By John Reichard, CQ HealthBeat Editor

December 6, 2012 -- Bottled up by the Obama administration for months before the election, details about how the federal government will operate insurance exchanges in states that don't establish their own are beginning to emerge—to the great relief of the insurance industry.

"They are opening the door," is how Candy Gallaher, a senior insurance industry official, summed up the situation after hearing remarks by Center for Consumer Information and Insurance Oversight (CCIIO) Director Gary Cohen at an industry conference at the Renaissance Chicago hotel.

CCIIO is the office at the Centers for Medicare and Medicaid Services (CMS) directly responsible for the federal role in standing up health insurance exchanges by Oct. 1, 2013 under the health care law (PL 111-148, PL 111-152).

The information has begun coming out in bits and pieces with no dramatic developments, such as a proposed rule on the so-called federally facilitated exchange.

But what has begun to happen is "critical," said Gallaher, who is senior vice president for state policy with America's Health Insurance Plans, which sponsored the two-day conference . She said, for example, that a CMS team in charge of eligibility and enrollment functions in the federal exchange has reached out to plans to do some of the testing of those systems. That gives plans a better idea of any operational changes they'll need to make to sell coverage in the new marketplace the health care law created for the uninsured and small businesses.

Cohen said insurers will have an April deadline for filing applications to participate in the federal exchange. In addition, he said CMS officials are developing a "comprehensive consumer-focused application" for coverage that will help federal exchange shoppers identify coverage options available to them. He added that CMS is building a website with a chat function and a 24-hour call center to assist shoppers.

Cohen added that officials have completed the technical design for the federal data hub that both state exchanges and the federally facilitated marketplace will use to confirm an applicant's citizenship and determine income for purposes of calculating eligibility for coverage and subsidies, for example. At least in 2014, states won't be charged for using the federal data hub, including checks to authenticate identity, Cohen indicated. "We've begun testing the hub," he added.

And last week, in other regulations governing the plans that will participate in exchanges, CMS disclosed that insurers will have to pay a user fee equal to 3.5 percent of premium charges to sell coverage in the federally facilitated exchange. The fees will support the federal exchange's consumer assistance; its outreach efforts to consumers, including advertising, to promote the availability of the new marketplace; and enrollment operations, among other functions, Cohen said.

Cohen added, however, that "it is our hope that as many states as possible will establish their own exchanges." So far 15 states have said they will do so, he said. And since CMS has moved back the deadline to Dec. 14 for states to declare their intention to open their own exchange and submit an application to do so, "we're hoping to hear from some more states by then," he added.

Gallaher offered her own tally of what states will do, saying it was based on letters filed by states with federal officials. As of Nov. 30, she said 16 states plus the District of Columbia have said they plan to open their own exchanges, 15 have said they will opt for the federal exchange, 6 states have opted for "partnership models" in which they share exchange functions with the federal government, and 13 have made no official decision.

Cohen said that CMS will establish an annual application process for states to run their own exchanges if they choose to change their minds in future years.

If insurers are relieved that they are beginning to get the details on what they must do to participate in exchanges, they also appear somewhat overwhelmed at the regulatory burdens they face and anxious about consumers coming to exchanges and experiencing sticker shock.

"I know I get nightmares sometimes," said Jeanette Thornton, AHIP's vice president for Health IT Strategies.

Gallaher said the federal exchange user fee will add 3.5 percent to premiums. In addition, a charge levied on insurers to fund the Patient-Centered Outcomes Research Institute will add a couple of dollars a year to premiums, she said. There was a bit of good news for plans, however, in that Cohen said the 3.5 percent fee would not be counted as an administrative expense, which would have made it more difficult for insurers to comply with medical loss ratios and avoid having to issue consumer rebates.

Cohen acknowledged, however, that he's hearing a lot from insurers about a new requirement they face that they submit all planned rate hikes to the Department of Health and Human Services. "It's a proposed rule and we do invite comment," he said, adding that CMS wants to avoid collecting more data than it needs. He wasn't making any promises that the requirement would be changed, however.

Cohen also took notice of a complaint by insurers that rules such as rating bands allowing older people to be charged no more than three times what younger people pay would make coverage too costly for some. "We obviously share the desire that coverage should be affordable," he said. But provisions of the law should not looked at in isolation, he added.

"There are many provisions in the Affordable Care Act that will make coverage more affordable," he asserted. Subsidies will lower charges, and cheaper catastrophic coverage policies will be available to the young. And a reinsurance program will reduce premiums to levels 10 percent to 15 percent lower than they otherwise would be, he said.

Cohen also said that additional guidance would be forthcoming on the federal exchange soon, but he wasn't specific. An industry source suggested that CMS isn't likely to issue a proposed rule on the federal exchange, but rather a guidance document.

By Caitlin McGlade, CQ Staff

December 5, 2012 -- Insurers in the individual market reduced their overhead expenses by $560 million in 2011, which was more than those in the small- and large-group sectors. Those plans that did not meet the health care overhaul's medical loss ratio (MLR) paid customers about $394 million in rebates, according to a report by The Commonwealth Fund.

The research team, which released the report last week, sought to discover whether insurers met their MLRs in 2011 by reducing administrative costs without increasing corporate profits and by restraining premium increases rather than taking actions that would benefit their bottom lines.

Their conclusion was that in order to get insurers to pass along savings to consumers and slash administrative costs across the board, stronger rate regulation, tighter loss ratio rules or stronger competitive pressures are necessary.

The health care overhaul (PL 111-148, PL 111-152) requires insurers to spend at least 80 percent or 85 percent of their premium dollars on medical care, limiting the share that insurers may spend on overhead and for profits. Companies must rebate their subscribers if they don't make the mark, and the first round of rebates went out in August.

According to the report, insurers handled the mandate by executing one of three scenarios. Under one, companies lowered administrative costs, profits and premiums and avoided paying rebates. In a second example, insurers did not reduce administrative costs and profits enough to meet the MLR standard and again had to pay rebates. Under a third scenario, insurers shifted any administrative cost savings into profits and used those increased profits to pay rebates. The third scenario, the report authors said, was the most common among small- and large-group insurers.

"Potentially, and we didn't measure this, we're speculating, that maybe they were doing this to subsidize those plans that offered an individual product," said Michael McCue, report author and professor at the Department of Health Administration School of Allied Health Professions at Virginia Commonwealth University. "Maybe they were trying to offset those losses of the individual insurer."

Individual-market insurers reduced both administrative costs and profits despite increasing enrollment by almost a quarter of a million people in 2011, making consumers of such insurance "benefit substantially" under the medical loss ratio rule.

Large-group market insurers that did not meet the minimum medical loss ratio paid about $386 million in rebates and devoted an increased amount of premium revenue to overhead costs. The report states that this group was able to boost its profits by $959 million.

Small-group market consumers collectively received about $321 million in rebates. While administrative costs in this market did drop significantly, insurers in this market chose to use those savings to increase their profits rather than passing them on to consumers in the form of lower premiums, according to the report.

As of September 2011, non-grandfathered plans seeking to raise premiums by at least 10 percent had to start publicly disclosing their proposed increases and the justifications for them. McCue said this requirement should deter insurance companies from drastically raising premiums.

"They're trying to embarrass plans to keep their rates low, by embarrassing them so to speak, because a lot of these state regulations don't have a lot of teeth to hold those rates down," McCue said.

According to an emailed statement from America's Health Insurance Plans, the medical loss ratio is an "arbitrary cap on what health plans can spend on a variety of programs and services that improve the quality and safety of patient care."

AHIP has taken the position that the ratio prohibits insurance companies from spending money on many services that are not related strictly to medical costs, which cuts back on developing partnerships with providers such as Accountable Care Organizations, credentialing health care providers and providing patients with online and mobile access to claims history and Personal Health Records.

By Emily Ethridge, CQ Roll Call

December 3, 2012 -- Health care stakeholders are urging Congress to prevent scheduled cuts in payments to Medicare physicians, as details on another annual patch are getting caught up in the deficit-reduction negotiations.

Lobbyists and provider groups are meeting with congressional staffers to try to discuss details of how to avert the payment reductions, although aides say details may not be ironed out between the parties until a broader deficit agreement is reached. A payment patch for Medicare physicians, also known as a "doc fix," is likely to be included as part of a larger deal.

With much still unresolved on a deficit-reduction agreement, lawmakers have been mostly quiet on how to avoid the expiring Medicare physician payment rates. But lobbyists say some details are being discussed—particularly the tricky issue of how to offset the cost of a payment patch.

A one-year extension of current payment rates is expected to cost about $25 billion over 10 years, and lawmakers have previously insisted that the cost be offset by other provisions.

In addition, lawmakers are likely to include some other Medicare payment provisions, which could bring the total cost to more than $30 billion, according to a House aide.

Without congressional action, providers who see Medicare patients will have their payments reduced by about 27 percent starting Jan. 1. The cuts are called for in a formula known as the sustainable growth rate, enacted to try to rein in Medicare's spending growth.

Lawmakers have regularly blocked the cuts over the past decade.

This year, it looks like payments to other health providers and hospitals could once again be a source of offsets. The most recent patch (PL 112-96), which stopped scheduled payment cuts for doctors through Dec. 31, was partially paid for by cutting payments to hospitals, skilled nursing facilities and clinical labs.

Hospital groups are concerned that this year's fix will again cap payments for certain services performed in hospital outpatient departments at the lower rate paid to physicians for performing the services in their offices.

"We're very concerned about these cuts," said Erik Rasmussen, senior associate director at the American Hospital Association, at a briefing last week. "We think they're on the final list of what's going to get in."

One health care lobbyist said the payment cap has "gotten a lot of traction" in discussions.

The Medicare Payment Advisory Commission has recommended phasing in reduced payment rates for hospital outpatient department services, and said it could save between $1 billion and $5 billion over five years.

Another potential offset is eliminating a temporary increase in Medicaid payments to primary care providers that is supposed to match higher Medicare rates. The 2010 health care law (PL 111-148, PL 111-152) funds the increase in Medicaid primary care physician payments for two years, starting Jan. 1.

But Democrats are deeply concerned about that potential cut to Medicaid primary care physicians, according to a Democratic aide.

In addition, a health care lobbyist said physician groups would make a coordinated effort to stop the use of the increased primary care payments as an offset.

Another offset seen as "low-hanging fruit" is to reduce payments to hospitals that treat large numbers of uninsured patients and those with Medicaid. Under the health care law, payments to those so-called disproportionate share hospitals are to be reduced by $18 billion between 2014 and 2020. The doc fix earlier this year extended those payment reductions by one year, and it's possible they could be extended again this time around.

Also under discussion as potential offsets are cutting reimbursements for skilled nursing facilities and reducing updated, increased payment rates for other providers and hospitals, according to lobbyists.

A doc fix that would last longer than one year is not likely to be on the table, stakeholders said.

But Sean Neary, communications director for the Senate Finance Committee, said panel Chairman Max Baucus, D-Mont., is working on the issue and wants to find a permanent solution if possible.

By Rebecca Adams, CQ HealthBeat Associate Editor

December 5, 2012 -- States that are testing out ways to shift dually eligible patients into managed care could get some guidance from a new consortium of health plans being put together by the Visiting Nurse Service of New York with support from The Commonwealth Fund.

The project, known as Promoting Integrated Care for Dual Eligibles, was mentioned in a presentation at a conference in Washington sponsored by the National Committee for Quality Assurance last week. Carol Raphael, the former chief executive officer of the Visiting Nurse Service of New York, said that the goal is to finalize the members and launch the consortium in the first quarter of 2013.

Officials from the health plans would discuss challenges and solutions for such issues as building adequate networks, aligning plan and provider interests, engaging consumers and growing membership, she said.

Medicare and Medicaid together spend about $300 billion annually to care for about nine million dually eligible beneficiaries, and many states are interested in integrating their benefits. An office within the Centers for Medicare and Medicaid Services that coordinates care for dually eligible people has encouraged more coordinated and integrated care.

But many of the existing plans that cover them are relatively small and do not appear to routinely share information.

"There are some jewels but they tend to be small jewels," Raphael said of the plans.

The Commonwealth Fund has provided $318,084 for the first 15 months, from May 2012 through the end of July 2013, to get the project started.

The project team will work with other groups, including the Center for Health Care Strategies, which is working with states to develop integrated systems of care, and the National Committee for Quality Assurance, which is developing performance measures for integrated care models for dually eligible patients.

The new alliance plans to hold at least two meetings, regular conference calls, and webinars next year.

• Description of Project (pdf)

By Rebecca Adams, CQ HealthBeat Associate Editor

November 26, 2012 -- State officials who are hoping to avoid high Medicaid costs from the health care law by not expanding the program might be in for an unpleasant discovery: Other Medicaid-related mandates in the overhaul will mean higher state spending regardless of whether a state expands, according to a state-by-state analysis the nonpartisan Kaiser Family Foundation released last week.

The report shows that if all states expand coverage, as allowed under the 2010 health care law, they would collectively spend $76 billion more from 2013 to 2022 on Medicaid than if the measure had never been enacted. That's only about $8 billion more than states would pay under the law if none of them expand.

Most of the increase in Medicaid spending over the decade will come even if a state chooses not to broaden coverage. That's because millions of people who are already eligible for the program are expected to sign up in 2014 when there's likely to be massive campaigns to tell people about the new law. States also will have to spend more money updating their IT systems, changing their enrollment and eligibility procedures and helping people understand the new system, which is supposed to allow for seamless coverage.

The report also suggests that state costs for expansion would be modest compared to the amount that the federal government would pay. That $8 billion in additional investment would allow states to draw $800 billion more in federal funding than they would get under the law, if no states expanded.

Moreover, the report finds that some states would actually save money on the expansion, considering that they would have fewer uncompensated care costs to fund. States and localities bear about 30 percent of the costs of uncompensated care when uninsured patients don't pay all of their medical bills. The report estimates that nationally, state and local spending on uncompensated care would decline by $18 billion—turning the total $8 billion cost to states under expansion into $10 billion in savings.

But each state would be affected differently, and some individual states would not fare as well as the national picture indicates.
"That might be true in the aggregate, but states are going to run the numbers themselves," said former Congressional Budget Office Director Douglas Holtz-Eakin, who conducted a similar analysis earlier this year for the American Action Forum.

For example, if Mississippi decided to expand Medicaid, it would cost the state about 6.2 percent more than if the state does not expand, a higher percentage increase than any other state, the Kaiser report estimated. But the authors concluded that because the state would save money on uncompensated care costs, the true net increase would be 3.8 percent.

The report also found that the financial incentives were best for states in the New England and Mid-Atlantic regions, while they were least attractive in the Mountain and Pacific regions.

The 61-page report was conducted by Urban Institute researchers including John Holahan and Matt Buettgens.

The report could be helpful to governors and state legislators preparing for their 2013 legislative sessions and trying to decide whether to expand Medicaid under the 2010 law (PL 111-148, PL 111-152).

The overhaul law allows states to expand coverage for people whose household income is at or below 138 percent of the federal poverty level, which in 2012 is $15,415 for an individual and $26,344 for a family of three. The federal government will pick up most of the costs, starting at 100 percent for the newly eligible in the first three years and phasing down to 90 percent of costs. The June 28 Supreme Court decision made it clear that states would be able to choose whether or not to expand Medicaid without jeopardizing their federal matching money for their entire Medicaid programs. Since then, governors and state legislators have been weighing whether to broaden their Medicaid programs.

A Closer Look at the Numbers

The details work like this: Assuming all the states participate in the Medicaid expansion, their total projected costs would increase by $76 billion from 2013-2022, an average increase of about 3 percent nationally over current costs. For that investment, the states would gain $952 billion in federal funding to help pay for coverage for an additional 21.3 million people, the report said. Of that $952 billion, the federal government would have had to pay $152 billion in higher Medicaid costs even if the law hadn't been passed.

Even if none of the states expand coverage, they still would be on the hook for a collective $68 billion over the same time period, because of other requirements in the law. If a state chooses not to broaden coverage, it still will have to simplify enrollment and eligibility procedures and help people understand their coverage options. Under that scenario, about 5.7 million people who are currently eligible but not enrolled in Medicaid would be expected to come out of the woodwork to sign up for coverage.

State officials who look at the Kaiser report will be asking themselves whether they can afford a slightly higher investment in order to significantly expand the number of people who will get coverage.

"It's very easy to have a little sticker shock at the potential cost," said Alan Weil, the executive director of the National Academy for State Health Policy. Weil noted that even a 1 percent increase can seem like a lot to officials in states whose fiscal climate is still recovering. For years, many state officials have complained about the burden that Medicaid costs impose on their state budgets.

But Weil, who spoke on a conference call organized by Kaiser, said that the report does a good job of putting the spending burden that states will face in the context of overall spending.

"Many states will be surprised at the results showing that the costs to them of the coverage expansion in the ACA come largely from things that they must do" and not from the optional expansion, Weil said.

He suggested, as he has said before, that state officials will come under tremendous pressure from medical providers and patient advocates to consider the expansion.

Of course, the Obama administration also is pushing state officials to expand.

Holtz-Eakin said the administration's interest gives states leverage they could use to strike deals on Medicaid or the exchanges with federal officials. For instance, GOP governors have sent the administration a list of ideas that they would like to pursue in Medicaid, and they might press federal officials harder to accept them. Republicans who have said they will rely on the federal exchange in their states also might be persuaded to work on a federal-state partnership if the administration shows a little more flexibility in Medicaid.

"I think that the major takeaway from this report and what we did is that the Medicaid expansion is not a no-brainer. States will have to think about it from their own narrow financial point of view," he said. "The Supreme Court decision really did deal the states back in, and they can use that leverage."

By Emily Ethridge, CQ Roll Call

December 4, 2012 -- Top Senate Democrats recently signaled a willingness to charge wealthier Medicare beneficiaries higher premiums as part of a deficit-reduction deal that would find savings from entitlement programs.

Senate Finance Chairman Max Baucus said that adding a means test to Medicare premium rates is a "somewhat attractive" idea as part of negotiations.

"It could well be one of the pieces that's necessary to get a solution," said Baucus, D-Mont.

Republicans also have backed the idea, which would require Medicare participants with a certain income level to pay higher premiums for services. The program already does this to some degree, but a deal could either have those beneficiaries pay more in premiums, or increase the number of people paying the higher level.

Senate Majority Whip Richard J. Durbin also said he would be amenable to increasing premiums for wealthier beneficiaries. "I think that's reasonable, and I think it's consistent with my viewpoint," said Durbin, D-Ill. "Our taxes as well as our programs should be progressive. Those who are better off shouldn't receive the same level of benefits as those who are not."

Currently, Medicare beneficiaries with $85,000 in income a year as individuals, or $170,000 for married couples, pay higher premiums for Part B services, which includes doctor services, outpatient care, and physical and occupational therapy.

"Medicare already has a means test, so I think there's been some misconceptions about this," said Ron Wyden, D-Ore. "I would be willing to look at that."

"The heart of the Medicare agreement, though, has got to first start with the proposition to try to lay out the sensible policies that are going to undergird the number—the savings part—to be looked at," he added. "You have got to make some judgments about what else you can do so that Medicare continues to be a program attractive to all."

Democrats are pushing to let the President George W. Bush-era tax cuts expire at the end of this year on Americans with more than $200,000 in individual income or $250,000 for married couples. Charging higher premiums from wealthier Medicare participants would be another way to get more money from higher-income earners.

The idea of means-testing Medicare has come up in several spending reduction talks before, including last year's joint deficit reduction committee and a failed Senate GOP payroll tax extension proposal.

Treasury Secretary Tim Geithner said Dec. 2 on NBC's "Meet the Press" that the Obama administration had proposed "to modestly increase premiums for high-income beneficiaries of Medicare."

But Democrats are not yet as willing to back another Republican-supported change to Medicare: raising the program's eligibility age.
Wyden said he wanted to ensure that all retirees would have adequate coverage, saying he felt the eligibility age issue would be more significant in deficit-reduction talks than means testing.

"Any debate over raising the retirement age must start with how you're going to protect vulnerable seniors who have done hard physical labor who are having a real challenge even hanging on physically until the current age," Wyden said.

Wyden said the health insurance exchanges created in the 2010 health care law (PL 111-148, PL 111-152), are not an automatic solution, because seniors could still be subject to higher premiums through insurance rating bands.

Durbin echoed Wyden's concerns, which he said he has discussed with the president "in passing."

"I have to have some assurance that the exchange system is working, providing accessible affordable health insurance for early retirees—let's say retirees who have not reached the age of eligibility," he said.