By Emily Ethridge, CQ Staff

August 18, 2010 -- Democratic lawmakers praised a blueprint approved by state regulators Tuesday outlining what activities insurers can count as medical care, calling it a victory for consumers, even as insurers said it would hamper efforts to improve quality.

The National Association of Insurance Commissioners (NAIC) reached a milestone Tuesday after months of debate by approving a detailed form which insurers will have to fill out to show they are spending enough of the premiums they collect on medical care for policyholders.

Approval of the proposal was part of a months-long effort by the NAIC, made up of state insurance regulators from all 50 states, to assist the Department of Health and Human Services in developing a regulation on medical loss ratios (MLRs).

Under the health care overhaul law (PL 111-148, PL 111-152), insurers in the individual and small-group market must spend 80 percent of their premium revenue on medical care and efforts to improve quality of care. Those in the large-group market must spend 85 percent of premium income on those purposes.

Consumer advocates say this requirement will force insurance companies to spend more on patient care, rather than on marketing and administrative costs.

Lawmakers applauded Tuesday's unanimous decision but said the proposal could still be improved.

"As a key author of the medical loss ratio provisions in health reform, I commend NAIC for holding insurance companies accountable, despite pressure from the health insurance industry," Sen. Al Franken, D-Minn., said in a statement Wednesday. "But the fight isn't over yet. We need to remain vigilant so that NAIC's final product and the final federal rules aren't weakened by the health insurance industry in the coming weeks and months."

Rep. David Wu, D-Ore., joined Franken in praising the NAIC, but said he believes "there is still room for improvement" and hopes for a "final, prudent decision that will ensure Americans are paying for benefits and not paperwork," his spokeswoman said.

The overhaul law is vague on what services count as medical care and quality activities, and the NAIC is tasked with defining the medical loss ratio along with other key provisions.

The group's decision could directly affect insurers' profits, and insurance companies have clashed with lawmakers for months on how various items should be classified. Insurers say an overly strict definition will prevent them from including items that demonstrably improve care and could harm competition and their ability to keep costs down.

"The current proposal could have the unintended consequence of turning back the clock on efforts to improve patient safety, enhance the quality of care and fight fraud," said America's Health Insurance Plans President (AHIP) Karen Ignani. "Preserving patients' access to high-quality health care services is essential if the key goals of health care reform are to be achieved."

The insurance company trade group said in a letter last week that NAIC should count activities such as fraud prevention and wellness incentives in the individual market as medical care and quality improvement costs.

Lawmakers and consumer advocacy groups say they are concerned that a loose definition of the medical loss ratio would result in premium dollars being spent on compensation for insurance company executives, not on patient care.

"For too long, health insurance company CEOs have been pocketing astronomical salaries all the while denying care and coming up with foolish reasons to kick people off their insurance policies," Sen. John D. Rockefeller IV, D-W.Va., said in a statement. "I hope as the NAIC continues to meet this week they will remember that the purpose of this law was to make sure Americans' health insurance premium dollars are spent on actual care—not obscene CEO salaries and industry profits."

After Tuesday's approval, the liberal group Health Care for America Now cheered the NAIC's decision.

"Today the NAIC took a step toward ending the health insurance companies' stranglehold on our health care," said the group's executive director, Ethan Rome. "The top state insurance regulators from across the nation voted to put patient care above insurance company profits."

Tuesday's vote was the first step in determining the medical loss ratio, and NAIC has not completed work on instructions for filling out the form. The final version will address contentious issues including the extent to which taxes should be excluded when counting premium revenues.

By John Reichard, CQ HealthBeat Editor

August 18, 2010 -- It appears the Obama administration has had its fill of states' bellyaching about the deficit impact of stimulus and other added funding—and then taking the money anyway.

A letter this week from Health and Human Services Secretary Kathleen Sebelius to state governors notes the availability of $16.1 billion in added Medicaid money under the education-Medicaid aid funding measure President Obama signed into law Aug. 6. She advised, however, that "these funds are only available for your state if you request them within 45 days of enactment, or by September 24, 2010."

"As a former governor and current partner with states in running Medicaid," Sebelius added, "I urge you to act."

Similarly, Education Secretary Arne Duncan says in a letter to governors that they must apply by September 9 for education funding under the law. "I encourage you to submit your application as soon as possible," Duncan said.

Higher levels of Medicaid funding were first made available in the 2009 economic stimulus law and were set to expire Dec. 31. The new state-aid package extends added funding through the middle of 2011, although at lower levels than in the original stimulus package.

South Carolina's Republican Gov. Mark Sanford drew press coverage in early 2009 for comments critical of stimulus funding, but the state is now receiving money for benefits for jobless residents, according to an Aug. 10 New York Times story. And Nevada Gov. Jim Gibbons, a Republican, and Tennessee Gov. Phil Bredesen, a Democrat, reportedly raised questions about taking stimulus money but then accepted it.

House Minority Leader John A. Boehner, R-Ohio, blasted the most recent round of state aid, as well as House Speaker Nancy Pelosi, D-Calif., for calling members back to Washington to vote on the package after their summer recess had begun.

Boehner spokesman Michael Steel said Pelosi's move was intended to placate teachers unions. In addition to the Medicaid funds, the aid package includes $10 billion in education funding.

"The American people don't want more 'stimulus' spending—particularly spending for labor unions attached to a job-killing tax increase," Steel said. "Democrats would be better off listening to their constituents—who are asking, 'Where are the jobs?'—rather than returning to Washington, D.C., to vote for more tax hikes and special-interest bailouts."

But governors will now have to weigh carefully what their constituents do and don't want, with extra Medicaid funds no longer flowing automatically to states without their requesting them.

The new law says states that request the added Medicaid money will receive a 3.2 percentage point increase in the federal share of Medicaid funding from January to March 2011, and a 1.2 percentage point increase from April to June 2011. Added increases are available for states with high unemployment rates.

"This new federal funding can stave off the deep cuts to Medicaid that many had feared, and sustain jobs in hospitals, health centers, and communities across the country," Sebelius said in the Aug. 16 letter to governors. She said the money also would support foster care programs. Sebelius also emphasized the economic impact of increased Medicaid funding, saying that the White House Council of Economic Advisers has estimated that those funds in the stimulus law "will protect or save more than 750,000 jobs."

By CQ Staff

August 16, 2010 -- The Department of Health and Human Services (HHS) announced the award of $46 million in grants Monday to 45 states and the District of Columbia to help them "crack down on unreasonable health insurance premium hikes."

However, while states plan to step up scrutiny of rate hikes using the money, in some cases they will still lack a system to actually reject proposed increases they don't like. Each of the 46 grant recipients received $1 million.

The health care overhaul law makes $250 million in such grants available over a five-year period, and the $46 million is the first installment.

All 46 grantees "will require insurance companies to report more extensive information through a new, standardized process to better evaluate proposed premium increases," HHS said in a news release. A total of 21 states and the District of Columbia "will expand the scope of their current review, for example by reviewing and requiring pre-approval of rate increases for additional health insurance products in their state," the release added.

Jay Angoff, director of the HHS Office of Consumer Information and Insurance Oversight, said in a news briefing that with the grants, "the vast majority" of states would have the power to deny proposed rate increases they view as unreasonable.

HHS officials also suggested that greater awareness by the public and by regulators of proposed increases will have an inhibiting effect on insurers. Because of tight budgets, states have not been able in a number of cases to provide this "transparency," but with the grant money they will, officials said. "We think the consumer picture is going to get considerably better thanks to this law," HHS Secretary Kathleen Sebelius said.

Sebelius noted that greater scrutiny of proposed increases in recent months by the Obama administration and by several states has led to the withdrawal of the increases or to their reduction. The proposed hikes turned out to be based in some cases on "faulty assumptions and data" that were revealed as a result of the increased scrutiny, she said.

In one such case in California, the state did not have the power to reject the hike but the insurer, Wellpoint, withdrew it following a public outcry.

HHS noted that in 2011 it will have the power under the health care overhaul law to review justifications for unreasonable increases in premiums and to make them public. However, HHS could not actually block rate hikes.

Legislation (S 3078) introduced by Sen. Dianne Feinstein, D-Calif., would give the secretary of Health and Human Services the ability to review premium increases in states where the insurance commissioner does not have sufficient authority to do so, and to block or modify them before they go into effect. Feinstein doesn't have the 60 votes needed to get the measure through the Senate, however.

HHS has posted a map showing how the 45 states and the District of Columbia plan to use new grant money to oversee rate hikes by insurers. Five states did not apply for grants: Alaska, Georgia, Iowa, Minnesota and Wyoming. "We will certainly follow up with this handful of folks and see if there is some logistical issue" behind their not requesting the money, Sebelius said.

By John Reichard, CQ HealthBeat Editor

August 18, 2010 -- The monthly premiums charged by prescription drug plans in the Medicare program will rise on average to $30 next year compared to $29 this year and enrollees can expect lower out-of-pocket charges when they reach the "doughnut hole" in which Medicare pays nothing, federal officials announced late Wednesday.

The announcement by the Centers for Medicare and Medicaid Services (CMS) also noted that far fewer low-income enrollees will have to switch drug plans next year than has been the case in past years.

Obama administration officials seized on the opportunity to praise the health care overhaul law in making the announcement, but there was news for Republicans to crow about too—officials said that the 10-year cost of the drug benefit that the GOP-run Congress created in the 2003 Medicare overhaul law is now projected to be dramatically lower than CMS Actuary Richard Foster said it would be at the time.

Foster's 2004-2013 estimate then was $634 billion but now CMS estimates the cost at $373 billion for that time frame. Officials cited three reasons: overall drug spending reflecting price hikes and utilization didn't maintain double-digit yearly increases; drug plans negotiated bigger discounts than anticipated; and slightly fewer seniors and disabled Americans enrolled in the drug benefit than was originally projected.

There's a bittersweet twist to the good news for Republicans, however; Foster's estimate apparently was way off and Republicans now are heavily promoting his assessment that the new health care overhaul law will either cost much more than has been predicted by the Congressional Budget Office or substantially reduce beneficiary access to certain hospitals.

Premiums next year will rise only a dollar per month for basic drug coverage because cost increases were offset by increased use of generic drugs, CMS officials said. Benefits will improve in that under the health care overhaul law (PL 111-148, PL 111-152) brand name drugs next year will be offered at a 50 percent discount when Medicare enrollees reach the doughnut hole.

Another provision of the law gives CMS the power to reduce the number of low-income enrollees who have to shift drug plans when bids come in at a level that exceeds the benchmark of what the government is willing to pay. Without that provision 2.1 million would have had to switch, potentially disrupting treatment regimens but with it only 500,000 must do so.

By John Reichard, CQ HealthBeat Editor

August 17, 2010 -- A coalition representing retail stores, various types of franchises, insurance brokers, and many small businesses is calling on the Obama administration to revise its regulation on what plans are "grandfathered" and therefore exempt from some of the requirements of the health care overhaul law.

Plans offered on March 23, 2010, the day the overhaul law was signed, have grandfathered status if they do not make major changes, such as increasing their cost-sharing requirements beyond certain levels.

But many employers say the requirements for maintaining grandfathered status set out in an interim final rule are much too hard to meet. As proof, they cite estimates in the rule itself that by 2013, as many as 69 percent of all employer plans and 80 percent of small businesses will relinquish their grandfathered status.

The Coalition for Affordable Coverage said in its comment on the interim final rule that it strongly supports the ability to maintain grandfathered status, because "grandfathered plans will likely be less expensive and thus more affordable." The coalition consists of the International Franchise Association, the National Association of Health Underwriters, the National Retail Federation, and the U.S. Chamber of Commerce.

The group urged that employers be able to switch insurance carriers without losing grandfathered status. Small businesses "are struggling to keep their businesses open, create jobs and provide health coverage," said the coalition's comment letter to Health and Human Services Secretary Kathleen Sebelius. "They do this partially by shopping for a better deal, and yet the HHS rule would require them to relinquish grandfather status if they seek to obtain a lower cost plan, even if the plan provides the same level of benefits."

The group also said that allowable yearly increases in cost sharing are too low and that bigger increases should be permitted without a loss of grandfathered status. The alternative is that small businesses will have to buy more costly plans that do not have grandfathered status, it said. As a result, "employers, especially small businesses, may choose to forgo offering coverage altogether," the coalition warned.

By John Reichard, CQ HealthBeat Editor

August 18, 2010 -- Employers are expecting a bigger increase in health costs next year than they did this year, possibly because of changes required by the health care overhaul law, says a new survey by the National Business Group on Health.

The survey of the group's members also found that 63 percent of employers expect to increase the percentage of insurance premiums their employees must pay, and that 46 percent will increase maximums on out-of-pocket charges. Forty-four percent said they would increase deductibles for care received by providers in their networks.

The group consists primarily of Fortune 500 companies and large public sector employers.

Employers had estimated that costs would rise 7 percent in 2010; in 2011 they are expecting an 8.9 percent increase.

The survey found that 53 percent of employers were willing to make changes in the design of their plans, despite the fact that only limited changes can be made without a loss of "grandfather status," which exempts plans that were on the market when the overhaul became law from having to comply with some of its requirements.

But a number of the law's requirements do apply to grandfathered plans, and the employers surveyed are making changes. For example, 70 percent of those surveyed said they were removing lifetime dollar limits on overall benefits, 40 percent were making changes in annual dollar limits for specific benefits and 13 percent were removing provisions excluding coverage of pre-existing conditions for children.