By John Reichard, CQ HealthBeat Editor

October 29, 2009 -- A preliminary analysis of the House Democratic health care overhaul proposal released Thursday by the Congressional Budget Office (CBO) and the Joint Committee on Taxation (JCT) says its insurance coverage expansion provisions would cost $894 billion over the 2010–2019 period and reduce the federal deficit during that period by $104 billion followed by a "slight" deficit reduction in the second decade. The percentage of non-elderly legal residents with coverage would rise from 83 percent to 96 percent.

By 2019, the number of non-elderly Americans who are uninsured would be reduced by about 36 million, leaving about 18 million residents uninsured, about one-third of whom would be unauthorized immigrants.

The 96 percent coverage rate nearly meets the demand of the hospital industry that 97 percent be covered to fulfill an agreement with the White House agreeing to $155 billion in Medicare cuts over a 10-year period. Although that agreement was reached with Senate Democrats, the 97 percent is the figure hospitals are looking for in a final bill. Insurers also argue that a rate "in the high 90s" is one of the conditions that must be met for regulatory revisions guaranteeing the issuance of coverage to be workable.

Remarkably, the analysis concludes that a public option offered in new insurance exchanges would not charge lower premiums than private plans. The public option would attract only six million enrollees, the forecast says.

The analysis says "that estimate of enrollment reflects CBO's assessment that a public plan paying negotiated rates would attract a broad network of providers but would typically have premiums that are somewhat higher than the average premiums for the private plans in the exchanges."

The CBO added that "the rates the public plan pays to providers would, on average, probably be comparable to the rates paid by private insurers participating in the exchanges. The public plan would have lower administrative costs than those private plans but would probably engage in less management of utilization by its enrollees and attract a less healthy pool of enrollees."

Lowering the tab for the overhaul proposal is a decision to shift some of the costs of expanding Medicaid to the states. In the original House health care overhaul proposal (HR 3200), the federal government would have paid 100 percent of those costs; in HR 3962, the revised proposal released Thursday, 91 percent of costs would be borne by the federal government. The analysis said that state spending on Medicaid would increase on net by about $34 billion over the 2010–2019 period as a result of the provisions affecting insurance coverage.

The $894 billion estimate for expanded insurance coverage "primarily reflects $425 billion in net federal outlays for Medicaid and CHIP [Children's Health Insurance Program] and $605 billion in federal subsidies that would be provided to purchase coverage through the new insurance exchanges and related spending."

Another main element of the coverage provisions "that would increase federal deficits is the tax credit for certain small employers who offer health insurance, which is estimated to reduce revenues by $25 billion over 10 years. Those costs would be partly offset by a net increase in receipts, totaling $167 billion over the period, from two sources: penalty payments by uninsured individuals, which would yield receipts of about $33 billion, and penalty payments by employers under the play-or-pay requirement [requiring them offer coverage or pay penalties to fund coverage], which would total about $135 billion."

The analysis says that payment changes in Medicare, Medicaid and other federal health programs would cut spending by about $426 billion over the 2010–2019 period. Shrinking annual payment increases to providers in traditional Medicare would yield budgetary savings of $229 billion over 10 years.

The analysts found that there would be roughly 15 million more Medicaid enrollees than the number now projected for Medicaid and CHIP combined under current law. CHIP would no longer exist in 2019 under the bill.

In that year, about 30 million people would get coverage through insurance exchanges, including the six million enrolling in the public option. "Certain employers could allow all of their workers to choose among the plans available in the exchanges, but those enrollees would not be eligible to receive subsidies via the exchanges," the analysis notes. "CBO and JCT expect that approximately 9 million people would obtain coverage in that way in 2019," the analysis says.

The proposal would boost some payment rates in Medicaid to address difficulties with access to physicians in that program. Increasing Medicaid's payment rates to physicians and other health care professionals for primary care services would cost about $57 billion over 10 years.

The CBO says Medicare spending under the bill would rise at an average annual rate of roughly 6 percent during the next two decades—"well below the roughly 8 percent annual growth rate of the past two decades, despite a growing number of Medicare beneficiaries as the baby-boom generation retires."

The analysis concludes that "the long-term budgetary impact of HR 3962 could be quite different if those provisions generating savings were ultimately changed or not fully implemented." Richard Foster, Medicare's chief actuary, has cast doubt on whether Medicare payment reduction of the kind proposed in the House bill would prove to be politically feasible.

Late Thursday, House "Blue Dogs," the coalition of centrist Democrats in that chamber, sent a letter to the CBO seeking clarification of how the proposal would affect national health expenditures and the deficit in the long term. The letter said the analysis fell short in determining whether the proposal would "bend the curve" in health spending.

By Drew Armstrong, CQ Staff

October 29, 2009 -- The giant health care bill introduced by House Democratic leaders on Thursday would transform the American health insurance system, moving the nation a step closer to universal coverage.

The measure would require individuals to obtain health insurance and employers to offer it. According to House Democratic leaders, 96 percent of Americans will be covered by "a quality, affordable health plan" when the legislation is fully effective.

The legislation seeks to provide a new route to affordable health insurance for individuals and small businesses by creating state-run "exchanges," or marketplaces, where people could shop for policies—including a government-run plan that would compete with the offerings of private insurance companies.

Every plan sold on the exchange would have to include specific, standardized benefits. Plans sold on the exchange and, after a grace period, those provided by employers would have to cover preventive care free of cost to the patient.

Individuals who fail to obtain health coverage either through their employers or on the exchange would face a penalty of 2.5 percent of their income, with a hardship exemption. The federal government will provide "affordability credits," or subsidies, on a sliding scale tied to income to help people cover the expense of premiums and reduce cost-sharing.

Employers who fail to offer health insurance to their workers would have to pay a fee equal to 8 percent of their payroll. To encourage employers to provide retiree health benefits to former workers who have not yet reached Medicare eligibility of age 65, the bill would create a $10 billion fund for a temporary reinsurance program to help offset the costs of health claims for retirees age 55–64.

The measure also would create a public long-term care insurance program for adults who become functionally disabled, to be financed through voluntary payroll tax deductions.

Some of the bill's provisions would take effect within 90 days of enactment to reduce the pressure on people who currently have trouble getting insurance. The legislation would extend so-called COBRA coverage—group-rate insurance for workers who lose their jobs—until the new exchanges are set up and operating.

The government also would set up a "high-risk pool" to cover people with significant medical issues, including pre-existing health conditions.

Insurers would be banned from dropping coverage for people they already insure after a policyholder becomes ill or injured, a practice called "rescissions." They could still, however, drop people who commit fraud to obtain coverage.

Insurers would no longer be able to deny coverage to new enrollees with pre-existing conditions.

To make sure that young adults are insured, the bill would let children stay on their parents' health plan until they reach age 27. So-called "young invincibles" are among those least likely to have insurance now.

The bill would limit the amount private health insurers could spend on administrative costs—including profits. That figure would be capped at 15 percent of premiums, essentially setting a limit on profit margins. Any money left over from premiums and not spent on health care for beneficiaries would be returned through rebates.

By Drew Armstrong and Edward Epstein, CQ Staff

October 29, 2009 -- House Democratic leaders on Thursday introduced their long-awaited health care overhaul package, as rank-and-file party members appeared to be rallying behind the proposal.

The nearly 2,000-page bill (HR 3962) is expected to be on the House floor late next week.

Senate Democrats are lagging their House counterparts. Senate Majority Leader Harry Reid, D-Nev., who is working to draft a final bill in that chamber, will not be ready to introduce one this week, his spokesman said Thursday.

The House bill contains a public insurance option that would have the government negotiate rates with health care providers, along with a mandate that individuals obtain coverage and that businesses offer it. It would be financed in part by a surtax on the wealthiest Americans.

The legislation does not include a proposal to repeal a Medicare payment formula that sets doctors' payment rates. The formula has demanded deep cuts in recent years, as well as far into the future. That issue will be addressed in a separate bill that would do away with the formula and the required cuts, and would split up Medicare's payments to doctors into different categories, such as preventive care. Each category would then be subject to its own cost-control formula.

Early indications were that House Democrats across the ideological spectrum were lining up behind the main health care measure, which was assembled by Speaker Nancy Pelosi, D-Calif., and her team.

Republicans, as expected, uniformly denounced the legislation. Not a single GOP member is expected to vote for it.

"How are we going to fix our health care with 1,990 pages of bureaucracy?" Minority Leader John A. Boehner, R-Ohio, asked at a press conference.

Boehner wouldn't say if the minority will offer an alternative bill once the measure reaches the floor, but he said Republicans are working on several alternatives.

Winning Over Doubters
At a morning House Democratic Caucus session, Jim McGovern, D-Mass., said that Earl Pomeroy, D-N.D., a centrist who had been wary of a "robust" public option that would link provider payments to Medicare rates, rose to say he would now support the bill. McGovern said members greeted that news with a standing ovation.

Pomeroy said he had begun moving toward supporting the bill after an Oct. 26 meeting with Pelosi, where he "had the sense" that she would agree to a public option that allows health providers to negotiate their rates, instead of paying them rates based on Medicare. That was Pomeroy's "bright-line issue," he said; he thinks Medicare does not pay doctors and hospitals in his district well enough. Other moderates felt similarly, he said.

"This bill will pass the House," he said.

Gerald E. Connolly, D-Va., president of the freshman class, who had withheld support up to now, said, "I look forward to supporting the bill."

Connolly emphasized the bill's projected help in controlling health care costs and premiums for small businesses. "Small-business owners across the nation need this kind of legislation, and they need it now," he said.

And among liberals who had pushed for a public option linked to Medicare payment rates, there was also support, even though the bill does not adopt their preferred approach for a government-run plan.

"Our people in this country need health care reform," said Mary Jo Kilroy, D-Ohio. "I prefer the plan that costs less and covers more people, but we need to get a bill done."

Pelosi led Democrats down the West Front steps of the Capitol to unveil her bill after the caucus held its morning meeting. The event had the feel of a political convention, with rock music piping out of big speakers and a half-dozen aides carrying narrow signs atop 12-foot poles that extolled the virtues of the proposal.

The Speaker likened the bill's introduction to major progressive achievements of the past.

"It is with great pride and humility that we come before you to follow in the footsteps of those who gave our country Social Security, and then Medicare, and now universal affordable health care," Pelosi told the assembled crowd.

Democratic leaders have struggled for weeks to produce a final bill from the varying versions of legislation (HR 3200) approved earlier by three House committees: Ways and Means, Education and Labor, and Energy and Commerce. Much of their negotiations focused on how to craft a government-run health insurance option to compete with private insurers on state-run "exchanges," or marketplaces, where individuals and small businesses could purchase health coverage.

The option they settled on—in which the government would negotiate rates with health care providers like doctors and hospitals—is a step back from the Medicare-based plan House progressives fought for.

President Obama has invited the liberal groups within the House Democratic Caucus to the White House this afternoon to urge support for the final bill.

Cost Estimates
The Congressional Budget Office on Thursday estimated the bill's net cost at $894 billion over 10 years, and said it reduces the deficit by $104 billion over 10, with further slight reductions thereafter. It would cover 96 percent of the eligible population, up from 83 percent now, according to CBO.

The estimate also says public plan premiums would probably be higher than private plans, on average, because the public plan would do less to limit utilization of health services and would attract a sicker pool of customers.

The legislation would be paid for largely by a surtax on the adjusted gross income of individuals making more than $500,000 and married couples making more than $1 million. Those thresholds are higher than in the previous version of the bill, and thus likely to yield less revenue.

The bill contains new revenue-raisers that would impose tax-compliance requirements on businesses and create a 2.5 percent excise tax on certain medical devices.

The revenue provisions are likely to be a significant point of contention between the House and the Senate, which is heading toward using an excise tax on high-cost health insurance plans as its main tax funding stream.

Some Protest
At the ceremony to introduce the bill, protesters gathered on the lawn to rally against the bill.

One, equipped with a bullhorn and standing about 100 feet away, shouted that Pelosi and her allies would "burn in hell for this."

"Thank you, insurance companies of America," Pelosi responded, to laughter.

The protesters appeared to be largely anti-abortion activists. Police confiscated the bullhorn, which was suddenly silenced after a burst of feedback. A woman among the protesters began shouting in place of the bullhorn, but could not be heard over Pelosi's remarks.

Conservatives had sought to add explicit language to the legislation that would prevent any funding under the bill from going to support abortion. Senior Democrats say that the bill would do nothing to expand funding for abortion and does not require an explicit ban.

Alan K. Ota, Alex Wayne and Kathleen Hunter contributed to this story.

By Kathleen Hunter and Drew Armstrong, CQ Staff

The Senate's health care overhaul will include a government-run plan, written as an "opt-out" policy that gives states the choice not to participate.

Senate Majority Leader Harry Reid, D-Nev., announced the decision to include the "public option" in Senate bill on Monday afternoon, stating, "I believe there's strong consensus to move forward in this direction.

Reid said his decision was based on "countless hours" in consultation with senators over the last few days.

"The best way to move forward is to include a public option with an opt out provision for states, who will have the ability to opt out if they so choose," he said.

Reid said he would submit bill language to the Congressional Budget Office for scoring later in the day.

Reid has been writing the bill with Finance Committee Chairman Max Baucus, D-Mont., and Sen. Christopher J. Dodd, D-Conn. Under the plan, states will have until 2014 to opt out of the plan.

Like the proposals passed out of both panels, the merged bill would set up health care "exchanges," through which qualifying individuals would be able to purchase health insurance, a Reid aide said. The aide said the merged bill would allow exchange participants who reside in states that do not opt out of the government run plan to participate in a a public plan.

"I believe it's an important way to ensure competition and level the playing field," Reid said.

Reid said the proposal would retain Finance Committee language that would provide seed money to set up health care "co-operatives," and the aide said those co-ops could be another option that exchange participants could choose.

When asked about the process by which states would opt out of the public plan, Reid replied, "The legislature would have to to act. No further details were immediately available.

Although Reid described a "consensus that was reached within our caucus and with the White House," he warned that the public option approach was "not a silver bullet," and stopped short of predicting 60 Democratic votes for the legislation.

"I believe that as soon as we get this bill back from CBO and people have the chance to look at it, I believe we clearly will have the support of my caucus to move to the bill and start legislating," he said.

Reid said Maine Republican Sen. Olympia J. Snowe, a heavily courted moderate who to date has been the only Republican to support a Democratic health bill, would not be part of leadership's plans to move forward.

"She does not like a public option of any kind," Reid said, adding that he had spoken with Snowe on Friday about his plans.

Key moderates such as Ben Nelson, D-Neb., and Snowe say the decision on the public plan will weigh heavily on whether they will support the bill. While Snowe opposes it outright, Nelson said last week would put him in a "difficult position."

Nelson spokesman Jake Thompson said following Reid's announcement that Nelson was "noncommittal" about the prospect of voting to help a bill with a state opt-out provision overcome procedural hurdles in the Senate.

Snowe favors a "trigger" for the public option, which would have the plan go into effect only if other health care proposals are unsuccessful in bringing down health care costs. Nelson prefers an "opt in" policy, which would let states set up their own government-run health insurance plans if they chose to do so.

Majority Whip Richard J. Durbin, D-Ill., endorsed the opt-out in a Senate floor speech Monday.

"I can't think of a better approach," Durbin said, adding, "I don't think opt-out is an unfair approach . . . the people and the state will have the final say—in the next election—whether the governor and the state made the right choice."

The opt-out approach gives Democratic leaders latitude to fall back to the trigger proposal championed by Snowe, if support for the opt-out falters on the floor.

White House spokesman Robert Gibbs said in a statement that President Obama was "pleased" with the Senate's approach.

"As he said to Congress and the nation in September, he supports the public option because it has the potential to play an essential role in holding insurance companies accountable through choice and competition," Gibbs said.

Several White House officials—including Chief of Staff Rahm Emanuel—have participated in closed-door talks with Reid, Dodd and Baucus over the last two weeks about what should be included in the bill that comes to the Senate floor.

A top Senate Republican predicted that the opt-out plan would essentially result in a nationwide government-run insurance plan, much like the original public option Democrats proposed.

"I know how hard states try to get Medicaid waivers, and it's really hard," said Senate GOP Whip Jon Kyl of Arizona, referring to the exceptions the federal government grants to states to expand Medicaid. "So are you going to feel really good if your state has the ability to opt out if the secretary's going to be the one who gets to decide that, and she's very much for government-run insurance?"

By Melissa Attias, CQ Staff

October 29, 2009 -- U.S. hospitals that serve a high proportion of poor patients tend to lag behind in adopting electronic health records (EHRs), according to a Health Affairs report published Oct. 26 as a Web exclusive.

The report, entitled "Evidence of an Emerging Digital Divide Among Hospitals That Care for the Poor," also found that hospitals disproportionately serving the poor are associated with a lower quality of care. Those that had adopted electronic health records, however, did not appear to have a quality gap, the report said.

"These findings suggest that adopting EHRs should be a major policy goal of health reform measures targeting hospitals that serve large populations of poor patients," the authors wrote in the report.

The 2008 study surveyed 3,747 acute hospitals that were members of the American Hospital Association and received responses from 2,368 of them, for a 63.2 percent response rate.

Researchers then used the hospitals' Medicare disproportionate-share hospital (DSH) indexes—which are used to identify hospitals eligible for additional Medicare payments for caring for poor patients—to recognize which hospitals disproportionately care for the poor. The Centers for Medicare and Medicaid Services assign each hospital a DSH index based on its fraction of elderly Medicare patients eligible for Supplemental Security Income and its fraction of non-elderly patients with Medicaid coverage, the report said.

According to the analysis, hospitals with a high DSH index cared for a much larger proportion of elderly black patients, elderly Hispanic patients and Medicaid patients and a significantly smaller proportion of Medicare patients, compared with hospitals with a low DSH index. High-DSH hospitals were also more often large, major teaching hospitals, for-profit and located in the South, the report said.

Examining 24 electronic clinical functions, researchers also found that high-DSH hospitals had lower rates of adopting electronic health records than low-DSH hospitals. High-DSH hospitals without the electronic systems cited inadequate capital significantly more often as a major barrier to adoption, the report said, compared with low-DSH hospitals lacking the system.

In addition, the study found modest differences in quality of care between high-DSH and low-DSH hospitals based on acute myocardial infarction, congestive heart failure, pneumonia, and surgical complication prevention data from the Hospital Quality Alliance program. When hospitals adopted electronic health records, however, the study found that the DSH index was not negatively associated with quality performance.

"Our results suggest that EHR systems may be helpful in reducing the disparities in care between high- and low-DSH hospitals," the authors concluded. "While the Obama administration and Congress seek to craft effective policies to stimulate the adoption and use of health IT, it will be critical to ensure that institutions that care for the most vulnerable Americans are not left behind."

By Jane Norman, CQ HealthBeat Associate Editor

President Obama's chief economic adviser praised at length on Monday the "Cadillac tax" included in the Senate Finance Committee's version of the health care overhaul as an effective way to raise revenue and slow health care spending.

But she also said it has to be written so that it doesn't hit too hard at states with high health insurance costs, people in risky professions such as firefighting that could produce big medical bills or older Americans with expensive health problems.

"A part of designing this correctly is taking that into account," said Christina D. Romer, chairwoman of the Council of Economic Advisers, in response to a question following a speech at the left-leaning Center for American Progress. "And those are all things that we hear Congress talking about and certainly is something that, you know, makes sense to think about."

Overall, Romer said, it is "fiscally irresponsible" not to change the U.S. health care system and pursue ideas such as the excise tax and more. "We are on a collision course with reality," she said.

The White House official said in her prepared remarks that the excise tax on high-cost insurance policies proposed by Democratic Sen. John Kerry of Massachusetts "will encourage both employers and employees to be more watchful health care consumers" and discourage insurance companies from offering high-priced plans that will eat up workers' wages.

"A policy such as this is probably the No. 1 item that health economists across the ideological spectrum believe is likely to stem the explosion of health care costs," Romer said. The proposal would tax insurers and target plans for family coverage that run $21,000 or more. It would raise some $201.4 billion over a decade for the health care overhaul, according to the Joint Committee on Taxation.

The proposal draws strong objections from labor unions that say the 40 percent tax will be passed on to their members, who have forgone wage increases to beef up their health benefits. Many House Democrats have signaled their unhappiness with the idea as well.

The AFL-CIO says its members are making calls and sending letters to members of Congress to protest the tax, though AFL-CIO President Richard Trumka indicated in a conference call with reporters Monday that members might accept a tax on health care plans that are luxuries rather than necessities.

Another hot topic in the overhaul is a government-run health insurance proposal, a version of which Senate Majority Leader Harry Reid, D-Nev., said would be included in the Senate's health care overhaul bill. This "public option" will include an "opt out" provision so that states can choose not to join.

Romer said the public option would be a "credible entrant in concentrated markets and would serve as a competitive, alternative choice, constraining the ability of insurers to raise premiums and thus containing the growth rate of costs." She said it, too, would contribute in slowing the growth rate of health care costs.

Romer said she has been "quite persuaded" that the public option can contain costs and cited California counties that contract with HMOs to provide Medicaid. In some counties there are two private plans, and in some counties there is a private plan and a public plan.

"And the really interesting thing is that cost growth in the counties with a public and a private is indeed slower than in counties with two privately run plans," she said. "It's a small sample . . . but that's one of the things that is giving me a sense that it could be something that could genuinely slow the growth rate of costs."

Romer said that health care costs, both public and private, are rising much faster than the gross domestic product. "It is simply not a problem that can be kicked down the road indefinitely. Obviously we can't go back eight years and make more responsible choices," said Romer, in a swipe at the George W. Bush administration.

Romer also took aim at an initiative expanded during that administration, Medicare Advantage, which is targeted for reductions in the health care overhaul. She cited statistics from the Medicare Payment Advisory Commission that the managed care program spends 14 percent more per beneficiary than traditional fee-for-service Medicare. She said ongoing research by White House and Treasury economists suggests that Medicare beneficiaries who enroll in Medicare Advantage tend to be healthier prior to their enrollment.

"As a result one might expect the government to spend less on their health care, not 14 percent more," Romer said.

Other recent research by the economists "suggests that the total fiscal impact of health care reform may be even larger than our baseline estimates suggest," she added.

Romer said the expansion of access to insurance is important for state and local governments that now pay for much of the care for the uninsured. There are 16 states now spending $3.6 billion a year in uncompensated care, as well as another $600 million on higher insurance premiums for public employees to offset the costs of uncompensated care shifted onto those policies, Romer said.

That money would at least partly be saved under the overhaul, she said. Expanding projections to all 50 states and the District of Columbia "implies savings of roughly $116 billion to state and local governments between 2014 and 2019," she said. Even after taking out the estimated $33 billion that states would have to pay out in increased Medicaid costs under the Senate bill, there could be a net savings to state and local governments of $83 billion over six years, Romer said.