By John Reichard, CQ HealthBeat Editor

November 28, 2012 -- A new analysis by the Employee Benefit Research Institute (EBRI) says self-insurance is a huge trend in employer-sponsored coverage that could become more pronounced in the wake of the health care law.

"In 2011, 58.5 percent of workers with health coverage were in self-insured plans, up from 40.9 percent in 1998," an EBRI summary of the study says.

For the most part, employers with 1,000 or more workers have driven the trend. Only 12 percent of firms with fewer than 50 employees were self-insured in most of the years examined in the study.

But there's much speculation that small employers seeking to get out from under some of the major requirements of the health care law (PL 111-148, PL 111-152) will choose to self-insure.

Self-insured plans must meet some, but certainly not all, health care law requirements.

According to a Congressional Research Service (CRS) analysis, they, like fully insured plans, can't impose annual or lifetime limits on medical payouts for enrollees. They must cover dependents up to age 26 and, starting in 2014, won't be able to exclude people with pre-existing medical conditions.

However, they are not subject to the requirement of the health care law that plans provide a minimum package of "essential health benefits," according to the CRS analysis. Nor are they subject to annual rate review or medical loss ratio rules requiring that certain percentages of the premium dollar be paid out for medical care or for quality-of-care improvements or else they have to pay rebates to enrollees.

"Employers generally, and small employers particularly, concerned about the rising cost of providing health coverage may view self-insurance as a better way to control expected cost increases," EBRI analyst Paul Fronstin says.

Under self-insurance, employers pay health claims out of their own coffers rather than paying premiums to an insurer that accepts the financial risks of paying for all covered medical services. They usually pay an administrative fee to health plans to process and adjudicate claims.

Historically, big employers have been more likely to self-insure because they can provide more uniform benefits across state lines if they do so, which lowers their administrative costs. Also, they don't have to comply with state benefit mandates, which means they don't have to cover as many services as some states would like them to. They also escape certain state taxes.

• Employee Benefit Research Institute study (PDF)

By CQ Staff

November 29, 2012 -- Karen Davis, who is leaving The Commonwealth Fund after serving as its president for two decades, is returning to Johns Hopkins University. Starting Jan. 1, she will be director of the Roger C. Lipitz Center for Integrated Health Care.

Davis will also be the second Eugene and Mildred Lipitz professor in the Department of Health Policy and Management at the Bloomberg School of Public Health, a department she chaired for 11 years before joining the Commonwealth Fund.

"I am excited about the opportunity to head the Lipitz Center and continue its important work on developing innovative health care payment and delivery models in order to improve care for our nation's most vulnerable people, including the disabled," Davis said. "With the imminent retirement of much of the boomer generation, the need for new models of patient-centered care that improve quality of care while advancing efficiency is paramount."

Davis also has worked at the Brookings Institution, has lectured at Harvard University and was a deputy assistant secretary for planning and evaluation at the Department of Health and Human Services during the Jimmy Carter administration. In 1980 she became the first woman to head a U.S. public health service agency when she became the administrator of the Health Resources Administration. She announced her intention last year to step down from The Commonwealth Fund.

The Commonwealth Fund has already named David Blumenthal, a professor at Harvard Medical School and President Obama's former national coordinator for health information technology, to succeed Davis.

By Rebecca Adams, CQ HealthBeat Associate Editor

November 30, 2012 -- Under a proposed rule released last week, insurers that want to offer a national multistate plan would be allowed to phase in their participation in all 50 states over four years. In the first year, the plans would only have to operate in 31 states.

The health care law (PL 111-148, PL 111-152) requires at least two insurers or more to operate in each state's exchange as a multistate plan. The idea behind that was to ensure that every state had robust insurance options. It would particularly benefit people who live in more than one state, such as members of Congress, or small businesses that operate in several states but want to offer their employees uniform benefits. The program would be overseen by the Office of Personnel Management (OPM), which currently covers about 8 million workers and their families through the Federal Employee Health Benefit Program.

Currently, the federal program offers six national plans, each of which offers coverage throughout the country.

Federal officials had been trying to write the rule so that big insurance companies such as Aetna Inc. or Wellpoint would be interested in offering coverage. The four-year phase-in was included to make it easier for companies that currently don't operate in every state to build up the ability to go nationwide.

But it's unclear how many companies will be interested in doing that.

"I think the difficulty for some carriers will be, that would require an expansion of their market and the reason why those companies are not in those markets is because they're not successful in them," said Bill Hoagland, a senior vice president at the Bipartisan Policy Center and former top government relations official at Cigna.

The regulators who wrote the rule went out of their way to say that they are trying to create a level playing field between large national carriers and smaller local health plans that would be competing with them in exchanges.

But some analysts say that, regardless of the intentions, the bigger companies will have inherent advantages that are hard to overcome due to their size and the ability to limit costs through economies of scale.

"There's still a big open question about how level you can make the playing field through regulation," said Carly Kelly, an analyst at Avalere Health.

Kelly said that it will be will be interesting to see whether consumers choose local plans due to familiarity or whether they will tend to favor the larger plans. She said it will important to watch whether the larger insurers are able to offer lower-cost premiums to consumers in the exchanges when open enrollment starts Oct. 1.

The OPM proposal is the first rule put out on the multistate plans, although agency officials had indicated in other draft documents that it might phase in the 50-state requirement.

By John Reichard, CQ HealthBeat Editor

November 28, 2012 -- There's a lot happening in coming weeks to implement the health care law that has nothing to do with what everyone has been talking about in recent days—standing up health insurance exchanges, expanding Medicaid, and establishing a new regulatory structure for the insurance market.

Just consider the changes that occur starting Jan. 1.

That day marks the start of the Medicare bundled payment pilot. It's a form of reimbursement that policy analysts hope will help bend down the upward curve in health care spending, together with other strategies.

Hospitals, doctors, and nursing facilities taking part in the Bundled Payments for Care Improvement Initiative will get one payment for multiple services a patient receives during an episode of care. "For example, instead of a surgical procedure generating multiple claims from multiple providers, the entire team is compensated with a 'bundled' payment that provides incentives to deliver health care services more efficiently while maintaining or improving quality of care," the Centers for Medicare and Medicaid Services explained in a Federal Register notice announcing the program. The pilot will test bundled payments for 48 types of treatment episodes.

According to an HHS official, the project will pick up steam as the year goes on.

"Early in December, applicants will let us know if they would like to participate and the episodes they will participate in that will begin the initial phase of the model," the official said. "For the first two quarters of next year, CMS will share data and the hospitals will not be at risk for their performance. Applicants will give us feedback." The actual bundled payments will begin after that.

It's unclear how many providers will participate. However, a recent study by Robert Mechanic, a senior fellow at Brandeis University, examined data from 100 hospitals that had expressed interest in taking part.

Prescription Drugs

The phasing in of federal subsidies to close the gap in Medicare Part D coverage also begins Jan. 1. Before the health care law, beneficiaries in the "doughnut hole" paid 100 percent of prescription costs. In the case of brand-name drugs, manufacturers in 2013 will continue to give discounts picking up 50 percent of the costs, as they did starting in 2011.

Federal money starts plugging the gap, too, such that next year Uncle Sam covers 2.5 percent of the costs and the beneficiary the remaining 47.5 percent.

In following years, the figures are as follows: 2014, 2.5 percent federal/47.5 percent beneficiary; 2015, 5 percent federal/45 percent beneficiary; 2016, 5 percent federal/45 percent beneficiary; 2017, 10 percent federal/40 percent beneficiary; 2018, 15 percent federal/35 percent beneficiary; and 2019, 20 percent federal/30 percent beneficiary. In 2020 and years thereafter, the federal government will pay 75 percent of prescription costs and beneficiaries will pay 25 percent, just as they do for drugs outside the doughnut hole.

Similarly, the beneficiary share of generic drug prescriptions in the doughnut shrinks in 2013 with the federal government picking up more of the tab. Next year, beneficiaries pay 79 percent of the expense and the government 21 percent (compared to 86 percent and 14 percent, respectively, in 2012).

After 2013, the breakdown is as follows: 2014, 28 percent federal/72 percent beneficiary; 2015, 35 percent federal/65 percent beneficiary; 2016, 42 percent federal/58 percent beneficiary; 2017, 49 percent federal/51 percent beneficiary; 2018, 56 percent federal/44 percent beneficiary; and 2019, 63 percent federal/37 percent beneficiary. In 2020 and years thereafter, the federal government will pay 75 percent and beneficiaries will pay 25 percent.

Hit on Some Taxpayers

January also brings changes that could anger some taxpayers who have big incomes or who qualify for certain tax breaks. For example, the threshold for the itemized deduction for unreimbursed medical expenses rises to 10 percent of adjusted gross income, up from 7.5 percent now. However, the increase is waived for individuals 65 and older for tax years 2013-2016.

Also, contributions to flexible spending accounts that allow payments for medical expenses with pre-tax dollars can no longer exceed $2,500 starting in 2013, with the ceiling raised each year after that by a cost-of-living adjustment.

Until now, employers have been responsible for setting their own FSA limits, which in many cases have ranged from $2,500 to $5,000, according to the Center on Budget and Policy Priorities. The center estimates that one of every seven workers in 2010 had an FSA and that the average account had $1,420.

Also starting next year, affluent wage earners pay higher Medicare taxes. They pay an added 0.9 percent payroll tax for the Medicare Part A trust fund that pays for hospital care. They'll pay the current 1.45 percent on earnings up to $200,000 for individual taxpayers and $250,000 for married couples, but over that limit they pay the added 0.9 percent, for a total of 2.35 percent.

And taxpayers in these income brackets pay a separate 3.8 percent additional Medicare tax on unearned income, such as interest, dividends, annuities and capital gains.

For their part, employers who have been getting federal subsidies to continue retiree drug coverage can no longer also take those subsidies as a tax deduction starting Jan. 1. The provision caused a big stir shortly after the health care overhaul became law when large companies said they would have to take billions of dollars in write-offs, but Democrats said the outcry was overblown.

But there's plenty of controversy now about another tax change, an excise tax of 2.3 percent on the sale of any taxable medical device. The device industry says the provision will force big layoffs. For example, a leading device manufacturer, Kalamazoo, Mich.-based Stryker Corp., announced in November 2011 that it was laying off about 1,000 of its 20,000 workers in 2012, blaming the reduction in part on the excise tax. But the Center on Budget and Policy Priorities asserts that claims of large job losses from the tax are not credible, saying the coverage expansion will increase the number of elective medical procedures performed in the U.S. and that in turn will increase the sales of medical devices.

Medicaid Changes

Perhaps less controversial is a change in Medicaid that provides a one percentage point increase in federal matching payments to states in which Medicaid programs cover preventive services rated A or B by the U.S. Preventive Services Task Force without requiring patients to share any of the costs.

But another Medicaid change—upping rates paid to primary care doctors in 2013 and 2014 to the payment rates Medicare pays—hasn't eluded controversy, even though the increase will be funded fully by the federal government. Florida Gov. Rick Scott, a Republican, is dragging his heels in adopting the change.

By Caitlin McGlade, CQ Staff

November 30, 3012 -- It's state budget submission season for governors, and as they struggle with whether to expand their Medicaid programs under the health care law, some policy experts recently said that each state leader is crunching the numbers and trying to decide what makes the most financial sense.

At a panel discussion hosted by the Alliance for Health Reform, much discussion centered around a report by the Kaiser Commission on Medicaid and the Uninsured that calculated state savings at just $8 billion collectively if all of them decided to forgo expansion.

But Krista Drobac, director of the health division at the National Governor's Association Center for Best Practices, said the governors have not had any reaction, at least publicly, to the Kaiser study, which was by John Holahan, a researcher with the Urban Institute.

Some are wondering whether their states could just partly expand, while others are curious if they could expand later. Some have wondered what the effects would be if they reduced eligibility after expanding.

Many are particularly worried about how concrete the 90 percent reimbursement federal officials promise would be after a few years and in subsequent Congresses. When states first expand, the federal government will pay 100 percent of the costs for new enrollees. That contribution will be phased down to 90 percent.

"It's weighing hugely in the minds of state officials—when you look at the numbers that John presented and say to yourself, 'Well this looks like a good deal,' state officials say to themselves, 'Well what if we get wrapped up in deficit reduction and the costs shift to the state so that 90 percent match, in three years, becomes 75?' " Drobac said.

Another question on the table is how areas with few providers would handle a surge in Medicaid users. In many cases, regions home to high proportions of uninsured have the fewest provider options, she said.

Mississippi—which has already tossed out the prospect of expansion—is one of these cases. If the state were to expand its Medicaid program, it would potentially have 310,000 new enrollees, bringing its number of Medicaid recipients to more than 1 million people. The state leads the country in poverty, adult obesity, teen birth rates, infant mortality and traffic deaths. It comes in second for hypertension and inactivity and third in diabetes and cancer mortality. Mississippi comes in last when it comes to physicians per capita.

But James Keeton, dean of the School of Medicine at the University of Mississippi Medical Center, said last week that hospitals are going to be in trouble if the state opts out of Medicaid expansion.

Fourteen percent of the patients his system treats are uninsured.

"So I go talk to civic groups and I say to the civic groups, how would you like to run a company where you give away 14 percent of your business?" Keeton said. "That's what we do."

Federal Medicaid Disproportionate Share Hospital funding is available to cover these types of situations, but the health care overhaul is phasing out such payments because, in theory, the law should reduce the number of uninsured people and the need for hospitals to pay for such patients.

Medicaid expansion or not, Keeton figures, the state would lose the disproportionate share payments. Without insuring more people, the hospitals might have to pay more out of pocket eventually. Keeton expects the small hospitals to start talking to their state senators and representatives in January about "going into the red" and the implications that would have as a large employer in their areas.

"And that's when the rubber will hit the road," Keeton said.

The health care overhaul originally had mandated that all states expand their Medicaid programs to cover those who are within 138 percent of the federal poverty line, and pledged to withhold Medicaid funding to states that didn't comply. But in June the Supreme Court said states could opt out of the Medicaid expansion without losing their other Medicaid reimbursements.

Some states, such as New York and Delaware, are poised to save money with the health care overhaul's Medicaid expansion provision, while others, such as Mississippi, say the program would cost too much.

"Expenditures related to health care are crowding other state expenditures, and the governors have just come out of an extremely intense time period where they had to find savings in all of their programs," Drobac said. "It's coming at a time when its fresh in their minds how much Medicaid costs."

She pointed to a chart delineating that K-12 education spending, as a share of total state spending, dropped from 22 percent to 20 percent from 2008 to 2011. During that same period, Medicaid spending rose to 23.5 percent from 20.5 percent.

"When they think about these things, they're thinking about the trade-offs," Drobac said. "So, what other parts of our budgets are potentially crowded out by increased Medicaid costs?"

Holohan's findings showed that states will be paying more than in previous years regardless of whether they expand Medicaid. Much of this would be driven by the slew of people who discover they had already been eligible, largely because of increased publicity, and sign up for Medicaid to comply with the health insurance mandate.

"It's just hard for me to imagine that states can not adopt this after a certain period of time," Holahan said. "Because with the pressure of hospitals, business communities and just a lot of people saying 'Why are we giving up all this money while our taxpayers are paying federal taxes, which are going out to people in other states?'"

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."