Senate Finance Committee's Proposals to Expand Health Care, Reduce Costs, and Pay for It All

July 10, 2009

Excerpted from Benefits & Compensation Law Alert

Previously, we discussed three potential option papers the Senate Finance Committee released in April and May which outline major health care reform issues and approaches to resolving them. This week, we will look at the specifics of each of the three papers and what they mean for employers. Since the papers were released, the Congressional Budget Office (CBO) recently released a preliminary estimate of the draft of Senator Max Baucus' plan putting the cost at $1.6 trillion over 10 years. Senator Baucus said he will unveil his health care reform proposal after July 4. And Senator Chuck Grassley said Sunday, June 21, that the committee may revise its plan in order to strengthen support for the bill.

To learn more about what health care reform and other employment law changes in 2009 mean for employers and for a look ahead at what’s on the horizon in employment law for 2010, check out the Advanced Employment Issues Symposium being held in Nashville Sept. 17-18, 2009, and in Las Vegas on Oct. 29-30, 2009.

Reducing costs, increasing quality
Change in payment system. The first option paper notes that the current Medicare compensation system reimburses providers for volume of care, regardless of outcome, or whether the care helps the patient recover. The paper envisions replacing the current system with a value-based system with payment incentives for care that helps the patient. This option would build upon a current Medicare quality data reporting system, in essence using at least some of the reported information as a basis for reimbursing acute care hospitals and other facilities.

The selection of measures, along with development of a methodology for assigning scores and calculating payments, would be transparent and public through rulemaking, the option paper states. The new payment system would begin to be phased in at acute care hospitals during the 2012 fiscal year, with the first year being a data collection/performance year.

Bigger role for primary care doctors. The policy options would provide Medicare performance bonuses of at least five percent for five years to primary care doctors and targeted general surgeons. The reasoning is that these physicians perform a vital care management and coordination role and should be encouraged to do so.

Coordination, collaboration. Medicare pilot programs would center on coordinating patient care of chronically ill patients. Payment incentives would target preventable hospital readmissions and otherwise foster collaboration.

Technology, fraud, waste. These options deal with investing in health information technology, developing a national quality improvement plan, and developing quality measures that reflect health care reform goals such as coordinating care for the chronically ill. The Senate Finance Committee also will examine options to root out Medicare waste and fraud.

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Expanding health coverage availability
Insurance market reform options. The second option paper outlines plans for expanding health care coverage. These options are geared toward making health insurance more available and more affordable to those currently uninsured. The options focus on two markets: individual and micro-group (2-10 employees) and small group (11-50 people, plus, if state law allowed, the self-employed and groups of up to 100 people). Insurers would have to cover individuals with preexisting conditions, and premium rates could vary only for tobacco use, age, and family composition, and to reflect certain geographic variations. Federal rating rules for individuals and micro-groups would take effect by January 1, 2013, at the latest, and would be phased in over a three- to 10-year period to apply to small groups.

Health Insurance Exchange. Another option calls for creation of an Internet-based Health Insurance Exchange that would, according to a Senate Finance Committee press statement, “direct consumers to every health coverage option in their zip code,” allow online enrollment, and let customers determine whether they qualify for health insurance subsidies or for public programs. The Exchange website would contain standardized health insurance enrollment applications, standardized formatting for companies to use to describe their products, and standardized marketing rules. There would also be a call center for customer support. Creating a site like this would take some serious effort and resources. The white paper says only that people could buy insurance through the Exchange immediately after its creation.

Once insurance market reforms took place and the Exchange or new market was set up, people could keep their existing coverage and their plans would be grandfathered into the system, but only to those enrolled at that time. As an incentive to use the Exchange, any tax credits available in the new insurance market could be used only to purchase plans created in the new market, but not for grandfathered plans.

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Making coverage more affordable
Standardizing tiers of coverage. The third option paper addresses paying for health care reform. The policy options include tax credits and public programs to make health coverage affordable to low-income persons and to small businesses. Under the options, four categories of benefits (lowest, low, medium, and high) would be available in the reformed market; except for grandfathered plans, no other types would be allowed. All nongroup and small-group insurance plans would be required, at a minimum, to provide benefits for preventive and primary care, emergency services, hospitalization, physician services, outpatient services, day surgery and related anesthesia, diagnostic imaging and screening, including X-rays, maternity and newborn care, medical/surgical care, prescription drugs, radiation and chemotherapy, and mental health and substance abuse services, which at least meet minimum state and federal standards. The plans couldn’t place lifetime limits on coverage, annual limits on any benefits, or require deductibles or other cost-sharing measures for preventive care. (Another option would allow “nominal cost-sharing” for preventive care.)

Tax relief. In addition, tax credits for health care would be provided to people with incomes under 400 percent of poverty. The U.S. Department of Health and Human Services publishes federal poverty guidelines annually in late January. The 2009 poverty guideline threshold annual income for a single person living in the “lower 48” states and the District of Columbia is $10,830 ($22,050 for a family of four). So the income cutoff for tax credits would be $43,320 for a single person and $88,200 for a family of four. The subsidy could be used to buy health coverage through the Exchange and would be phased out as income increased.

Small businesses also would receive tax credits to encourage them to provide health insurance to employees. The amount of credit would vary with the number of employees and their average earnings, with credits diminishing as number of employees and average earnings increased.

Options also include proposals for expanding the types of available public health insurance, such as a government-run Medicare-like system, a system administered through third-party administrators reporting to the Department of Health and Human Services, and state-run systems. There are additional proposals to expand Medicaid and to reduce the waiting period, currently 24 months, for disabled people ages 55-64 to get on Medicare.

Finally, there are proposals to bolster preventive services in Medicare and Medicaid, to promote disease management and wellness programs, to require individuals to buy insurance, and to require employers to provide it.

Attend the Health and Welfare Benefits Plan Update session at the Advanced Employment Issues Symposium being held in Nashville Sept. 17-18, 2009, and in Las Vegas on Oct. 29-30, 2009.

How to pay for health care reform
The committee takes several approaches to financing health care reform, aiming to wring savings from the health system, alter the current tax treatment of health-related expenses, and to promote healthy lifestyles by raising taxes on alcoholic beverages and beverages sweetened with sugar, high-fructose corn syrup, and other sweeteners — but not on artificially sweetened beverages.

The taxation options are probably of greatest interest to employers. One much-discussed possibility is to place limits on the tax-free status of employer-provided health coverage. Other choices include limiting the tax advantages of health savings accounts, modifying or eliminating flexible spending accounts, crafting a standard definition of qualified medical expenses, modifying the itemized deduction from income taxes for medical expenses, reducing or eliminating the special tax deduction and/or unearned premium exclusion for Blue Cross/Blue Shield and similar organizations, modifying the FICA tax exemption for students, extending the Medicare payroll tax to all state and local government employees; and modifying certain rules affecting nonprofit hospitals.

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Copyright 2009 M. Lee Smith Publishers LLC. BENEFITS & COMPENSATION LAW ALERT. Benefits and Compensation Law Alert is designed to provide accurate and authoritative information in regard to the subject matter covered. It is published with the understanding that neither the author(s) nor its publisher is engaged in rendering legal, accounting, or other professional services through its pages. If legal advice or other expert assistance is required, the services of a competent professional should be sought. (From a Declaration of Principles jointly adopted by a committee of the American Bar Association and a committee of Publishers and Associations.)

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