By John Reichard, CQ HealthBeat Editor

October 21, 2010 -- The National Association of Insurance Commissioners (NAIC) on Thursday concluded months of intense deliberations on a key rule establishing minimum medical payouts under the health care overhaul law by rejecting arguments that would have given insurers much greater flexibility to meet the standards.

The recommendations agreed to by the NAIC were hailed by the Obama administration and blasted by the insurance industry.

The nation's largest health insurance lobby—America's Health Insurance Plans (AHIP)—issued a statement predicting that a number of insurers would be forced to drop out of the market as a result of NAIC's action and that others would pare back their spending to improve the quality of care and prevent fraud.

The recommendations, which NAIC will forward to Health and Human Services (HHS) early next week, "will reduce competition, disrupt coverage, and threaten patients' access to health plans' quality improvement services," said AHIP President Karen Ignagni.

HHS Secretary Kathleen Sebelius hailed the NAIC recommendations as a victory for consumers. She said they would not imperil the availability of coverage.

"Not only do they ensure consumers receive better value for their health care dollar, they recognize special circumstances in different markets to preserve market stability and employee coverage," Sebelius said in a statement on NAIC's unanimous vote.

NAIC was responsible under the law for recommending how various types of spending by insurers should be counted—whether as "medical" or "administrative"—under a "medical loss ratio" (MLR) rule setting minimum percentages of premium income insurers must pay for medical care.

The law requires that policies sold to individuals and small groups pay out at least 80 percent of premiums for medical care. In the case of policies sold to larger groups, the minimum is 85 percent. To the extent insurers fall short of the standards, they must issue rebates to purchasers of the policies.

HHS is expected to issue a regulation within weeks based on the NAIC recommendations. The standards take effect Jan. 1. Insurers will have to issue rebates in 2012 in the amount they fall short of the standards in 2011.

Aggregation Rejected
Insurers had hoped to persuade NAIC that their medical payouts could be "aggregated" across the various states in which they operate to calculate a national average. That would have made it easier to meet the standards than having to meet them in each state in which they do business. But the NAIC rejected the idea of having a national average.

Another issue that the NAIC tackled was compensation of insurance agents. Agents did not want their commissions treated as administrative expenses because insurers likely would trim those payments if they were counted that way. But NAIC decided it did not have the flexibility under the law to count commissions as anything other than administrative spending.

Commissioners did agree, however, to ask HHS to establish a working group to address agent compensation. The National Association of Insurance and Financial Advisors issued a statement praising the commissioners for that action.

NAIFA President Terry K. Headley said that "while disappointed the NAIC did not believe it has the authority to modify the MLR definition to accommodate agent commissions, NAIFA is hopeful that the NAIC and HHS will side with consumers by recognizing that agents need to be compensated for the vital assistance they provide consumers in managing day-to-day health care issues."

Insurers Wanted Transition
Ignagni said that the recommendations would undermine the key goal of the overhaul law, improving access to insurance while minimizing disruption to the existing insurance market. "We are concerned that the current draft proposal will create unintended consequences," she said.

AHIP also emphasized the importance of having NAIC suggest regulations establishing transition periods to ease compliance burdens and complained that the recommendations took too narrow a view of what constitutes quality improvement spending that can be counted under the MLR rule as medical care.

At a press briefing after the vote, one key commissioner said the NAIC knows fully that some insurers may have a tough time meeting the standards being set.

"This is placing on [insurers] some pretty stringent requirements," Kansas Insurance Commissioner Sandy Praeger said. Praeger chaired one of two main NAIC committees overseeing the development of the recommendations.

"There are some companies that probably in the current environment operate below these new established standards," Praeger added. "I think that most [commissioners] feel that the large group market is not going to have much difficulty complying with the 85 percent, but in the individual and small group market where you have a really small book of business there might be some difficulty."

A longtime health insurance executive who requested anonymity in order to speak more freely predicted that Sebelius, who earlier in her career served as the insurance commissioner in Kansas, would ease the impact of the rule on markets where a it looked like a significant number of insurers would drop out.

NAIC "did not issue transition regs, but on the other hand, the secretary has flexibility to issue waivers," the executive said. "It's highly unlikely she would ignore waiver requests where the insurance commissioner or the governor said: 'We need a waiver or the market could be severely disrupted.'"

"She's a former insurance commissioner and really understands these issues, the source said. "On the other hand, she's going to make states justify such requests."

Praise for ruling
Sen. John D. Rockefeller IV, who authored the MLR portion of the overhaul law, and Health Care for America Now (HCAN), a consumer group, praised the NAIC decision.

"Because of this strong standard, health insurance companies across the country will not be able to take advantage of people in states with weaker consumer protections,'' Rockefeller, D-W.Va., said in a statement. "And, those companies that fail to meet the benchmark will be held accountable—if they are overcharging, they will be required to increase benefits, lower premiums, or pay rebates directly to consumers.''

The senator pointed to a report last week by Citigroup Investment Research health analyst Carl McDonald who estimated that had just the minimum MLR rule been in effect for 2010, consumer rebates would have totaled nearly $900 million.

HCAN Executive Director Ethan Rome called the NAIC decision "an important milestone in the implementation of the Affordable Care Act.

"After HHS adopts the commissioners' recommendations, the formal rule will end the insurance companies' practice of spending too few premium dollars on actual medical services even as they deny people the health care they need and charge us more and more."

By John Reichard, CQ HealthBeat Editor

October 18, 2010 -- The Obama administration upped the ante on Monday in its battle against rising health insurance premiums, filing a lawsuit against Blue Cross Blue Shield of Michigan.

The lawsuit charges the insurer with blocking other insurers from entering the market through its contracts with 70 of the state's 131 general acute-care hospitals. The contracts are forcing residents of the state to pay more for insurance, the suit charges.

The Justice Department suit targets contract provisions negotiated by the Michigan Blues requiring hospitals to charge it prices no higher than the facilities charge other insurers. In some instances, the hospitals are required to charge higher prices to insurers competing with the Blues. The provisions are called "most favored nation" clauses, or MFNs for short.

The clauses have caused hospitals to increase prices to insurers competing with the Michigan Blues, Justice Department officials said. By raising hospital costs to its rivals, the Blues' use of the MFNs "discourages other health insurers from entering into or expanding within markets throughout Michigan," according to a Justice Department statement. The suit also charges that the Michigan Blues obtained the MFNs by agreeing to raise the prices it pays certain hospitals, thus buying protection from competition by increasing its own costs.

"Any time a dominant provider uses anticompetitive agreements, the market suffers," Christine Varney, assistant attorney general, said in prepared remarks. "And let me be clear, we will challenge similar anticompetitive behavior anywhere else in the United States," Varney told reporters in a news briefing.

The Michigan insurer issued a statement saying the suit is "without merit." But Senate Judiciary Committee Chairman Patrick J. Leahy, D-Vt. suggested it would have wide impact.

"I applaud the Department of Justice for employing our nation's antitrust laws to break up the stranglehold that massive insurance companies have on our health care industry," Leahy said in a statement. "Given that much of the health insurance is shielded from the antitrust laws by an antiquated exemption, it is perhaps not surprising that insurers also are engaging in anticompetitive conduct that falls outside the exemption," he added. Leahy is pushing for Senate passage of legislation (S 1681) already approved by the House that would broaden federal powers to crack down on insurers on antitrust grounds.

Blue Cross MFNs "include agreements with 22 hospitals that require the hospital to charge some or all other commercial insurers more than the hospital charges Blue Cross," in some cases up to 40 percent more, the complaint says. More than 40 of the other agreements are with small community hospitals, requiring them to charge the Blues rates as least as low as those asked of other insurers, the complaint notes, adding that those facilities are typically the only hospitals in their communities.

According to the suit, "Blue Cross is far and away the largest provider of health insurance in Michigan, with more than 60 percent of commercially insured lives." Its policies cover more than three million Michigan residents, "more than nine times as many Michigan residents as its next largest commercial health insurance competitor," the suit adds.

"This lawsuit is without merit, and we will vigorously defend our ability to negotiate the deepest possible discounts for our members and customers with Michigan hospitals," said Andrew Hetzel, communications vice president for the Michigan Blues. "It does not make good business sense for Blue Cross Blue Shield of Michigan to reimburse a provider at a higher rate than we can otherwise negotiate," Hetzel said. "These kinds of low-cost guarantees are widely used in a variety of contracts in a number of industries. In fact, the federal government routinely requires its own vendors to abide by these same lost cost requirements."

By Rebecca Adams, CQ HealthBeat Associate Editor

October 18, 2010 -- Top officials at the Centers for Medicare and Medicaid Services (CMS) on Monday outlined their framework for a new office that will distribute $10 billion over a decade in grants aimed at updating the nation's health care system.

"It's taking more of my time to think through CMMI than almost anything else I'm doing right now," said CMS Administrator Donald M. Berwick, referring to the new Center for Medicare and Medicaid Innovation. Berwick was speaking at an event sponsored by the Engelberg Center for Health Care Reform at the Brookings Institution.

The agency is looking for proposals that will improve health care delivery, improve public health and reduce medical costs. The center is now ramping up and is expected to be fully operational after the first of the year.

"The key point is the need to address all three," said CMMI Director Richard Gilfillan, who also spoke at the event on innovation. "You can expect to see rigorous attention to understanding the data and outcomes along all three of those dimensions."

The two men, who spoke separately during the three-hour forum, referred to the focus of this new center as the "triple aim."

Berwick explained the goals in more detail. Center officials want health systems and companies that are seeking grants to propose new ways to improve care for individual patients, support the overall health of Americans—unrelated to the services that patients get in hospitals, and reduce costs "without harming a hair on anyone's head," Berwick said.

Within the first category, Berwick advised applicants to focus on six areas: improving safety, offering effectiveness through such means as avoiding overuse and underuse of medical services, giving patients information to help them choose and control their own care, acting in a timely manner, reducing waste and closing the racial and socioeconomic disparities that exist among different groups in the United States.

The second goal would support public health. Berwick noted that when you compare the health of people around the world, the provision of medical services only accounts for about 10 percent of the variation. Other important factors are individuals' lifestyles, environment, behavior choices, and genetics.

"If we're serious about producing the end result we want, I don't think we have the privilege of saying we shouldn't be a good partner in generating good health," Berwick said, meaning he wants to see these grants encompass more than the traditional CMS role in financing medical services.

Lowering costs is also important, given that Medicare expenditures totaled more than $500 billion in 2009.

"It is about the reduction of costs through improvement," Berwick said.

Gilfillan said, half-jokingly, that when people ask what is on his mind as he sets up the center, his main concern is "speed" in this world of fast-paced technology.

Gilfillan is well-positioned to lead the efforts, Berwick said. Gilfillan is a physician who ran the Geisinger Health Plan in Pennsylvania from 2005 to 2009. The plan is part of Geisinger Health System, which many health policy analysts hold up as a nation model for delivering high-quality, affordable care.

By Rebecca Adams, CQ HealthBeat Associate Editor

October 22, 2010 -- The new health care law contains several elements that are designed to revolutionize the way that Medicare pays for medical services. But leading policy analysts said at an American Enterprise Institute briefing Friday that many political and institutional challenges could keep that promise from being fulfilled.

The experts at the AEI briefing discussed a wide range of ideas in the health legislation (PL 111-148, PL 111-152) that will soon be tested via demonstration projects by the Centers for Medicare and Medicaid Services (CMS). The goal of many of the payment changes is to pay less for a higher quality of medical care.

But the political interests of affected providers and lawmakers can slow things down, said Michael O'Grady, a senior fellow at the National Opinion Research Center.

Demonstration projects do not automatically lead to policy changes, and findings can take years to develop. During that time, advocates for expanding a program may leave an agency, lawmakers could intervene to block a policy adjustment or the program could be overlooked among other priorities.

"It's not enough to have good data, smart analysts, and clever, elegant design," he said. "You do have to be smart about politics and how you're doing it....This is a pluralistic society, and people will have to be convinced this is a good idea."

O'Grady cited a long-term care partnership program as an example. Congress exempted some long-term care insurance from being counted toward Medicaid eligibility for patients. Four states submitted proposals to test the idea, O'Grady said, and then lawmakers led by Rep. Henry A. Waxman, D-Calif., repealed the authority for it because they were concerned that more middle-class people would start trying to get Medicaid to pay for their care. Over time, however, O'Grady said that support for the program was restored.

Robert Berenson, an Urban Institute fellow, and Mark McClellan, director of the Brookings Engelberg Center for Health Care Reform, noted that CMS has tested different ideas that appeared to work well and then the projects have lingered without being scaled up for the entire Medicare population.

McClellan highlighted the Medicare Physician Group Practice demonstration that he oversaw as CMS administrator—it took five years to start up and, after nearly 11 years, is still being evaluated.

One idea that has gotten attention recently—a concept known as accountable care organizations (ACOs)—involves groups of providers such as doctors, hospitals and skilled nursing care facilities that will coordinate on a patient's care. The idea is to start incentivizing providers to organize patients' treatments in a more holistic way and avoid duplicative tests. Experts say that the current system drives up spending through financial incentives because Medicare pays doctors and hospitals more for providing each additional service in a piecemeal way and delivering more complex types of treatments, instead of providing preventive care that can be better for patients.

The health care law calls on CMS to create demonstration projects that, starting in 2012, will test out whether ACOs can provide better medical care and save money. The providers would share in any savings. (See related story, July 16, 2010)

LMI Center for Health Reform senior fellow John M. Bertko suggested that CMS initially move slowly on trying out the ACO model, by partnering with perhaps 20 sites in 2012. He said that he is enthusiastic about the prospects for saving funds through more organized care.

Bertko noted that ACOs have some common traits with health maintenance organizations. Both groups seek to encourage medical providers to work more closely together and communicate more about the best way to treat all of the medical problems a patient faces, rather than just paying for each service in an uncoordinated way. But he emphasized that ACOs will be different than HMOs, which faced a backlash from consumers in the 1990s, in that HMOs will not restrict patients from choosing doctors outside of a network or officially enrolling patients or acting as gatekeepers that can deny medical services.

Other models will be tested out through a new CMS division, known as the Center for Medicare and Medicaid Innovation (CMI), that will allow agency officials to experiment with new payment models starting early next year. CMS Administrator Donald M. Berwick has said that he spends more of his time focused on that center than almost anything else.

The center will spend about $10 billion over a decade to test out new payment methods and health care delivery systems that are supposed to cut costs while improving the quality of care delivered to patients.

By Jane Norman, CQ HealthBeat Associate Editor

October 19, 2010 -- Consumers will get help resolving disputes with insurance companies and better information before enrolling in health plans under $30 million in grants awarded to states Tuesday by the Department of Health and Human Services (HHS).

HHS Secretary Kathleen Sebelius announced the grants to 35 states, four territories and the District of Columbia at a news conference at HHS. She said that for years, consumers and small businesses have been left to fend for themselves in the complex and often confusing insurance market. But help is on the way via the new health care law.

"When insurance companies rejected a claim people felt they had nowhere to go," Sebelius said. Now states will use the grant money to educate consumers about their new rights and consumer protections under the law (PL 111-148, PL 111-152).

Karen Pollitz, deputy director for consumer support at HHS's Office of Consumer Information and Insurance Oversight, said many of the programs receiving awards will be at state insurance departments. Congress wanted to provide direct assistance to consumers who have complaints or need to make appeals, Pollitz said. Many of the grantees already have track records recovering money for their state residents, she said.

"These programs are also important because they'll have a sentinel effect," she added. The law requires grantees to collect data and report on problems consumers are encountering. "That will help us to strengthen oversight" and dig deeper into the sources of common problems, she explained.

"Because there will be a watchdog in the marketplace I think everyone will be a little more accountable and a little more careful to provide the coverage consumers are entitled to," she said.

For example, New York will receive $1.76 million to "provide consumer assistance to at least 8,000 New Yorkers with their enrollment in coverage and/or their navigation and disputes with insurance carriers," said an HHS statement. The money will also pay for expanded walk-in services and public education about the state's high-risk pool.

By John Reichard, CQ HealthBeat Editor

October 22, 2010 -- A new report by a bipartisan group of health policy analysts says the health care overhaul law creates "important opportunities" to lower growth in health care spending. But it also says other steps are needed, such as taxing high-premium health plans starting in 2014, not 2018 as is called for in the law.

The report, "Bending the Curve Through Health Reform Implementation," was released by the Engelberg Center for Health Reform at the Brookings Institution.

"While more should be done legislatively, the current reform legislation includes important opportunities that will require decisive steps in regulation and execution to fulfill their potential for curbing spending growth," the report said.

"Executing these steps will not be automatic or easy. Yet doing so can achieve a health care system based on evidence, meaningful choice, balance between regulation and market forces, and collaboration that will benefit patients and the economy," the report concludes.

The authors include Mark McClellan, director of the Engelberg Center and a former Bush White House health policy adviser, and Joseph Antos of the right-leaning American Enterprise Institute.

Other authors are identified more with Democratic administrations, such as Harvard economist David Cutler and Leonard Schaeffer, a former Wellpoint executive who served in the Carter administration.

The authors said three goals can be met within five years that will produce savings while improving quality. They include:

• Speeding payment changes away from traditional volume-based payment systems to those that reward quality and efficiency.
• Implementing health insurance exchanges and other insurance revisions in ways that "assure most Americans are rewarded with substantial savings when they choose plans that offer higher quality care at lower premiums.
• Revising coverage so that most Americans can save money when they make decisions that improve their health and reduce costs.

"We believe these are feasible objectives with much progress possible even without further legislation," the report said. But additional congressional action is still needed to support consumers in making choices that reduce costs while improving health, it adds.

Getting Congress to approve the legislation they recommend would be challenging to say the least. Moving up the effective data of the premium tax would likely arouse the opposition of unions. Another recommendation to broaden the powers of the Independent Payment Advisory Board (IPAB) created by the law would unleash powerful opposition by hospitals.

The report says IPAB's mandate should be changed by law to assure that it "allows a broad range of payment reforms beyond reductions in payment rates for particular services."

Other recommendations might find broader agreement, such as changing co-payments in the traditional Medicare program so that Medicare beneficiaries get savings when they use higher-quality, lower-cost care.