The U.S. Department of Health and Human Services (HHS) on Monday issued its regulations on medical payouts required under the health care law, a standard known as the medical loss ratio (MLR). The MLR goes into effect in January 2011 and insurers now writing their plans for next year have been asking for guidance from HHS as soon as possible. The law (PL 111-148, PL 111-152) requires that large group plans spend 85 percent of premiums on clinical services and activities related to quality of care. Only 15 percent can go to other items, such as administrative costs, advertising and profits. For small group and individual plans, it's 80 percent premiums and 20 percent other costs. If insurers fall short of the standards in 2011 they'll have to issue rebates for that amount in 2012.

By Jane Norman and Rebecca Adams, CQ HealthBeat Associate Editors

November 19, 2010 -- Months of meetings, conference calls, lobbying, letter-writing and jawboning will culminate on Monday in what's widely expected to be the unveiling of government regulations on medical payouts for insurers under the health care law.

Health and Human Services (HHS) Secretary Kathleen Sebelius is scheduled to make a "major announcement" about the law early Monday at the Kaiser Family Foundation.

HHS officials would not disclose the subject of the press briefing and question-and-answer session. But a key regulation on medical loss ratios (MLRs) is about to be issued by the White House Office of Management and Budget, and likely would not be disclosed without a news conference, lobbyists and other observers said.

The MLR regulations to be issued will be among the most significant for insurers following the enactment of the health care law and could rock the industry. HHS has been under pressure from members of Congress on how the final rule should be written, and some insurers are hoping for a one-year delay in implementation for the individual and small group markets.

Insurers and some state insurance commissioners say it will be so difficult for certain plans in those markets to meet the new standards they may have to go out of business. There's also a question of whether adjustments should be made to the standard by HHS to accommodate insurance plans in particular states.

The MLR goes into effect in January 2011 and insurers now writing their plans for next year have been asking for guidance from HHS as soon as possible. The law (PL 111-148, PL 111-152) requires that large group plans spend 85 percent of premiums on clinical services and activities related to quality of care. Only 15 percent can go to other items, such as administrative costs, advertising and profits. For small group and individual plans, it's 80 percent premiums and 20 percent other costs.

If insurers fall short of the standards in 2011 they'll have to issue rebates for that amount in 2012. HHS, though, will have to address how those rebates are paid and to whom—to individual enrollees or the plan as a whole.

Consumer advocates are keeping a close eye on how HHS moves. Timothy Jost is a law professor at Washington and Lee University who also served as a consumer representative to the National Association of Insurance Commissioners (NAIC), a group of state regulators charged with making recommendations on the MLR to the government. Jost and other consumer advocates have written to Sebelius saying the NAIC recommendations should be accepted without significant changes. "I don't think it'll vary much from the NAIC recommendation," Jost said in an interview.

Democratic advocates of tough standards for insurers were pleased with the NAIC work. However, America's Health Insurance Plans, which represents the industry, said the standards could force some insurers out of business.

Jost said the only major issue on which HHS may make changes is in connection with so-called "mini med" plans that have a very limited set of benefits with tight annual limits on what they pay. They charge very low premiums and allow workers at least some level of care. Steve Larsen, director of the Office of Oversight in the Office of Consumer Information and Oversight at HHS, has said that the MLR rule will include a "special methodology" that takes the mini-meds' circumstances into account.

Also expected to be addressed in the rule is a decision on how insurers' taxes are treated for the purposes of calculating the MLR. The law says taxes can be subtracted from premium revenues for the purposes of calculating the MLR but not which of the various federal taxes insurers pay.

Jost said all six Democratic committee chairmen who wrote the law recently wrote a letter saying their intention was to include only taxes stemming from the law, such as the tax on "Cadillac" health insurance plans.

HHS may also make a decision on whether or not agent and broker commissions should be counted as part of overall administrative costs. The NAIC appointed a working group to look at the issue and said it is very concerned that agents and brokers' roles be preserved.

By Jane Norman and Emily Ethridge, CQ Staff

November 18, 2010 -- The Senate on Thursday evening passed a one-month extension of the current Medicare physician payment rates in an effort to avert a 23 percent cut scheduled to take effect Dec. 1.

The measure (HR 5712), passed by unanimous consent, represents an agreement negotiated by Finance Chairman Max Baucus, D-Mont., and ranking member Charles E. Grassley, R-Iowa, that would cost $1 billion over 10 years and would be fully offset by savings from within the Centers for Medicare and Medicaid Services (CMS) physician payment system, according to a summary of the legislation.

"Working together, we have set a path to ensure seniors and military families can continue to get quality health care," Baucus and Grassley said in a statement released Thursday afternoon. "This agreement makes certain that seniors and military families can be confident they will be able to see a doctor and get the medicines they need."

The measure now goes to the House, which has adjourned for the week. House Majority Leader Steny H. Hoyer, D-Md., announced Thursday evening that the chamber would take up the measure Nov. 29.

Baucus and Grassley said the one-month extension would provide time for Congress to work out a deal on a longer extension in December. They said they are working to secure "a mutually agreeable way to pay for the yearlong cost of the physician formula as well as other extenders."

Baucus has suggested that a yearlong proposal could be rolled into a larger Democratic tax package that would address the expiring 2001 and 2003 tax cuts (PL 107-16, PL 108-27). Details of the package are likely to be negotiated when President Obama meets with leaders of both parties Nov. 30.

The cost of the one-month extension would be paid for using savings from a new CMS policy that reduces Medicare payments for multiple therapy services provided to patients in one day. Finance Committee aides said the proposal would also provide relief to therapists by shrinking that reduction from 25 percent to 20 percent.

Baucus and Grassley said the 20 percent reduction would still provide savings to the system of $1 billion over 10 years.

"The savings would not be distributed on a budget-neutral basis as in the final rule but would be used instead as savings to offset the additional one month of the physician payment update," according to the bill summary.

Although lawmakers of both parties have said they wanted to avert the cuts for a much longer period of time, they have been unable to reach agreement on how to pay for that.

Physician and patient groups have advocated a 13-month patch to block the cuts, but that could cost between $17 billion and $20 billion. Parties have so far been unable to agree on acceptable offsets for any long-term change, and they are unwilling to pass such a costly measure without finding spending reductions elsewhere.

Doctors have threatened to stop taking new Medicare patients if the cuts go through, and experts warned that the situation would undermine the health care program for 46 million elderly and disabled individuals.

Meanwhile, House Democrats introduced a measure Thursday that would provide for a 13-month extension of the adjustment. The new bill does not provide an offset.

"There is no question that Congress needs to address the [issue] permanently," House Ways and Means Chairman Sander M. Levin, D-Mich., said. "This legislation is a good and necessary step to ensure that America's seniors, individuals living with disabilities and our military families continue to have access to the doctors they know and trust."

By John Reichard, CQ HealthBeat Editor

November 19, 2010 -- State officials anxious about the task of creating insurance exchanges under the health law got some relief this week: greater clarity about the steps involved. But any comfort they're feeling is probably quickly giving way to headaches about the size of the job.

The main aim of exchange guidance released to the states Nov. 18 by the Department of Health and Human Services (DHS) "seems to be to calm any anxiety they may have that HHS will demand significantly more from them than the basic requirements" of the health law, Washington & Lee University Law School professor Timothy Jost blogged Friday.

"There is nothing dramatic in this Guidance," he said. "Indeed it seems intentionally crafted not to be dramatic." Jost offered his thoughts on the Web site of the policy magazine Health Affairs.

Along with the guidance, states got a look Nov. 15 at what may be the final language the National Association of Insurance Commissioners (NAIC) will send them in a few weeks. This model legislation will be designed to help states draft their own bills so they can create exchanges that will comply with the overhaul law (PL 111-148, PL 111-152).

Jost's take on NAIC model law drafting effort is similar: "What they're trying to do is basically not to go beyond the federal law, but to fully implement it," he said in an interview. Jost is a consumer adviser to the NAIC drafting process.

Jost thinks the exchanges created under the health law and the model act will be worth the effort. "I think exchanges are going to be a good thing for the consumer," he summarized. They will bring down costs, increase access to care, and widen consumer choice—and administer premium subsidies that are tantamount to a "huge tax cut for the middle class."

The HHS guidance is consistent with a recent preview offered by HHS exchange regulator Joel Ario in a speech to insurance executives in Chicago (See related story).

A key point: states can construct an "active purchaser" exchange that bargains with health plans for the best deal and excludes those offering lousy deals, or they can follow an "open marketplace" model that basically posts plan offerings and leaves to marketplace forces rather than regulators the process of producing good deals.

Republicans may tilt strongly toward the latter model in the many states in which they will wield greater influence over state lawmaking after the recent November elections. But Jost notes that they won't be able to pass laws requiring the open marketplace model. Rather, the exchanges themselves will have the power to make that determination, so GOP leaders would have to make sure they have enough control over the exchanges to make sure they adopt the open marketplace approach happen.

The guidance documents the various powers states will have to shape exchanges the way they want. For example, they can decide whether to make the exchange a government agency or a non-profit entity; take part in a regional exchange rather than have just their own state exchange; limit access to employer groups of 50 or less until 2016; require competitive bidding for plans; require additional benefits; extend some or all exchange-related requirements to the outside market.

The guidance document also notes what states must do under the federal law, including certifying and decertifying plans; exempting individuals from the requirement that they carry coverage; rating plans on quality; putting benefits in a standardized format to ease comparison shopping; add determining eligibility for Medicaid and the Children's Health Insurance Programs, among a number of other responsibilities.

Regarding the NAIC model act—forwarded this week by the subcommittee that drafted it to a larger NAIC committee—perhaps the most controversial issue relates to the subject of requiring benefits in addition to those to be spelled out in federal rulemaking to meet the essential benefits standards. "Consumers are concerned that the states not be encouraged to repeal mandates before the essential benefit package is in effect," Jost blogged. Additional drafting may address the concern, he said.

Jost also noted that NAIC has left open the question of whether insurers in exchanges for small employers can offer traditional group coverage. If insurers were allowed to do so, and the employer shopping at the exchange picked traditional group coverage, the employer's workers would not individually have the freedom to pick their own plan from the exchange's menu of offerings—a freedom often touted by exchange advocates as a major advantage of these marketplaces.

Insurers looking at the model act and the HHS exchange guidance emphasized the importance of not excluding plans.

Robert Zirkelbach, a spokesman for America's Health Insurance Plans, said "there should be uniform and objective rules for participating in exchanges rather than an arbitrary process that can easily become politicized and result in fewer choices."

He added that there also "should be a viable marketplace outside the exchanges," and that the "exchanges should avoid duplicating what state regulators already do."

By Rebecca Adams, CQ HealthBeat Associate Editor

November 16, 2010 -- Federal officials Tuesday launched a new center that will spend $10 billion over the next decade to test different Medicare payment and health care delivery ideas that Obama administration officials hope will change health care throughout the nation. The division is called the Center for Medicare and Medicaid Innovation.

Centers for Medicare and Medicaid Services (CMS) Administrator Donald M. Berwick, who has said that he spends the majority of his time thinking about the ideas that he hopes the center will incubate, announced four big projects that the center will fund.

Among the outside groups cheering the move were insurance company executives, who have not always supported all the aspects of the health care law (PL 111-148, PL 111-152).

"Within the private sector, innovative designs are flourishing, and part of the work of the new center will involve partnerships with these initiatives and the dissemination of information about what is working so that successful designs can be replicated across the country," Karen Ignagni, president and chief executive of the trade group America's Health Insurance Plans, said in a statement. "Our plans look forward to working with CMS as the new center progresses."

Berwick said that if doctors and nurses better coordinate patients' treatments, big safety problems such those detailed in a recent report can be avoided. The report—by the Health and Human Services Department's inspector general—found that one in seven Medicare seniors who is hospitalized suffers from a medical error or other problem while in the hospital. In October 2008, about 134,000 Medicare patients were harmed by at least one action while hospitalized, and 44 percent of them were preventable mistakes.

Berwick said he has carefully read the report. One of the big problems, he said, is that when different providers step in and take over a patient's care, they may not be fully informed about someone's prior treatment. Lab test results can get lost. Medications can be given more than once and other problems can pop up when patients are cared for by different providers.

The center's work on integrating care can help, Berwick said, because it will encourage a "connection between safety and coordinated care."

Up to one million seniors in eight states could participate in a demonstration project that will test out the impact of requiring doctors to coordinate Medicare beneficiaries' care. The doctors and other medical professionals will get payments from Medicare, Medicaid and private insurers.

About 195,000 seniors will be able to get their care in a similarly coordinated program through federal health clinics.

The Center for Medicare and Medicaid Innovation will also provide million-dollar grants to help states create other new programs for integrated care.

And state Medicaid officials will be able to give coordinated care to patients who have at least two chronic conditions. States that implement this option can get a higher matching payment from the federal government.

The new center is headed by Richard Gilfillan, a family doctor who from 2005 to 2009 served as president and CEO of Geisinger Health Plan and executive vice president of system insurance operations for the Geisinger Health System in Danville, Pa., which is nationally known for integrating medical services.

By John Reichard, CQ HealthBeat Editor

November 17, 2010 -- Congress must overhaul Medicare and Medicaid and end tax-free health coverage to help bring the federal debt to manageable levels, a bipartisan task force said Wednesday.

Chaired by former Congressional Budget Office Director Alice Rivlin and former New Mexico Sen. Pete V. Domenici, the task force warned that without radical budget surgery, federal revenues by 2025 "will be completely consumed by the combination of interest payments, Medicare, Medicaid and Social Security."

"The treasury will have to borrow money to finance all of its other obligations—including defense, homeland security, law enforcement, food and drug inspection and other vital operations," said a report released by the task force.

The report was commissioned by the Bipartisan Policy Center, which was founded in January by former Senate Majority Leaders Howard Baker, R-Tenn.; Tom Daschle, D-S.D.; Bob Dole, R-Kan.; and George J. Mitchell, D-Maine.

Other task force members included budget and tax analysts on both the left and the right, such as William Hoagland, former GOP staff director of the Senate Budget Committee, and Leonard E. Burman, former director of the Tax Policy Center, a joint effort of the Urban Institute and the Brookings Institution. Also on the panel: former Dole staffer Sheila Burke and former AARP Executive Director William Novelli.

The task force outlined a plan it said would "reduce and stabilize the federal debt" by 2020 to 60 percent of GDP. It called that level "an internationally recognized standard for fiscal stability."
The plan would brake the growth in health spending through a series of near- and long-term fixes. Medicare enrollees would be on the hook for higher monthly premiums. Instead of covering 25 percent of yearly spending in Part B, which covers doctor care, premiums would rise over five years to cover 35 percent.

Medicare would use its buying power to squeeze drugmakers for bigger discounts. Medicare benefits would be "modernized," including by changing co-payments. Services involved in "post-acute" care after patients leave the hospital would increasingly be packaged for reimbursement purposes and paid under a single "bundled" payment.

Medicare would switch to a "premium support" system in 2018. Seniors would choose from a menu of health plans including traditional fee-for-service. Medicare would pay a portion of the premium costs, but the federal government would limit yearly increases in the amount of premiums it would pay to the increase in the gross domestic product plus one percent.

"Alternatively, beneficiaries can opt to purchase a private plan on a health insurance exchange," said a summary of the plan. "Competition among plans will improve the quality of care and increase efficiency."

Starting in 2018, lawmakers would cap the level of health benefits that are excluded from being counted as income in individual income tax returns. The Internal Revenue Service would switch to making employer-paid premiums fully taxable in the 10 years after that.

Lawmakers would slap an excise tax on the manufacture and importation of beverages sweetened with sugar or high-fructose corn syrup. The change would help trim rising expenditures for obesity-related illnesses. Caps also would be imposed on payouts for medical malpractice.

The plan also would increase sales taxes, change the tax code so fewer people would have to file returns, and ensure Social Security payments for 75 years through some tax increases.

"Many on the left and right will attack pieces of our plan, just as they attacked the recent proposal from the co-chairs of President Obama's fiscal commission," Rivlin and Domenici said Wednesday in a Washington Post op-ed piece.

"Indeed, some members of our group question elements of our proposal while supporting the comprehensive package as a whole," they wrote. "But the status quo is not an option, and everyone must sacrifice a little in the common interest."

The commission embraces tort reform—specifically, capping non-economic and punitive damages—which it says would "reduce the cost of defensive medicine."

In their recommendations, the co-chairmen of the president's deficit reduction commission—former Wyoming Republican Sen. Alan K. Simpson and former Clinton Chief of Staff Erskine Bowles—recommended limiting the growth of Medicare, Medicaid and CHIP to the gross domestic product plus 1 percent. And if not enough money is saved, premiums would be increased or a public health care option could be created, the two suggested.

By John Reichard, CQ HealthBeat Editor

November 16, 2010 -- Who says health care co-ops don't have a shot at tripping up the goliaths of the national health insurance market?

Not John Jemison, a Texas entrepreneur who's aiming to launch co-ops nationwide starting next spring by tapping into some of the $6 billion in co-op seed money the Department of Health and Human Services (HHS) will distribute under the health care law (PL 111-148, PL 111-152).

Boosters envision co-ops as a way to put consumers in charge of health plans, not profit-minded insurance executives who they say have incentives to stint on care. But skeptics see little chance that co-ops can make a dent in the insurance market. Why? Because it is dominated by companies whose enormous size gives them leverage to negotiate better deals on everything from doctor and hospital care to information technology.

When co-op provisions were added to health overhaul legislation last year, there was plenty of doubt about who, if anyone, would take on the challenge of competing with the big insurance companies.

Jemison, for one, says he's up for the challenge. A Houston-based insurance agent who says he helped pioneer the business of insuring college and pro athletes against injury, Jemison was among the representatives of an estimated 20 or so organizations interested in offering co-ops who met with HHS officials Tuesday afternoon. The meeting was convened by Sen. Kent Conrad's staff as a "learning session" on co-ops.

Jemison, who complains that the overhaul law is getting a bad rap, has some surprising allies. Roy Ramthun, the top health policy adviser to President George W. Bush, is acting as a consultant to Jemison's venture, which is called the Workers Cooperative National Association.

Ramthun says he's backing the project because it would create more affordable insurance options for small businesses in state insurance markets where there isn't much competition.

"Small businesses employ the majority of America's workers, yet pay up to 30 percent more than large firms for similar health services," Jemison's group says in a description of the project submitted to HHS officials. "Not coincidentally, small businesses are less than half as likely as large employers to offer health benefits to workers," the document adds.

"Small and medium-size companies are one of the most profitable classes of business for insurance companies, and they do not want to give up control of that business to co-ops," the document asserts.

"If this were to occur, their premium and revenues would be drastically reduced. The essential government purpose is for co-ops to create the opportunity for small and medium-size employers and their employees to purchase health insurance on a competitive basis, just as large employers do."

The document includes a request for about $3.5 million in funding from HHS to "immediately" establish a co-op. That amount includes the cost of an evaluation by the Harvard Medical School's health policy department "to ensure rapid dissemination of lessons from the development of co-op models."

The law doesn't require HHS to issue loans and grants for co-ops until July 1, 2013, however. HHS must give priority when it does so to organizations that offer to set up statewide plans.

Section 1322 of the law also requires HHS to give priority to co-ops offering "integrated" models that involve teamwork among different types of providers, that have "significant" private support, and have enough money to establish a co-op plan in each state. Any profits made by the co-ops must be used to lower premiums, improve benefits, or improve the quality of care.

Jemison's group envisions the creation of "multi-specialty medical centers" and a menu of health plans including health savings accounts, which Ramthun strongly advocates. "We're going to have Cadillac and Chevrolet plans," Jemison says. He said he's talking to bankers who are interested in offering financial services, including health savings accounts, to co-op members.

His group aims to start marketing to employers first in California, Texas, and Alabama and then in Florida, Georgia, and Tennessee. The co-ops themselves could be ready by January, 2012, he said. Asked where the money will come from to fund such a large scale venture, Jemison predicted that "several thousand businesses" representing about $2 billion in premium revenues will sign up in the first six states.

But Robert Laszewski, an insurance industry analyst and consultant in suburban Virgina, says the entire co-op provision of the health law is ill-conceived. "I can't tell you how crazy it is to give entrepreneurs money to go up against Wellpoint and United Healthcare," he said. "The place for venture capital is Wall Street, not Washington.

"Which doctors and hospitals are going to sign up and how are your rates going to compare to the big boys?" Laszewski asked. "I'm happy to be convinced. I want to see the provider contract."

But Jemison emerged from the meeting expressing enthusiasm for the venture. "I think it was a very good meeting," he said. "It's obvious that the [HHS] Secretary is looking for a lot of help."

Although HHS isn't required to offer grant and loan money until more than two years from now, Jemison said his message is "let's not wait. Let's go ahead and build a model for everybody." He said Richard Popper, deputy director for insurance programs at HHS, appeared to be interested in the idea.

An HHS spokesman declined to provide a reaction from Popper to the meeting and otherwise declined comment. Conrad's office didn't immediately respond to e-mails requesting comment