” said Tom Abel, supervisor at the Colorado Division of Insurance. “I was anticipating the carriers to be more uniform.”

Regence BlueCross BlueShield of Oregon, which estimates its increase covers 57,000 members, said its goal is to “anticipate the financial needs of our members as accurately as possible and to collect just enough premiums to cover costs,” said a spokeswoman. Other insurers offered similar explanations or declined to discuss their increases.

A small number of insurers have submitted plans to lower rates and cite the new mandates in the legislation as the reason. HMO Colorado, a Blue Cross Blue Shield plan owned by WellPoint Inc., submitted a letter to state regulators saying small group rates would fall 1.8% starting Oct. 1 because of changes from the law.

Democrats had hoped to sell the bill in the fall elections. But in recent weeks, some Democrats who voted for the bill have shied away from advertising that fact, while the handful of House Democrats who cast “no” votes see it as a potential boost to their re-election bids.

“I think it’s a question of short term versus long term,” said North Carolina Insurance Commissioner Wayne Goodwin, a Democrat up for re-election in 2012. “Thankfully we’re seeing people get more coverage and protections than they’ve ever had before. But until we see the medical-cost inflation affected, you’re likely to see rate increases as long as they are not excessive and in violation of the law.”


Insurance Department OKs Health Net’s Plan To Increase Premium Rates

On Tuesday, the California Department of Insurance approved Health Net’s proposal to increase premiums by an average of 16% for about 38,000 policyholders who purchase insurance on their own, the Los Angeles Times reports.

Rate Hike Details

The higher rates are scheduled to take effect on Oct. 1. The insurer had delayed the increases for three months, while the state reviewed its paperwork. Health Net would not reveal how long the higher rates would be in place (Helfand, Los Angeles Times, 9/8).

Increases will range from 8% to 24%, depending on the specific plan purchased by policyholders, according to Health Net’s rate filing (Calvan, Sacramento Bee, 9/7).

Health Net welcomed the state’s approval and said the higher rates stem from the rising costs of hospitalizations, physician visits, medication and other health care services.

State Approves, Not Supports

Ioannis Kazanis, spokesperson for California’s Insurance Department, said the state neither endorses nor supports Health Net’s rate hikes but found the insurer’s filing to be in compliance with California law.

The state weighed whether Health Net’s proposal would allocate at least 70% of the premiums it collects to policyholders’ medical care, as mandated under state law.

Other Premium Increases

Approval of Health Net’s premium increases comes less than two weeks after the state Insurance Department approved rate hikes by Anthem Blue Cross and Blue Shield of California (Los Angeles Times, 9/8).

Anthem’s initial rate proposal would have increased premiums by as much as 39%. However, an external actuary found numerous mathematical errors with Anthem’s rate filing, so the company resubmitted its proposal with substantially lower rate increases (Sacramento Bee, 9/7).

The same external actuary, Axene Health Partners, reviewed Health Net’s rate filing and found that their proposal met state regulations (Colliver, “Chron Rx,” San Francisco Chronicle, 9/7).

Meanwhile, Aetna has proposed raising premiums by an average of 19% starting Oct. 1. Although the insurer began sending notifications about the rate hikes to 65,000 California policyholders last week, Aetna still is awaiting the state’s decision on whether it can move forward with the planned premium increases (Los Angeles Times, 9/8).


Premiums for Safety-Net Health Plans Rise With State Approval

State regulators are allowing insurance companies to raise maximum premiums for Californians with safety-net health insurance, the Los Angeles Times reports.

Approximately 20,000 California residents could experience premium increases of up to $7,500 annually, which could increase their insurance bills to nearly $25,000 annually.

Affected consumers could face the higher premiums until 2014, when the federal health reform law bans insurers from dropping patients based on pre-existing conditions.

Safety-Net Coverage

The federal Health Insurance Portability and Accountability Act requires insurers to provide health insurance to individuals who have lost employer-sponsored coverage and are ineligible for other health plans because of pre-existing medical conditions. The program is available to residents who have exhausted their COBRA benefits.

Background on New Rate Limits

In 2000, California legislators passed a law capping premiums for safety-net insurance. However, the legislation did not outline how the limits would be calculated. As a result, state regulators and major safety-net insurers designed separate formulas that generated different rate configurations.

To reconcile the different formulas, the state Department of Managed Health Care hired an outside actuary to develop a uniform calculation. However, the new formula increased the maximum premium rates for the majority of consumers, particularly for individuals between ages 50 and 64.

Anthem Blue Cross applied the new safety-net rates in January 2010, and Blue Shield of California followed suit a month later. The rate increases received little attention until this spring, when legislators debated a bill (AB 718), by Assembly member Bill Emmerson (R-Redlands), that would have codified the new rate cap formula into law.

The Assembly passed the measure, but the Senate Health Committee rejected it.

Advocates, State Officials Respond

Some health advocates argue that the state’s continued high unemployment level could force more residents to resort to safety-net coverage.

Lucien Wulsin, executive director of the Insure the Uninsured Project, said higher costs for safety-net insurance could prompt some patients to drop coverage altogether.

Lynne Randolph, DMHC spokesperson, said the rate hikes are an “unfortunate consequence” of the new uniform formula. However, she noted that the department is “pursuing a formula for consumers to bring down rates as much as possible” (Helfand, Los Angeles Times, 9/1).


New Plans For Uninsured Off To Slow Start

By Phil Galewitz

Aug 19, 2010

Ruth Titus, a 59-year-old cook from Taos, N.M., leaped at the opportunity in July to sign up for health insurance under a new federally subsidized program for uninsured people with health problems. With her history of bladder cancer, she said “it was hopeless to even look” for private coverage because she’d be turned down.

Titus is one of what some officials say has been an unexpectedly small number of people to sign up for the program, which was touted by the Obama administration as an early benefit of the new health overhaul law. It began last month in 30 states with the expectation that many thousands of uninsured people would apply for the opportunity to get comprehensive coverage regardless of their health status. But that hasn’t been the case.

About 3,600 people have applied and about 1,200 have been approved so far in state plans that started in the beginning of July, according to data from the states and federal government. Officials say the new plans, although a better deal than anything comparable on the private market, still may be unaffordable for many people. Eligibility requirements are another possible barrier. And states have had little time to publicize the plans.

It’s too soon to gauge the program’s impact. The plans won’t be up and running in all the states until September. But some officials are surprised.

“It’s early, but thus far interest in the program is lower than we expected,” said Michael Keough, executive director of the North Carolina Health Insurance Risk Pool, which started July 1. As of Tuesday, 314 people had applied and 158 had been approved.

GettingUSCovered, Colorado’s program, has received 204 applications; 108 people are enrolled.  It’s a “very low number given that there are hundreds of thousands of uninsured in the state,” said Suzanne Bragg-Gamble, the executive director.

Many states were so worried about not being able to meet the demand for coverage with limited federal funding that 22 of them deferred to the U.S. Department of Health and Human Services (HHS) to run the new plans as part of the Pre-Existing Condition Insurance Plan program. The other 28 states and the District of Columbia opted to start their own.

Questions About Affordability

Enrollees must pay premiums for their coverage, which is comprehensive and doesn’t exclude any pre-existing conditions. But the federal government is subsidizing the program with $5 billion until 2014 when the program ends because insurers will no longer be able to discriminate based on a person’s health status. Some analysts had predicted the money would run out before then, leaving states on the hook to help fund the plans or limit enrollment and benefits.

“It is certainly possible that the market for this coverage is smaller than everyone anticipated,”
said Mark Merlis, a consultant who wrote a report on the program for the Center for Studying Health System Change, a Washington group. But he said even with lower than expected enrollment the program may exhaust its funds because only the sickest people will join.

The Congressional Budget Office has estimated that as many as four million uninsured Americans would be eligible and that 200,000 would actually be enrolled by 2013. That projection assumed some people would not be interested or would not be able to afford the premiums.

The new plans are seen as a big improvement over existing “high-risk” programs in many states that provide an option to people who have difficulty getting insurance – but often at a very high cost and after long waiting periods.

Not everyone can afford the premiums of the new plans, which are cheaper than the existing high-risk programs. Federal regulations prohibit the new plans from charging more when people have health problems.

Premiums vary from plan to plan and are affected by the age of applicants, where they live and whether they smoke. For example, the monthly premium for a person aged 45 to 54 who does not smoke ranges from $330 in Hawaii to $556 in Florida, according to HHS. And prices can vary within a state: A 50-year-old non-smoker in Denver would pay $397 a month with a $2,500 deductible; a 40-year-old would pay $275 a month.

Titus pays $251 month for her policy, which includes a $2,000 deductible. “It was a huge relief,” she said after obtaining coverage. “Even though it’s expensive it is nothing like trying to pay out of pocket for every day in the hospital.”

Applicants may also be put off by eligibility criteria. They must have been uninsured for at least six months and have a pre-existing condition. In addition, they must prove they’ve been rejected for coverage by a private insurer within the past six months or been denied coverage for certain benefits. More than a dozen states also give applicants the option to provide a doctor’s note as proof they have a pre-existing condition such as cancer or rheumatoid arthritis, which is how Titus got coverage.

Officials with the state plans also point to a lack of publicity. Government Employees Health Association, the Kansas City company that has the federal contract to run the plans in 22 states, said it hasn’t yet started a major marketing campaign.

HHS is trying to get word out, says spokeswoman Jessica Santillo. “HHS has been working with states, consumer groups, insurance companies and other partners to reach uninsured individuals with pre-existing conditions who may be eligible,” she said.

In the 22 states where the plans are run by the federal government, a total of 2,400 people have applied as of Aug. 13, according to HHS, which would not release numbers for each state because it said they’re “fluid.”

Application numbers vary considerably in other states that launched their own plans July 1: Montana (100); New Hampshire (12); New Mexico (82), Oregon (400) and South Dakota (31). Connecticut could not provide an applicant total but said one person had been enrolled as of last week.

Kim and Eddy Graham of Belen, N.M., are among those who have enrolled. They previously were uninsured. Both have hepatitis C, among other problems. Now, for the $370 a month the couple pays for coverage, Kim Graham, 50, says she’s been able to get physical therapy and acupuncture for her bad back and saves money on medicine. “I love this program,” she said.


Survey: More Employers Plan To Increase Health Care Costs for Workers

Almost two-thirds of large U.S. employers in 2011 plan to ask employees to pay for a larger portion of their health coverage to reduce an expected increase in costs, partly attributed to the federal health reform law, according to survey released on Tuesday by the National Business Group on Health, Bloomberg/San Francisco Chronicle reports (Young, Bloomberg/San Francisco Chronicle, 8/19).

The survey, which drew responses from 72 large employers with 3.7 million workers, was conducted in May and June.

Survey Findings

According to the survey, respondents said they expect their overall health benefit costs to increase by an average of 8.9% in 2011, compared with 7% in 2010 (Lillis, “Healthwatch,” The Hill, 8/18).

Provisions included in the recently enacted health reform law are expected to contribute an estimated one percentage point toward that total, according to Helen Darling, president of NBGH (Bloomberg/San Francisco Chronicle, 8/19).

The survey — titled “Large Employers’ 2011 Health Plan Design Changes” — found that among respondents:

  • 63% intend to make workers pay a higher percentage of their premium costs next year, up from 57% in 2010;
  • 46% plan to raise the maximum level of out-of-pocket costs that workers would pay;
  • 44% plan to raise deductible rates for in-network providers (Reichard, CQ HealthBeat, 8/18);
  • 61% plan to offer a consumer-directed health plan in 2011 (Murphy, AP/MSNBC, 8/18);
  • 53% are willing to revise the design of their employees’ health care plans, such as removing lifetime dollar limits on overall benefits and specific benefits, and eliminating provisions that exclude coverage for children with pre-existing medical conditions (CQ HealthBeat, 8/18);
  • 37% plan to change annual or lifetime limits on specific benefits, including dental, mental health and infertility benefits; and
  • 25% plan to raise copayments or co-insurance costs for prescription drug benefits at retail pharmacies, while 21% are planning to implement similar increases for mail-order pharmacy benefits (“Healthwatch,” The Hill, 8/18).

Implications of Findings

The survey likely will foster debate over the health reform law’s effect on health care costs (“Healthwatch,” The Hill, 8/18).

Some experts have said attributing the cost increases to the reform law could be disingenuous.

Health researcher Igor Volsky of the Center for American Progress suggested that employers could be using the overhaul as the reason for cost increases that they already were planning to implement (Bloomberg/San Francisco Chronicle, 8/19).


California to Open New Health Insurance Program for Individuals with Preexisting Conditions in September

The Managed Risk Medical Insurance Board announced Thursday it plans to begin accepting applications this month and providing coverage to Californians next month in a new health insurance program for individuals with preexisting conditions – one of first major provisions of federal health reform to be implemented in the state.

Preexisting Condition Insurance Plan in California Monthly Premium Rates* Effective through December 31, 2011

Age Band Region 1 Region 2 Region 3 Region 4 Region 5 Region 6
<15 $145 $138 $140 $127 $142 $127
15-29 $199 $195 $201 $180 $200 $181
30–34 $286 $282 $292 $258 $288 $260
35–39 $319 $314 $325 $288 $321 $289
40–44 $337 $332 $344 $304 $339 $306
45–49 $369 $364 $377 $334 $371 $335
50–54 $494 $481 $499 $445 $495 $448
55–59 $627 $608 $624 $564 $625 $567
60–64 $796 $780 $802 $720 $799 $723
65-69 $891 $873 $899 $806 $895 $810
70-74 $939 $920 $947 $849 $943 $853
>74 $995 $975 $1,003 $899 $999 $904

* August 5, 2010

Region 1: Northern 31 counties

Region 2: Valley 14 counties

Region 3: Bay Area 6 counties

Region 4: South Coast 3 counties

Region 5: Los Angeles County Region

6: South 3 counties



San Francisco Chronicle –

Aug. 9: Employers and consumers sorting through their health insurance options may see a bump in their rates next year to account for the potential impact of some of the early elements of the federal health overhaul law, according to some health experts.

Jeff Sher, an independent health insurance agent and consultant in San Francisco, said he’s anticipating employee coverage at mid-size companies to go up 13 percent to 15 percent. “Then we’re supposed to tack on several percentage points for health reform,” he said.

August is a key month for employers to start making decisions about their health benefits because most open-enrollment periods, during which employees select their health insurance plans, begin in the fall for coverage starting Jan. 1, 2011.

While most major pieces of the new health law don’t go into effect until 2014, some reforms affecting health insurance carriers take effect this year. These include provisions that require health plans to cover adult children

until age 26, extend coverage to children with pre-existing conditions, end maximum lifetime spending limits and end the practice of retroactively canceling a member’s coverage for any reason other than fraud.

Health policy watchers say it’s tough to know whether these reforms will have much impact on costs, which routinely outpace increases in wages and inflation. Any savings the new law could offer have not materialized yet, said Laurence Baker, professor of health research and policy at Stanford University. Meanwhile, there is uncertainty about whether changes such as covering children with pre-existing conditions or extending coverage to those under 26 will add costs to the overall health system.

“I can certainly see they (insurers) would look to the future and worry about how things would roll out and be more aggressive in the future about rates,” Baker said. A PricewaterhouseCoopers report released in June found that medical costs nationwide are expected to rise 9 percent next year. That projected increase for 2011 is actually slightly smaller than the 9.5 percent rise the consulting firm is seeing this year.

But Michael Thompson, a principal with PricewaterhouseCoopers, said the reforms going into effect this year will have little to no impact on employer health costs. “If anything, we think the trend will down this year,” he said, adding that the upsurge last year of people staying on their former employer’s health insurance plans due to federal government subsidies had a larger impact on rates.

Several health insurers declined to comment directly on the impact of health reform on their rates. Aetna said people who purchase coverage with additional benefits required under the new health law will have to pay more for those benefits.

California legislators this month will be considering a number of bills designed to curb increases in health rates, such as the 39 percent hike for individual members of Anthem Blue Cross that helped jump-start the national reform discussion earlier this year.

“Regulators need to be vigilant in this period before the health reform kicks in with regards to health insurers gaming the system,” said Anthony Wright, executive director of Health Access, a statewide advocacy group.


Changing Stance, Administration Now Defends Insurance Mandate as a Tax

WASHINGTON — When Congress required most Americans to obtain health insurance or pay a penalty, Democrats denied that they were creating a new tax. But in court, the Obama administration and its allies now defend the requirement as an exercise of the government’s “power to lay and collect taxes.”

And that power, they say, is even more sweeping than the federal power to regulate interstate commerce.

Administration officials say the tax argument is a linchpin of their legal case in defense of the health care overhaul and its individual mandate, now being challenged in court by more than 20 states and several private organizations.

Under the legislation signed by President Obama in March, most Americans will have to maintain “minimum essential coverage” starting in 2014. Many people will be eligible for federal subsidies to help them pay premiums.

In a brief defending the law, the Justice Department says the requirement for people to carry insurance or pay the penalty is “a valid exercise” of Congress’s power to impose taxes.

Congress can use its taxing power “even for purposes that would exceed its powers under other provisions” of the Constitution, the department said. For more than a century, it added, the Supreme Court has held that Congress can tax activities that it could not reach by using its power to regulate commerce.

While Congress was working on the health care legislation, Mr. Obama refused to accept the argument that a mandate to buy insurance, enforced by financial penalties, was equivalent to a tax.

“For us to say that you’ve got to take a responsibility to get health insurance is absolutely not a tax increase,” the president said last September, in a spirited exchange with George Stephanopoulos on the ABC News program “This Week.”

When Mr. Stephanopoulos said the penalty appeared to fit the dictionary definition of a tax, Mr. Obama replied, “I absolutely reject that notion.”

Congress anticipated a constitutional challenge to the individual mandate. Accordingly, the law includes 10 detailed findings meant to show that the mandate regulates commercial activity important to the nation’s economy. Nowhere does Congress cite its taxing power as a source of authority.

Under the Constitution, Congress can exercise its taxing power to provide for the “general welfare.” It is for Congress, not courts, to decide which taxes are “conducive to the general welfare,” the Supreme Court said 73 years ago in upholding the Social Security Act.

Dan Pfeiffer, the White House communications director, described the tax power as an alternative source of authority.

“The Commerce Clause supplies sufficient authority for the shared-responsibility requirements in the new health reform law,” Mr. Pfeiffer said. “To the extent that there is any question of additional authority — and we don’t believe there is — it would be available through the General Welfare Clause.”

The law describes the levy on the uninsured as a “penalty” rather than a tax. The Justice Department brushes aside the distinction, saying “the statutory label” does not matter. The constitutionality of a tax law depends on “its practical operation,” not the precise form of words used to describe it, the department says, citing a long line of Supreme Court cases.

Moreover, the department says the penalty is a tax because it will raise substantial revenue: $4 billion a year by 2017, according to the Congressional Budget Office.

In addition, the department notes, the penalty is imposed and collected under the Internal Revenue Code, and people must report it on their tax returns “as an addition to income tax liability.”

Because the penalty is a tax, the department says, no one can challenge it in court before paying it and seeking a refund.

Jack M. Balkin, a professor at Yale Law School who supports the new law, said, “The tax argument is the strongest argument for upholding” the individual-coverage requirement.

Mr. Obama “has not been honest with the American people about the nature of this bill,” Mr. Balkin said last month at a meeting of the American Constitution Society, a progressive legal organization. “This bill is a tax. Because it’s a tax, it’s completely constitutional.”

Mr. Balkin and other law professors pressed that argument in a friend-of-the-court brief filed in one of the pending cases.

Opponents contend that the “minimum coverage provision” is unconstitutional because it exceeds Congress’s power to regulate commerce.

“This is the first time that Congress has ever ordered Americans to use their own money to purchase a particular good or service,” said Senator Orrin G. Hatch, Republican of Utah.

In their lawsuit, Florida and other states say: “Congress is attempting to regulate and penalize Americans for choosing not to engage in economic activity. If Congress can do this much, there will be virtually no sphere of private decision-making beyond the reach of federal power.”

In reply, the administration and its allies say that a person who goes without insurance is simply choosing to pay for health care out of pocket at a later date. In the aggregate, they say, these decisions have a substantial effect on the interstate market for health care and health insurance.

In its legal briefs, the Obama administration points to a famous New Deal case, Wickard v. Filburn, in which the Supreme Court upheld a penalty imposed on an Ohio farmer who had grown a small amount of wheat, in excess of his production quota, purely for his own use.

The wheat grown by Roscoe Filburn “may be trivial by itself,” the court said, but when combined with the output of other small farmers, it significantly affected interstate commerce and could therefore be regulated by the government as part of a broad scheme regulating interstate commerce.



Firms cancel health coverage With cost rising, small companies turning to state

The relentlessly rising cost of health insurance is prompting some small Massachusetts companies to drop coverage for their workers and encourage them to sign up for state-subsidized care instead, a trend that, some analysts say, could eventually weigh heavily on the state’s already-stressed budget.

Since April 1, the date many insurance contracts are renewed for small businesses, the owners of about 90 small companies terminated their insurance plans with Braintree-based broker Jeff Rich and indicated in a follow-up survey that they were relying on publicly-funded insurance for their employees.

In Sandwich, business consultant Bill Fields said he has been hired by small businesses to enroll about 400 workers in state-subsidized care since April, because the company owners said they could no longer afford to provide coverage. Fields said that is by far the largest number he has handled in such a short time.

“They are giving up out of frustration,’’ Fields said of the employers. “Most of them are very compassionate but they simply can’t afford health insurance any more.’’

Precisely how many small businesses have recently given up offering insurance is hard to pinpoint. The Office of Labor and Workforce Development said the most recent quarterly insurance data collected from small companies has not been compiled.

State officials said they have not seen convincing evidence that there is a trend. There has not been an unusually large spike in enrollment in Commonwealth Care, the subsidized insurance program, according to spokesman Richard Powers. And in any case, Dr. JudyAnn Bigby, secretary of health and human services, said the administration budgeted for higher health care spending because it anticipated that there would be growing numbers of long-term unemployed residents who would be signing up for coverage.

The Massachusetts Division of Health Care Finance and Policy annually surveys employers and found no significant drop in coverage as of the end of 2009, when more than three-quarters of companies offered health insurance.

But insurance brokers say the pace of terminations has picked up considerably since then among small companies, of which there are thousands in Massachusetts. Many of these companies — restaurants, day-care centers, hair salons, and retail shops — typically pay such low wages that their workers qualify for state-subsidized health insurance when their employers drop their plans.

“Those employers are trying to keep their doors open, and to the extent they can cut expenses, they will cut health insurance because they know their people can go to Commonwealth Care,’’ said Mark Gaunya, president of the Massachusetts Association of Health Underwriters, a trade group representing more than 1,000 brokers and other insurance professionals.

The issue is coming to a head as the Patrick administration battles insurers over swiftly escalating rates they have been charging small employers. In February, the governor filed sweeping legislation that proposes to give the Division of Insurance the power to essentially cap health care price increases. That proposal is still pending.

And on April 1, exercising authority the administration had never before used, the division denied 235 of 274 increases proposed by insurers for plans covering individuals and small businesses — base premiums would have increased as much as 32 percent. On July 1, it again held 137 proposed increases to 2009 rates.

The sides have been locked in negotiations for months, with the Patrick administration recently reaching agreement with two insurance carriers on lower rates.

“The Patrick-Murray Administration has taken decisive action to provide small businesses and working families with immediate relief from skyrocketing health insurance premiums,’’ the governor’s press secretary, Juan Martinez, said in a statement. He declined to directly address whether small businesses are increasingly dropping health coverage and directing their workers to subsidized care.

But analysts said the burden of double-digit insurance increases shouldered by small businesses over the last several years is likely to become more of a public problem.

“The more the employer insurance system unravels, the higher the cost is going to be for the state in providing subsidies to low income workers,’’ said Larry Levitt, vice president of the Kaiser Family Foundation, a California-based think tank. “From a state finance perspective, stabilizing employer insurance is definitely important.’’

The state’s landmark 2006 health insurance overhaul included regulations designed to discourage low-wage employees from opting for state health insurance over their companies’ often more pricey coverage. It denied eligibility to any one whose employer had offered him or her coverage in the past six months and paid at least 33 percent toward the individual’s plan.

Most health care advocates and brokers had widely interpreted that to include even workers whose companies had dropped coverage. But recently, some companies that have terminated their group plans have tested those waters and found that their employees were accepted for state-subsidized coverage.

Additionally, company owners say, it has become far cheaper to pay the state penalty for not covering their workers — roughly $295 annually per employee — than to pay thousands more in premiums.

In New Bedford, the Early Learning Child Care center is now paying $1,500 quarterly in fines to the state, instead of the $30,000 it contributed quarterly toward 13 workers’ health insurance premiums. When Executive Director Judy Knox terminated the company’s health plan late last year, she asked Fields, the consultant, to help 10 of those workers enroll in Commonwealth Care. The other three went on spouses’ plans or were eligible for Medicare.

“We had had, in the three previous years, between 17 and 18 percent increases every year,’’ Knox said. “I was so worried about the staff and their coverage, but for most of them, Commonwealth Care seems to be working out very well.’’ The state program covers people with incomes up to 300 percent of the federal poverty level.

Come 2014, when the bulk of the federal health care law goes into effect, the penalties for small companies that do not provide health insurance coverage will be less onerous than those in Massachusetts. That could tempt more small companies to opt out nationally, sending more workers to the public rolls — if health care costs can’t be restrained, some analysts said.

“Struggling business don’t necessarily feel the need to offer coverage to attract workers,’’ said Kaiser’s Levitt.

Massachusetts has not decided whether to adopt the federal rules for small businesses.

The federal law does not impose any penalty on companies with fewer than 50 employees that do not offer coverage, whereas in Massachusetts, employers with more than the equivalent of 11 full-time employees face fines for not offering a health plan and contributing at least 20 percent toward that coverage. But for companies with more than 50 workers, the federal law comes down a lot harder than does the state law.

© Copyright 2010 Globe Newspaper Company.