y Drew Armstrong and Alex Wayne, CQ Staff

January 14, 2010 -- A compromise version of an excise tax on high-cost health insurance plans has won support from organized labor, pushing Democrats a giant step closer to a final deal on a health care overhaul.

Richard Trumka, president of the AFL-CIO, said during an afternoon conference call with reporters that union leaders approached negotiations with the White House and congressional leaders with one overriding goal in mind—getting a bill signed into law.

They were operating, he said, under "difficult restraints"—budgetary concerns that permeated discussions about the mix of revenue-raisers and coverage improvements that form the crux of the legislation.

"We have seen tremendous progress over the last couple of days," Trumka said. "We're continuing to fight to increase our priorities in the health care reform bill. It's a long fight, and it's not over yet, but we'll continue to encourage Democrats to fight for a bill."

A senior White House official said Thursday that resolving the excise tax question removed what the Obama administration viewed as the largest obstacle to getting a deal on a final package.

"We think that by dealing with this issue, which many had speculated would be the most potentially troubling issue . . . everyone thinks we've taken a big step," said the senior official.

Democratic leaders were hoping to seal a deal on the broad outlines of a final bill by sometime Friday. A number of issues apart from the financing provisions still remained to be resolved.

The Hill negotiators planned to return to the White House later Thursday, after President Obama addressed a House Democratic Caucus meeting at the Capitol Visitor Center to appeal to lawmakers to support the emerging final bill.

House Majority Leader Steny H. Hoyer, D-Md., said a final agreement by Friday is "a goal, not a deadline. We're going to work until we get thus done. We get closer every time we meet. I'm very optimistic about our ability to get this done soon."

Rep. Robert E. Andrews, D-N.J., a labor ally, said Thursday that the breakthrough on the excise tax was crucial to completing work on the bill, since both Obama and the Senate insisted such a levy had to be part of the financing package.

"There's clear momentum. This issue's pivotal, and the apparent agreement on this issue is very, very encouraging."

Adjusting the Tax
Earlier in the day, Gerald McEntee, president of the American Federation of State, County and Municipal Employees (AFSCME), said, "We do like the way it's shaping up, but it's still not finished. We've got to see a final product."

McEntee said a "committee" of seven labor leaders negotiated the agreement. "We were all on the same page, at the end—after some people got hit over the head."

Other unions that were party to the agreement include the American Federation of Teachers, National Education Association, United Auto Workers, Communications Workers of America, International Brotherhood of Electrical Workers and Service Employees International Union.

Labor leaders spent much of Wednesday at the White House, where aides shuttled back and forth between them and top Democratic leaders from the House and Senate who were working with President Obama all day on resolving key elements of the health care overhaul.

The Senate's health care bill (HR 3590) would draw much of its revenue from an excise tax starting in 2013 on employer-provided insurance plans costing more than $8,500 for individuals or $23,000 for family coverage. The House bill (HR 3962) instead would impose an income surtax of 5.4 percent on individuals earning more than $500,000 or couples with incomes above $1 million.

Under the compromise struck with the labor leaders, the tax would kick in for health plans costing $8,900 for individuals and $24,000 or more for family coverage beginning in 2013. That threshold would still rise at inflation plus 1 percentage point, as in the Senate bill. Unions with collective bargaining agreements would have a five-year grace period before their insurance plans would become subject to the tax, in 2018.

There would be higher thresholds for plans that have high costs because of the age or gender of their employees. Various groups at high risk because of their occupations already receive special treatment under the Senate bill.

The agreement would allow the tax threshold to be adjusted upwards if medical costs grow at unexpected rates before 2013, when the tax kicks in. If, for example, medical costs rise unexpectedly and drive up insurance premiums beyond the amount projected by policy makers writing the tax provision, the initial threshold of $24,000 for a family and $8,900 for an individual would go up by a corresponding amount.

Dental and vision benefits would be removed from the calculation of the threshold costs, and insurance plans offered by state and local governments, as well as plans covered by collective bargaining agreements, would be exempted from the tax until 2018—long enough for current agreements to expire and to permit negotiation of new contracts.

Starting in 2018, state and local government employers—but not private companies with collective bargaining pacts—could shop for insurance on the new exchanges that the legislation would create.

The White House was able to preserve what it called an important priority—the rate of inflation by which the threshold grows. Because the tax threshold for plans will be grow at inflation plus 1 percent each year, a rate well below the historical growth of insurance premiums, more and more plans will eventually fall under the tax if health care spending continues to rise.

There are various carveouts in the deal, as well. Seventeen state that have high insurance costs will get a three-year transition period where they have a higher threshold than other states. The higher threshold will phase out by 2016, however.

Trumka said the changes in the excise tax would reduce the projected revenue it would yield over 10 years, from an estimated $150 billion to $90 billion.

That money will have to be made up with additional revenue from other sources, to keep costs down for the final bill. The pharmaceutical industry has already agreed to accept a hit bigger than the $80 billion it originally negotiated in early talks with the White House. Medical device makers could also face additional fees.

And lawmakers could adjust the details of an increased Medicare payroll tax on the wealthiest Americans that is part of the Senate-passed bill.

The union leaders said that the compromise revenue measures set them on the path to endorsing the final bill.

"If continued improvements are made, we will, and proudly," Trumka said.

It will also make a difference in union support for Democrats during the coming 2010 mid-term elections. "We think it will help us," Trumka said.

Trumka said that the grace period for plans subject to collective bargaining agreements would let unions adjust. "It's a transition period . . . akin to the period that the insurance companies got."

By 2018, union leaders hope cost-control measures elsewhere in the bill will drive down overall health care costs so that even the more expensive plans are not bumping up against the tax threshold.

"We're hoping the bill will do what it's designed to do between now and 2018 and all the cost containment measures will start to ratchet down on health care costs . . . Hopefully no American will bump up against the excise tax," Trumka said.

Kathleen Hunter contributed to this story.

By CQ Staff

January 15, 2010 -- House Democratic leaders resumed talks on a health care overhaul Friday morning after a late night negotiating session at the White House involving President Obama and a bicameral group of top Democrats.

Negotiators continued to work through contentious aspects of House and Senate overhaul plans (HR 3692, HR 3590), including restrictions on insurance coverage of abortion. The Hill Democrats were due to return to the White House for another round of talks with Obama Friday afternoon.

Negotiators are working hard to arrive on an agreement in principle to blend the bills, in the hope that it can be brought to the House floor this month.

Speaker Nancy Pelosi, D-Calif., said she still hoped to wrap up an agreement Friday but added, "There's not any requirement that we finish it today."

Rep. Joe Courtney, D-Conn., said Pelosi told members to expect "something they can sink their teeth into" by caucus meeting on Tuesday.

Rep. Diana DeGette, D-Colo., said that negotiators want to submit fiscal aspects of a health care compromise Friday to the Congressional Budget Office, then turn to other issues not affecting the final cost of the legislation, such as abortion and restrictions affecting illegal immigrants.

Rep. Chris Van Hollen of Maryland, chairman of the Democratic Congressional Campaign Committee, said negotiators were close to an agreement on how to structure "exchanges"—insurance marketplaces where uninsured individuals and some businesses could shop for coverage.

He said the compromise would entail "a uniformity to the exchange, a national component to the exchange," but would not necessarily be a single national exchange, as in the House bill.

Discussions Friday morning also took up the role of an independent commission that would recommend ways to control Medicare spending, Van Hollen said.

The late-night session broke up at 1:30 a.m. Friday morning. "They made solid progress toward a final package, including common-sense adjustments that strengthen the legislation and make sure it works for middle-class families while bringing down costs and expanding coverage to millions of Americans," according to a White House statement.

Participants included Senate Majority Leader Harry Reid, D-Nev., Majority Whip Richard J. Durbin, D-Ill., Senate Finance Chairman Max Baucus, D-Mont., Sen. Christopher J. Dodd, D-Conn., and Sen. Tom Harkin, D-Iowa, chairman of the Health, Education, Labor and Pensions Committee. Sen. Charles E. Schumer of New York, the No. 3 Senate Democrat, also participated.

The House team included Speaker Nancy Pelosi, D-Calif., Majority Whip James E. Clyburn, D-S.C.; Ways and Means Chairman Charles B. Rangel, D-N.Y., Energy and Commerce Chairman Henry A. Waxman, D-Calif., and Education and Labor Chairman George Miller, D-Calif.

Obama stayed with the group until shortly before 1 a.m. Administration officials who participated in the talks included Health and Human Services Secretary Kathleen Sebelius; White House Chief of Staff Rahm Emanuel; Phil Schiliro, the assistant to the president for legislative affairs; and Obama's top health care adviser, Nancy Ann DeParle.

The urgency of the talks is at least partly driven by polls showing Jan. 19's special senate election in Massachusetts between Democrat Martha Coakley and Republican Scott Brown is deadlocked. Should Brown defeat Coakley, Democrats would lose their 60 seat filibuster-proof majority in the Senate, making it much harder to enact a health care overhaul.

"Clearly that would be an issue in the Senate," Van Hollen said. But in the House, he said, "the direction the conversation is unfolding would be going the same way."

By Drew Armstrong, CQ Staff

January 14, 2010 --The drug industry is prepared to make billions of dollars in additional concessions as part of a deal to help congressional Democrats and the Obama administration pass their health care overhaul, according to industry and Hill sources.

A lobbyist for a major drug manufacturer said the industry has told the White House and top Senate Democrats that the makers of brand-name drugs might be willing to commit billions more in concessions to help close the Medicare prescription drug benefit's "doughnut hole" as long as key industry priorities are preserved in a final agreement.

Getting more money out of the industry as part of the health care overhaul would be a significant victory for House Democrats, like Henry A. Waxman of California, who have been deeply critical of drug companies.

It also would give House lawmakers greater leverage in talks with the Senate over melding their two bills (HR 3962, HR 3590). Conventional wisdom holds that the final product will most closely resemble the Senate version, which the drug industry generally prefers.

Rep. Frank Pallone Jr., D-N.J., confirmed Wednesday that the pharmaceutical companies had made such an offer. "I had heard from the industry that they were willing to do more," he said.

"It's now just about publicly announcing it and giving Waxman and some others some credit," said the drug industry lobbyist, who would speak only on condition of anonymity.

Pallone is chairman of the House Energy and Commerce Subcommittee on Health. Waxman chairs the full committee and has repeatedly called on the industry to make additional concessions. An offer of more money from the drug companies to help lower the cost of health care or pay for the bill might make it easier for Waxman and other liberal Democrats to support the eventual compromise.

But the additional money is far from a done deal. The industry could withdraw its support if it concludes that a final agreement contains other policies that work against its interests.

The lobbyist described the amount the industry is considering offering as between $15 billion and $20 billion, though other sources would not confirm that the range is that high. This additional concession could come in the form of deeper discounts to participants in Medicare's Part D program—the prescription drug benefit—than the industry and the White House agreed to in June.

Ken Johnson, senior vice president of Pharmaceutical Research and Manufacturers of America (PhRMA), an industry trade association, would not discuss any potential deal. "We don't comment on speculation and rumors," he said.

Karen Lightfoot, a spokeswoman for Waxman, also offered no details. "We aren't commenting on any details related to the ongoing health care discussions between the House, Senate and the White House," she said.

The industry is deeply opposed to the House legislation.

"The House bill, as passed, would have the unintended consequences of killing tens of thousands of jobs in our industry at a time when the U.S. economy is struggling and unemployment is hovering around 10 percent," Johnson said in a prepared statement. "This is absolutely the worst time to be putting additional strains on the economy with punishing job losses. Worst of all, it would have a chilling effect on critically important R&D in America, impacting patient care for generations."

Drug makers have spent more than $150 million to support Democrats' health care overhaul through ad buys and other efforts. They also have spent tens of millions of dollars on lobbying.

In June, the White House and PhRMA announced a deal to cap the drug manufacturers' contribution to the cost of an overhaul at $80 billion. In return, the White House agreed not to seek significant reductions in drug prices under Medicare.

The industry's contribution would come primarily as a substantial discount for Medicare Part D participants when they enter a gap in prescription drug coverage known as the "doughnut hole." Those discounts would amount to $80 billion in savings over a decade.

On Wednesday, Pallone said: "My understanding is that PhRMA is willing to do more than they did in the White House deal."

In the House and Senate bills, lawmakers have used the $80 billion to offset the bill's cost. The Senate bill, for example, would charge drug makers $22.2 billion in fees over a decade. It also writes the PhRMA "doughnut hole" discount into law.
"PhRMA's not walking away at this point; they've mostly gotten what they want," the lobbyist said.

Senate Democrats and the White House have already defended that deal once, when the Senate voted last month to reject an amendment from Byron Dorgan, D-N.D., that would have allowed individuals to import prescription drugs from abroad, where prices are often cheaper. The industry strongly opposes such a policy, which was projected to save the government $19.4 billion over a decade.

"There's certain things that just can't be done to PhRMA," the lobbyist said.

By John Reichard, CQ HealthBeat Editor

January 15, 2010 -- The mind-numbing details of Medicaid enrollment procedures aren't sexy stuff—but handled poorly they will cause many vulnerable Americans who are now without health care coverage to continue to go without, overhaul legislation or no overhaul legislation.

That was the warning issued this week by Sen. Jeff Bingaman, D-N.M., one of the more knowledgeable members of the Senate about Medicaid issues, and Urban Institute researcher Stan Dorn.

"This is a very important issue when it comes to implementing the new law," Bingaman said in a telephone press briefing Jan. 13.

Under health care overhaul legislation, subsidies will be available from multiple sources for gaining health coverage—and therein lies a big problem. The uninsured could gain coverage with the help of subsidies to help pay premium costs in insurance exchanges, or through the Medicaid and Children's Health Insurance Programs. The variety of sources increases the danger that people will fall between the cracks, Dorn said.

Dorn, who joined Bingaman on the call, said that the approach taken by the state of Massachusetts in determining eligibility and conducting enrollment under that state's coverage expansion law is a good model.

He described the state's approach as follows in a new Urban Institute report on the issue.

"No matter where or how that form is filed, eligibility for all subsidy programs is determined automatically without any need for the applicant to complete additional paperwork. The relevant government agencies work together behind the scenes to determine eligibility seamlessly and invisibly to the consumer. A consumer can seek subsidized coverage without completing a full application," the report said. "Each applicant has the option to simply provide identifying information and request a determination of eligibility based on information in government hand, including income tax data."

The idea in the overhaul legislation now pending on Capitol Hill should also be to allow existing data in government hands to be used to determine eligibility, Bingaman and Dorn said. Applicants should be able to request that an eligibility determination be based on the use of that data, they added.

The report notes that with "Medicaid accounting for 41 percent of the coverage expansion forecast by the Congressional Budget Office (CBO), a failure of Medicaid to achieve its goals could undermine the overall effectiveness of reform. And with multiple subsidy systems operating under either version of the legislation, consumers could easily fall between the cracks and fail to receive coverage."

Coverage goals could best be met by including in the final bill provisions in section 1413 of the Senate bill (HR 3590) requiring a single application form and eligibility system for all subsidies under the overhaul, the report said. The section also includes other steps that should be taken to base eligibility on existing government data whenever possible. In addition, corrections to the section should be adopted that were contained in a Bingaman amendment that apply to Medicaid the same streamlined procedures, the report recommended.

"I'm not aware of any active opposition" to including the recommended language, said Dorn in the press briefing. But a deficit of attention may be a key obstacle. "We're dealing with issues that are tedious and boring," he noted.

Getting the details right in overhaul legislation may be particularly important, however, because of the fiscal budget crunch faced by state governments. "Medicaid may be at particular risk of enrolling less than its share of the uninsured," Dorn noted in his report. "Facing serious budget problems and the potential for increased Medicaid costs under reform, states may not have compelling financial incentives to maximize enrollment."

By John Reichard, CQ HealthBeat Editor

January 12, 2010 -- Every lawmaker on Capitol Hill knows that pending health care overhaul legislation would require individuals to buy health insurance—but what they haven't known throughout the debate is how much people would actually have to pay in premiums to comply with the mandate.

That missing piece of information has frustrated Sen. Olympia J. Snowe, R-Maine, as she has wrestled in recent weeks with how to make premiums affordable in a system of mandated coverage. Now, however, Snowe has a figure to work with: the Congressional Budget Office said in a new letter to the senator that the cost of a "bronze plan," the tier of benefits that people 30 or older would have to purchase, would average between $4,500 and $5,000 for individuals and between $12,000 and $12,500 for family coverage.

People below the age of 30 would be permitted to fulfill the mandate by purchasing coverage that paid benefits for catastrophic medical expenses, which is expected to cost considerably less than the bronze plan.

The estimate for the bronze plan does not factor in subsidies that Americans with incomes under 400 percent of the federal poverty level would be eligible to receive. For those receiving subsidies, the premium costs could be significantly lower.

In a letter in November to Sen. Evan Bayh, D-Ind., CBO had previously estimated that under the Senate health care overhaul bill, under current law, with no health overhaul in place, individual coverage in the non-group market in 2016 would cost $5,500 and family coverage $13,100. The letter to Bayh estimated that under the Senate bill, the cost would be $15,200 for family policies and $5,800 for single policies.

The earlier CBO figure was not based on the cost of a bronze plan, but rather assumed generous benefits—an actuarial value of 72 percent.

So the cost of a bronze plan would be considerably less than both the estimates of premium costs under current law and under the Senate proposal based on the higher actuarial value assumed by CBO in its estimate forwarded to Bayh.

To the extent lawmakers have been gauging affordability based on the estimates given Bayh, the new estimates may make them somewhat more comfortable about the cost of complying with the individual mandate.

By John Reichard, CQ HealthBeat Editor

January 13, 2010 -- Fees on insurers in Senate health care overhaul legislation totaling $70 billion over 10 years could allow big for-profit health plans to control the health insurance market in several years, executives with nonprofit health plans say.

The $70 billion provision in the Senate overhaul bill (HR 3590) disadvantages the more innovative non-profit plans that health policy analysts look to as models for controlling costs because they primarily serve the "fully insured" market, while a big piece of the business done by the big for-profit companies is in the "self-insured" market, said Patricia Smith, president of the Alliance for Community Health Plans (ACHP).

The premium tax would only apply to fully insured plans, not self-insured plans. "In effect, it will end up placing a higher price tag on plans that are in the fully insured market because somehow or other you've got to pay for that," Smith said in an interview Wednesday.

Smith's membership includes plans such as Group Health Cooperative of Puget Sound in Seattle, Kaiser Permanente and the Geisinger Health Plan. They are often cited as models of better organized care that deliver treatment in the most cost-effective settings, emphasize preventive treatment and closely watch pharmaceutical and other costs.

Fully insured plans are those in which the insurer takes on the financial risk for covered health care costs apart from whatever premium dollars they collect; if treatment costs exceed premium revenue, fully insured plans are on the hook for those costs.

Self-insured plans are plans funded by employers who take on that financial risk. Typically, it's only big companies that have the deep pockets needed to self-insure. When they do so, they rely on an insurer to process claims and offer a network of providers, but treatment costs are entirely on the employer's dime.

"By putting a tax in place on (fully insured) plans and not applying it to the self-insured market, what you're doing is pushing every employer that possibly can (switch) into the self-insured market and out of these plans where they are basically in the environment of more innovative care delivery, more coordinated delivery," said Smith.

"And that's not been the direction that we want, or that lots of people have talked about health care reform ought to be going" she noted.

Smith said her members are more apt to serve smaller employer groups as well as individuals. Big for-profit plans more often serve large national employers who prefer the "one-stop shopping" of dealing with a single national plan rather than a number of smaller community plans.

Big for-profit insurers such as UnitedHealth Group, Aetna, Wellpoint and Humana are better able to absorb the tax because they have bigger profit margins.

According to a financial analysis prepared by the University of Pittsburgh Medical Center Health Plan, a member of ACHP, the five insurers with the largest revenues in the United States had operating income of $6.5 billion in 2008, compared to $9.1 billion in operating income for the entire insurance industry.

Their operating profit margins averaged 6.37 percent while that of the other 360 or so insurers averaged 1.06 percent.

"The five largest insurers will still enjoy the probability of significant profitability post implementation of this tax whereas the other 359 insurers in the nation would collectively operate at a loss," the analysis said.

Smith said that her group's goal is to get negotiators to drop the premium tax entirely. The funding mechanism is not a part of the House health care overhaul measure (HR 3962). Smith didn't specify how the lost revenue could be replaced. "They've got a big puzzle to put together as it is to figure out financing," she noted.