By John Reichard, CQ HealthBeat Editor

May 14, 2009 -- A summary circulating Thursday of health overhaul provisions said to be favored by House Energy and Commerce Committee Democrats calls for the creation of a "National Health Exchange" initially open to all individuals without employer-sponsored health insurance and small businesses. The overhaul concept outlined by the summary would require individuals to carry health insurance and give them "affordability credits" to pay for it if they didn't qualify for Medicaid and their incomes were below four times the federal poverty level.

An Energy and Commerce Committee aide said the summary "is not a committee document. It appears to be someone's impression of the framework. No paper was distributed to members or staff" at a health overhaul briefing of committee Democrats Wednesday, the aide said. Asked if the summary inaccurately summarized the committee's approach, the aide said, "We're not commenting on the document."

The Exchange would be an entity offering insurance options and administering the credits to reduce the costs of coverage on a sliding scale up to an income of $88,200 for a family of four.

"Everyone would be protected by an annual cap on out-of-pocket spending," the summary said. In addition to those without employer-sponsored coverage, the exchange would be open in the first year to businesses with fewer than 10 employees and in the second year to those with fewer than 20 employees. Eventually, it would be open to large businesses.

Individuals would have a choice of public and private plans and Medicaid would be improved. A new public plan "would be subject to the same market reforms and consumer protections as private plans." The public plan "would have geographic adjusters for prices." It initially would be run by the Department of Health and Human Services, and would be independent of the Health Exchange. It could not be subsidized by the government and "would build on Medicare providers and rates, similar to the practices of private plans today."

A public advisory committee would recommend benefit packages based generally on the Federal Employees Health Benefit Plan. Several levels of benefits would be available on the Exchange. After several years employers would have to meet the minimum benefits offered in the Exchange or allow their workers to buy coverage there.

Employers would have to either "play" by offering insurance to their employees and their dependents or "pay" by contributing a percentage of their payroll to fund coverage. The plan also calls for investments in the health care workforce, more training of residents in community settings, better preventive care in Medicare and Medicaid and increased "support" for community health centers, among other measures.

By CQ Staff

May 11, 2009 -- Senate Finance Committee leaders released detailed health coverage options late Monday requiring individuals to carry health insurance that in many cases would be purchased with government subsidies and employer contributions and obtained through a "Health Insurance Exchange" site on the Internet directing consumers to each coverage option in their zip code.

The policy options document punts on the controversial question of establishing a government-run public health insurance program as one of the coverage options, perhaps the most divisive issue so far in the health overhaul debate. It lists options ranging from a new health insurance program modeled after Medicare that would require all of the doctors, hospitals, and other providers in that program to participate, to no "public program" at all.

It also would open Medicare to 55- to 64-year-old uninsured Americans who would like to buy into the program and increase eligibility in Medicaid to uninsured parents, children, and pregnant women in households with incomes up to 150 percent of the federal poverty level. One of the alternatives would open Medicaid to all individuals with incomes at or below 115 percent of the federal poverty level.

Other options in the document would sharply limit how much insurance rates could vary and guarantee access to insurance coverage, blocking insurers from denying coverage based on health status.

Committee Chairman Max Baucus, D-Mont., and the panel's top Republican, Charles E. Grassley of Iowa, said in a joint statement that they would present the coverage options at a meeting Thursday to obtain "thoughts and ideas" from other committee members. The options released Monday are the second of three papers panel members will debate before holding a markup in June of comprehensive overhaul legislation. The first paper dealt with proposals to improve patient care and reduce costs, and the third paper will deal with financing.

Financing is also the subject of a committee "roundtable" Tuesday that will hear testimony from public witnesses. A financing options document will be released before a committee meeting on that topic set for May 20.

Under the policy options paper released Monday, insurance companies would have to issue coverage to all individuals and would no longer be allowed to bar individuals with pre-existing conditions from coverage.

Premiums in the individual market and for groups of two to 10 could vary based on age, family composition, and tobacco use and by geography, but otherwise would not vary within a rating area. Rates could vary based on age by a ratio of no more than five to one. The rate limits would take effect in 2013. The rating rules for individuals and groups of two to 10 would apply to other small groups as defined by states, including groups of 11 to 50 people. They also could include the self-employed and/or groups of up to 100 people depending on current state law. Rating rules for the small group market other than individuals and groups of two to 10 would be phased in over a period of 3 to 10 years.

Individuals and groups of two to 10 could buy through the insurance exchange immediately after its creation. The rest of the small group market—11 to 50 employers or as defined by the states—would be able to buy insurance through the exchange once rating rules are fully phased in by the state in question.

People could keep their current coverage and plans will continue to offer the coverage they have today, "but these grandfathered plans will only be available to those people who are enrolled today," according to committee summary of the coverage options.

Four benefit options would be created: lowest, low, medium, and high. All insurers would have to offer coverage in each category. All plans would be required to offer preventive benefits, primary care, emergency services, hospitalization, physician services, prescription drugs, and other benefits. Plans could not include annual or lifetime limits on coverage and would have to provide first-dollar coverage of preventive care.

Tax credits would be provided for individuals under 400 percent of the poverty level to help offset premium costs. Eligible low-income individuals would be able to use the credits to buy coverage through the exchange. Subsidies would shrink in size as income level rises up to the 400 percent level. Small businesses with 10 or fewer full-time workers could get a tax credit equal to 50 percent of coverage costs. Credits would be available to larger businesses but be phased out for firms with more than 25 workers.

In the Medicare-like option for a new public plan, the federal government would set payment rates and there would be no solvency requirements. Another alternative would be a public plan run through regional third-party administrators, that would establish provider networks and negotiate rates. A third alternative would be a state-run public health insurance plan. Another option would be no public plan alternative but "expanding coverage through a reformed and better regulated market."

The committee option on Medicaid suggested that all state Medicaid programs might be required to raise income eligibility for pregnant women, children and parents—for example, up to 150 percent of the federal poverty level, or $33,000 a year for a family of four. There would then be three ways to ensure access to the program.

The first option would be for increased coverage through the current Medicaid structure, under which Medicaid would be expanded to cover everyone with an income at or below 115 percent of the federal poverty level and the federal government would provide short-term full funding for newly eligible beneficiaries. The new standard rates would be phased in over time.

A second option would be to allow those eligible for Medicaid to access the program through the Health Insurance Exchange, as well as expand Medicaid to cover people at or below 115 percent of the federal poverty level and also provide short-term full federal funding for newly eligible beneficiaries until the new standard rates kicked in.

A third approach would expand mandatory coverage for children, pregnant women and parents like the first two options, through Medicaid, but in a different way for childless adults. They would instead be eligible for federal tax credits to buy coverage, either a private plan through the exchange or public coverage through Medicaid. The tax credit would be used like a "voucher" that the recipient would use to buy into the state's Medicaid program and states would be required to accept it.

As for the Children's Health Insurance Program (CHIP), the paper says that once the exchange is up and running, there will be more coverage available for children of low and middle-income workers and the need for the program as it is currently structured will diminish. Under the option in the paper, there would be no federal changes to CHIP until after Sept. 20, 2013, and after that date the CHIP would be offered through the exchange and provide additional benefits for children not eligible for Medicaid.

The paper also lays out the option of making mandatory coverage for prescription drugs apply to the categorically and medically needy, and changing Medicaid law to eliminate smoking cessation drugs and barbiturates from Medicaid's excluded drug list.

Currently the federal government share of Medicaid costs is determined by the federal medical assistance percentage (FMAP), which varies by state and is determined by statute. One option would provide an automatic increase in that percentage during periods of economic downturn after Jan. 1, 2012.

On Medicare, an option is explored that would allow people between the ages of 55 and 64 who don't have employer-sponsored insurance or Medicaid coverage to voluntarily enroll in Medicare, beginning Jan. 1, 2011. The option would end once the exchange was up and running, though those already enrolled could stay in Medicare.

On the question of an individual mandate to carry health insurance, the option would be to say that all individuals have a "personal responsibility requirement" to obtain health insurance coverage. Everyone would be required to buy coverage through the individual market, any grandfathered plan or in the group market. Exemptions would be allowed for religious objections or those in the country illegally.

To ensure compliance, the consequence for not being insured would be an excise tax equal to a percentage of the premium for the lowest-cost option available through the exchange for the area where the individual lives. The tax would be phased-in and would equal 25 percent of the premium for the first year, 50 percent the second year and 75 percent thereafter. Individuals could apply for exemptions from the penalty if the lowest-cost option exceeds 10 percent of income, or an individual is below 100 percent of the federal poverty level, or "hardship." The requirement would begin Jan. 1, 2013 or sooner if possible, the paper says.

As for an employer requirement, the paper sets out as an option a "pay or play" model in which all employers with more than $500,000 in payroll a year would either offer their full-time workers health insurance coverage, or pay an assessment. Those employers with total annual payroll of less than $250,000 would be exempt from offering coverage.

The coverage offered by those larger employers would have to have an actuarial value equal to the lowest coverage option, as well as first-dollar coverage for preventive care, and the employer would be required to contribute at least 50 percent of the premium for the employer-sponsored insurance.

Employers that do not demonstrate they have offered the required level of coverage to their employees would have to pay an assessment, under this option. It would be an excise tax calculated as an amount per employee per month based on the employer's gross receipts for the tax year.

The second option is to not require employers to offer health insurance.

Baucus and Grassley's proposals would put new emphasis on preventive care and wellness programs in Medicare, designed to lower costs by keeping people from getting sick, or by managing chronic conditions like diabetes and obesity before they develop into expensive acute problems. Their proposals would create a "personalized prevention plan" for Medicare enrollees that would include health screening. The proposal would create an individual care program for each beneficiary to keep them healthy, developed in consultation with a "qualified health professional," likely a doctor or nurse.

While the proposals would eliminate many of Medicare's co-payments and other cost-sharing requirements for preventive care, it would do so only for health services with a high rating by a government-appointed task force. Health services that have been determined not to improve or maintain health could be removed from the list of services Medicare pays for, unless a doctor decided that they were necessary.

Preventive programs paid for by Medicaid would get a similar treatment. Preventive procedures considered most effective would not have co-pays, and states could apply for funds that would give Medicaid beneficiaries a refund if they met certain health goals, like weight loss, quitting smoking, or other wellness programs. Companies with wellness programs would get a similar benefit, receiving a tax credit for putting in place effective wellness programs to keep employees healthy, up to $200 per employee in some cases.

Baucus and Grassley's proposal would also expand optional programs for people to get care at home that they would otherwise receive in a Medicaid-funded institution, like a nursing home. States could expand waivers to let more people into the program, and federal matching funding for home-based care would increase by 1 percent.

An immigration fight could develop over one proposal—to let childless, legal immigrants enroll in Medicaid before the five-year waiting period that currently applies. During debate over an expansion of the Children's Health Insurance Program (PL 111-3), some lawmakers opposed to immigration reform took issue with a similar proposal for legal immigrant children and their parents.

Other proposals include standardizing how health programs collect data on race and ethnicity, and updating the computer databases used by Social Security Administrations, which are becoming obsolete.

By Jane Norman, CQ HealthBeat Associate Editor

May 11, 2009 -- Glenn M. Hackbarth has been reappointed to a new term as chairman of the Medicare Payment Advisory Commission (MedPAC), the head of the Government Accountability Office (GAO) announced.

The agency also announced Friday that two new members have joined the commission and four more current members will stay for new terms.

The new members are Robert Berenson, a senior fellow at the Urban Institute, and Herb Kuhn, a health care consultant specializing in Medicare and Medicaid issues. Berenson was appointed to a three-year term running through 2012, while Kuhn will replace Jack Ebeler, who resigned in March. Kuhn will serve out Ebeler's three-year term, which began in 2007.

The appointments were made by Gene L. Dodaro, acting comptroller general and head of the GAO.

The appointments come as Congress wrestles with a health care overhaul in which the treatment of Medicare and attempts to rein in its costs will play a key role. MedPAC advises Congress on issues surrounding both Medicare Advantage and the Medicare fee-for-service plans, and its recommendations carry much weight.

Members reappointed to MedPAC are Mitra Behroozi, executive director of 1199 Service Employees International Union Benefit and Pension Funds; Karen R. Borman, professor of surgery at the University of Central Florida College of Medicine; Ronald D. Castellanos, a urologist at Southwest Florida Urologic Associates; and Bruce Stuart, a professor and executive director at the Peter Lamy Center on Drug Therapy and Aging at the University of Maryland, Baltimore. All will serve through April 2012.

"The delivery and financing of health care remain a serious concern for policy makers," Dodaro said in a statement. "In government, the Medicare program faces particularly difficult challenges." He said there were many qualified applicants for the MedPAC openings.

Berenson from 1998 to 2000 served as director of the Center for Health Plans and Providers at the Centers for Health Plans and Providers at the Centers for Medicare and Medicaid Services (CMS). He was founder and medical director of the National Capital Preferred Provider Organization from 1986 to 1996 and assistant director of the White House domestic policy staff in the Carter administration.

Kuhn as a consultant specializes in Medicare and Medicaid issues and served at CMS during the Bush administration as deputy administrator from 2006 to 2009 and as director of the Center for Medicare Management from 2004 to 2006. He was corporate vice president for the Premier Hospital Alliance from 2000 through 2004 and worked in federal relations for the American Hospital Association from 1987 through 2000.

By Jane Norman, CQ HealthBeat Associate Editor

May 15, 2009 --Health industry leaders and the White House attempted Friday to smooth over a misunderstanding about just what a coalition of health groups pledged earlier this week at what was billed as a "historic" meeting at the White House.

The problem appears to be over differing interpretations of when a major cost-cutting drive by hospitals, drugmakers, medical device manufacturers, and insurers would kick into effect.

While President Obama used the phrase "each year" to describe when a 1.5 percentage point reduction in health spending would be achieved, the industry coalition apparently did not understand it as a specific, immediate year-by-year target, sending their members into a spin.

Peter R. Orszag, director of the White House Office of Management and Budget, said in a post on his office blog Friday that the six groups have clarified that they need to "ramp up" to the 1.5 percentage point reduction in the growth rate, "which is understandable."

The health industry heavyweights issued a new statement Friday in which they restated their commitment to bending the health care cost curve, and did not retract their prior promise of $2 trillion in savings over 10 years.

"Our organizations are currently engaged in an intensive process to develop proposals to reduce the rate of increase in future health care costs," they said in the statement. "And to be successful, we must take action in public–private partnership. We look forward to offering cost-savings recommendations in the weeks ahead." The administration has asked for specifics by June 1.

The groups are the Advanced Medical Technology Association, America's Health Insurance Plans, the American Hospital Association, the American Medical Association, the Pharmaceutical Research and Manufacturers of America, and the Service Employees International Union.

The cost pledge was first revealed on Monday, when the groups met with President Obama and issued a letter in which they promised to offer concrete initiatives to transform the health system.

"As restructuring takes hold and the population's health improves over the coming decade, we will do our part to achieve your administration's goal of decreasing by 1.5 percentage points the annual health care spending growth rate—saving $2 trillion or more," they wrote.

The meeting drew wide publicity as well as some skepticism about the groups' motives, and apparently it also touched off confusion among the groups' members across the country.

The New York Times reported that as the week went on, some leaders said that the president had substantially overstated their promise. "There's been a lot of misunderstanding that has caused a lot of consternation among our members," Richard J. Umbdenstock, president of the American Hospital Association (AHA), said, according to the Times.

The executive vice president of the AHA sent out a bulletin to members stating that "the groups did not support reducing the rate of health spending by 1.5 percentage points annually" and that the promise was that the annual rate of growth eventually would be 1.5 percentage points lower, the Times said.

The publication Modern Healthcare reported that the hospital lobby said the overall intent of the coalition was "spun away from its original intent" and that the White House, Congress, and the media misrepresented the letter. Umbdenstock conducted a conference call with more than 230 member organizations to say the financial data was "spun or misunderstood," the publication said.

Orszag said on his blog that "a media report this morning makes a mountain out of a molehill," referring to the Times story, and that allowing the groups time to ramp up to the 1.5 percentage point cut in growth does not change the fundamental point.

"The groups have committed to significant reductions in the growth rate, thereby recognizing that substantial efficiencies can be captured in the health system," he wrote. "Some ramp-up time also does not materially affect the long-term impact from reducing the growth rate, on either national health expenditures or the federal budget."

By John Reichard, CQ HealthBeat Editor

May 14, 2009 -- Some of the leading thinkers in health care offered Senate Finance Committee members a range of options for taxing health insurance benefits this week, a potentially big pot of revenues for covering the uninsured in health overhaul legislation that may move through Congress later this year.

The tax hike options they outlined are referred to in technical terms as "capping the exclusion," which refers to a tax law provision that excludes employer-paid health insurance premiums from an individual employee's taxable income. Several analysts at a Senate Finance Committee "roundtable" Tuesday on financing coverage of the uninsured urged changes to the exclusion, despite arguments that revisions would be unfair to certain employees or too complex to administer.

Committee Chairman Max Baucus, D-Mont., said he opposes elimination of the exclusion, but wants to look at modifications.

Eliminating the exclusion in calculating income and payroll taxes would raise $3.5 trillion over 10 years, according to an estimate by the Tax Policy Center, a joint program of the Urban Institute and the Brookings Institution. Leonard E. Burman, the director of the center, told the roundtable, however, that elimination would be undesirable "because tens of millions of Americans would likely lose their health insurance."

But if the exclusion wasn't eliminated but was capped at the average cost of health insurance in 2009, revenues from income and payroll taxes would rise by about $1.1 trillion over 10 years, Burman said. That's in line with some estimates of the cost of universal coverage. He estimated the 2009 average cost of single coverage at $5,370, of single coverage plus one other person at $10,227, and of family coverage at $13,226.

With the cap set at that level relatively few people would pay higher taxes at first, Burman said—only 30 percent of households would pay higher taxes in 2010. But because health care costs grow fast, virtually all households with employer-sponsored health coverage would be paying higher taxes by 2019, he noted.

If the cap were adjusted each year to rise with the consumer price index, an additional $848 billion in revenues would be raised over 10 years. Were it adjusted to rise with health care cost inflation each year, $165 billion would be raised over 10 years.

"A less draconian variant would be to cap the . . . exclusion and deduction for the self-employed at the 90th percentile for premiums," Burman said. If this option were used without indexing it for inflation, $500 billion would be raised over 10 years, he said. Were a cap at the 90th percentile indexed to rise each year by the consumer price index, it would raise $336 billion. And if it were indexed to rise by medical cost inflation, it would raise $26 billion over 10 years.

Jonathan Gruber of the Massachusetts Institute of Technology estimated that a cap set to tax only the top quarter of the most expensive plans would raise $330 billion over 2012–2019 if indexed to rise with the consumer price index and $220 billion over that period if indexed for premium growth.

Gruber said that another approach might be to cap the exclusion at the typical premium level for employer-sponsored insurance but only for families with incomes above $125,000 per year. That would raise $340 billion over 2012-2019 if the cap were indexed to the consumer price index or $240 billion if indexed to premium growth, he said.

Critics say that a cap would be unfair in that it would affect more people who live in areas with high health care costs, who work for small firms (which in general must pay higher premiums), or are self-employed, older, or in poor health since they all tend to pay higher premiums. "It would be feasible, although not easy, to adjust the caps for all these factors," said Burman. "One option might be to set up a publicly sponsored market, like the Federal Employees' Health Benefits Program, where anyone could purchase inexpensive insurance and tip the cap to the cost of such insurance in each market."

Gruber asserted that the cap could be set higher in firms with older workers and possibly lower in firms with younger workers, and adjusted higher in high-cost states and lower in lower-cost states. "Some have argued that it would be administratively infeasible to reduce this tax subsidy," he noted. "This is simply wrong," he asserted.

But groups representing employers object to capping the exclusion. James Klein, president of the American Benefits Council, said in testimony before the roundtable that "it would be a mistake to limit or otherwise undermine the exclusion." He added that "raising taxes on those who participate in health plans is not the way to solve the health care system's ills." He said it would be difficult if not impossible to design a cap that did not result in tax inequities and require "a costly set of valuation rules for employers and workers."

And labor also objects. Gerald Shea, assistant to the president of the American Federation of Labor and Congress of Industrial Organizations (AFL-CIO) said capping the exclusion would be "a step in the wrong direction" and "threatens to disrupt the primary source of health coverage and financing for most Americans."

May 12, 2009 -- By John Reichard, CQ HealthBeat Editor

Trustees of the Medicare program announced Tuesday that the fund that pays for hospital care will be exhausted in 2017, two years earlier than they projected a year ago. Correcting the fiscal imbalance will require "substantial changes" to funds coming in and going out of the fund, "even in the short-range alone," according to the trustees.

Obama administrations officials were vague, however, about how they would respond. Health and Human Services Secretary Kathleen Sebelius said the report "is a wake-up call for everyone who is concerned about Medicare and the health of our economy. And it's yet another sign that we can't wait for real, comprehensive reform."

Medicare trustees also said that one of every four enrollees in Part B of the program would see unusually large premium increases in 2010 and 2011. Seniors usually pay for Part B, which funds doctor care outside the hospital as well as other services, out of their monthly Social Security checks. Many of those seeing the increases face deductions of $104.20 each month next year, up from $96.40 this year. In 2011, the deductions would rise to $120.20. The most affluent seniors pay three times the standard Part B deductions. That means in 2010 they would see monthly deductions for the program of $312.60 and in 2011 of $360.60.

"Exhaustion" of the hospital fund does not mean it would run out of money. What it does mean is that it wouldn't be able to pay full reimbursement come 2017. So for each dollar claimed by hospitals for Part A services, the fund would be able to pay 81 cents. According to the report, the trust fund "could be brought into actuarial balance over the next 75 years by changes equivalent to an immediate 134 percent increase in the payroll tax . . . or an immediate 53 percent reduction in program outlays, or some combination of the two," according to the report.

The unusually large Part B premium hikes for roughly one quarter of Medicare beneficiaries stem from a "hold harmless" provision in the law that keeps most Social Security recipients from seeing their monthly checks reduced when Part B premium increases are greater than the Social Security "COLAs"—the yearly adjustment in payments meant to keep up with increases in the cost of living. Because of significant increases in the consumer price index in the last five months of 2008, no COLA increase is expected for December 2009. That means the hold harmless provision protects more seniors from increases, reducing Part B revenues coming into the program and requiring higher increases for those not protected by the hold harmless clause.

At a Tuesday afternoon press briefing, Sebelius and Treasury Secretary Timothy F. Geithner leaned on pledges to overhaul health care to explain how they will respond to Medicare's slumping finances, saying that revamping the larger health care system is essential to bending down spending growth. "The most effective entitlement reform measure will be a major health reform that helps bring down the growth rate of national health care spending," Geithner said.

The administration officials also pointed repeatedly to a health industry pledge announced Monday to trim 1.5 percentage points from yearly spending growth over the next 10 years, which they said would save $2 trillion. However, industry groups haven't specified how they would reduce spending and skepticism abounds that they will deliver.

The idea that an overhaul will bend down spending growth is also an untested hypothesis. Asked what the administration will do in a couple of years to rescue the Medicare trust fund if an overhaul isn't producing results, Sebelius said, "we know a couple of things even though they may not have been effectively scored so far" by the Congressional Budget Office as saving money. "We know that preventive care is more cost effective than critical care. We know that coordinating end of life care will help to lower costs in the long run . . . we know that if we can reduce readmission to the hospital after being admitted the first time and cut down on hospital infection that will lower overall costs."

Typically, the Medicare trustees report would start a process known as the "Medicare trigger," which requires the president and Congress to introduce legislation that would extend the program's fiscal viability. Trustees announced that the program's finances are poor enough that under the law they are issuing a warning about its financial condition, the fourth time they have done so. But earlier in the year, the House approved a rules package that Democratic leaders said turned off the requirement, circumventing the process.

Rep. David Camp of Michigan, the top Republican on the House Ways and Means Committee, said "calls for reform are not enough . . . . Entitlement reform should be a bipartisan effort that starts today."

Sen. Charles E. Grassley of Iowa, the top Republican on the Senate Finance Committee, said "Kicking the can down the road isn't an option any more because we're at the end of the road. Necessary policy reforms to add efficiency and improve Medicare's fiscal health without cutting benefits will take time to implement. If Congress waits, the savings from those changes won't materialize until after the program becomes insolvent. At that point, the only options would be cutting provider payments, reducing benefits, or raising payroll taxes."

Rep. Pete Stark, D-Calif., chairman of the House Ways and Means Health Subcommittee, said "while opponents will use this as another excuse to arbitrarily slash and burn Medicare, our energies are better focused on how to reform our health system and rein in rising health costs." Stark added that "we have seen worse reports in years past and the Congress has always stepped in to strengthen the program's financial footing, and we will do so again."