By Rebecca Adams, CQ HealthBeat Associate Editor

January 3, 2013 -- Federal officials gave conditional approval last week to Utah's health benefits exchange, even though state officials have sent mixed signals about whether they are willing to modify their current small business-only marketplace to meet all of the health law standards.

Centers for Medicare and Medicaid (CMS) officials also conditionally okayed six other state exchange plans and Arkansas' proposal to partner with the federal government on an exchange when the new marketplaces are set to begin operating in 2014.

CMS also released a 23-page guidance document for states that are considering a partnership exchange with the federal government. State officials have until Feb. 15 to declare whether they will partner with federal officials. In those states that do not operate their own exchange or team up with HHS, a federally run exchange will be established.

The states conditionally approved for a state exchange in addition to Utah were California, Hawaii, Idaho, Nevada, New Mexico and Vermont. The recent action brings the number of states that so far have been conditionally approved to operate their own exchange to 18. Federal officials have told two states—Arkansas and Delaware—that they are on track to partner with the federal government on an exchange. States had until Dec. 14 to tell federal officials they wanted to operate their own exchange.

The Mississippi insurance commissioner also had applied to run a state exchange but CMS officials said that they are deferring a decision so state officials can resolve disagreements about whether Mississippi has the legal authority to go forward. CMS Deputy Administrator and Director for the Center for Consumer Information and Insurance Oversight Gary Cohen said he did not know when that dispute would be resolved.

"In all of these states there's more work to be done," Cohen said on a call with reporters. But federal officials said they believe that the states have made significant progress and have produced plans that will allow them to begin enrolling consumers in October. The progress that each state has made is "more than a start," Cohen said.

Utah Talks Continue

Conservatives have held up Utah's exchange as a model, but as it operates now, it would not adhere to all of the requirements of the 2010 health care law (PL 111-148, PL 111-152). The exchange, which was created in 2008, currently offers health coverage for 309 Utah small businesses that provide health insurance for 7,337 people through defined contribution plans. State officials are continuing to negotiate the details of implementation with CMS.

Under the health care statute, Utah would have to expand to include coverage for individuals as well as small businesses and would have to create a program to help consumers navigate and understand the options available to them. The plans offered in the exchange also would have to adjust to meet the criteria spelled out in the law, such as minimum benefit requirements and standardized levels of coverage so that it is easy for consumers to compare plans. The law limits the factors that insurers can consider in setting rates for consumers.

U.S. Department of Health and Human Services (HHS) Secretary Kathleen Sebelius said on the call that the law ensures that there would be "no more squinting through dozens of pages of fine print, looking for loopholes in coverage."

Steve Gooch, the communications and marketing coordinator for the Utah exchange, said that state officials are just beginning to work through the specifics with federal officials.

"We expect to know more in the next couple of weeks, due to the nature of our unique situation," Gooch said last week. "We're in one place and HHS is in another place and we have to work together to figure out where the middle is and what we need to do to make it work. The announcement today is a solid step in saying now we're going to start working together" to determine the way that the exchange will have to be modified.

Utah Republican Gov. Gary Herbert had sent a somewhat confrontational letter to HHS officials in December, saying that the existing exchange should be accepted as complying with the law.

But since then, the state sent a 72-page submission that indicates that officials will conform to the federal law and revise the offerings allowed in its exchange. It says, for example, that the exchange website will provide information on premium subsidies and the tiered levels of coverage in the exchange. The federal law requires plans to offer standardized levels of coverage that are identified to consumers as bronze, silver, gold or platinum plans so that they can easily compare them.

"They said they're going to have a plan that's going to be compliant with the law and we're going to work with them to do that," said Cohen. "We're going to be flexible and work with every state including Utah."

Herbert's Deputy Chief of Staff Ally Isom has adopted a tone that suggests the state wants to stick as closely as possible to its existing structure.

"Utah's position on our state health exchange has not changed and it will not change," said Isom. "Because it's consumer-driven, market-based and flexible, Utah's model is the right solution for Utah. Of course we'll review the HHS announcement and determine if the conditions are acceptable or reasonable for our state exchange—and that includes sitting down with legislators—but there is nothing about Utah's path that changes as a result of today's announcement."

Former HHS Director of the Office of Consumer Information and Insurance Oversight Jay Angoff said that the conditional approval is a sign that federal officials are willing to be open-minded, but he believes they will expect that the state complies with the law.

"It's a conditional approval, with the accent on conditional," said Angoff, saying that federal officials created the idea of "conditional" approval in order to be as accommodating as possible to the states and encourage them to participate in implementation. "No one can know today whether the states that have received conditional approval will, in fact, do what they say they will do. So it may well be the case that HHS may end up running more exchanges in more states than today are envisioned."

More Information for States

Each state approved last week got a letter tailored to its plan. The letters spell out as many as five steps that state officials would have to take before getting federal approval to open their exchange. For instance, in the coming weeks federal officials will review and evaluation the timetables and work plans in some of the states. Other states still need to demonstrate that they have the legal authority to run and finance an exchange—which in some cases means that a state, such as Vermont, will have to pass a law in order to comply. Hawaii will have to develop a contingency plan by Jan. 15 that demonstrates its ability to perform eligibility and enrollment functions to provide coverage. Of the states approved, California seemed to be the furthest ahead in its work and will only have to show that it can do all it promised in its application, comply with the law and meet deadlines to demonstrate progress.

The guidance memo that CMS officials released spells out more specifically the roles that the federal government and states would assume under different types of partnership models. Under a partnership, a state could take the lead in overseeing plan management, consumer assistance and outreach, or both. The guidance also notes that even in states that rely on the federal government to run the exchange, state departments of insurance would still carry on such duties as reviewing health plan rates, benefits, and provider networks for all individual and small group plans in the state, both in and out of the exchange. "Even where a state partnership exchange is not operating, HHS will work with states to integrate state reviews into the" federal exchange's process for certifying qualified health plans, said the guidance.

The guidance includes charts specifying what types of duties would fall under the purview of state governments and which would be federal tasks. It also includes timetables for action to ensure that states are ready to start enrolling people in October.

Cohen repeated a promise that federal officials make at every announcement on the development of exchanges: If a state does not create an exchange, the federal government will be ready in October to enroll people.

• Utah exchange (pdf)

By John Reichard, CQ HealthBeat Editor

January 4, 2013 -- During last month's fiscal cliff negotiations, President Barack Obama floated a proposal for some $400 billion in health care cuts over 10 years. But in the end, only about $29 billion was trimmed from Medicare and Medicaid spending to offset the cost of a physician payment patch and related provisions.

However, it's a pretty safe bet that much bigger reductions to Medicare and possibly Medicaid spending are in the works later this year.

Why? For one thing Republicans are ratcheting up the pressure on the White House to cut spending as part of legislation lifting the debt ceiling, which according to Treasury Secretary Timothy F. Geithner is required by March 1 or so to keep the United States from defaulting on its debt.

March 1 also marks the expiration of the two-month delay in sequestration provisions that require automatic cuts under the budget control law (PL 112-25). As part of that measure, providers are scheduled to take a 2 percent cut in their Medicare payments.

But beyond that, Obama and congressional Republicans have talked about a large scale agreement consisting of entitlement cuts and changes in the tax code that would go beyond the increase in taxes rates included in the fiscal cliff law.

Stung by the failure to obtain anything more than modest spending cuts in the fiscal cliff law, Republicans already have begun framing January and February as a period in which Congress and the White House must come to terms on major changes in entitlement spending.

Republican Sens. Bob Corker and Lamar Alexander of Tennessee said in a joint statement released at a Dec. 28 press conference that "it would be a colossal failure of leadership" if the president doesn't move soon to negotiate on legislation to slash entitlement spending.

"Medicare can't survive when the average working couple retiring at age 65 continues to receive $3 in benefits for every $1 they pay into the program during their lifetimes," the statement said. "It is dishonest for Washington to cover up the true cost of the government services it delivers. No one wants to talk about this. But unless we act, at some point these programs will go bankrupt and services will disappear. The first victims of this Medicare fiscal cliff ... are older Americans, millions of whom have no other way to pay their medical bills."

The pair urged enactment of what they called their "dollar for dollar" program that would reduce the growth of entitlement spending by nearly $1 trillion in exchange for congressional approval of legislation raising the debt ceiling by $1 trillion.

The proposal would revamp Medicare to have private plans compete in the program with traditional Medicare. States would get more power to run their Medicaid programs the way they saw fit. So-called "bed taxes" on providers would be prohibited to keep states from extracting more Medicaid money from the federal government.

On top of that, their measure would gradually raise the Social Security retirement age. And it would "enact a more accurate measure of inflation which both raises revenues and reduces entitlement spending."

But President Obama and Vice President Joseph R. Biden Jr. insisted in selling the fiscal cliff deal to Democrats that they would not negotiate with Republicans over the debt ceiling—implying that they would not agree to entitlement changes and spending cuts in order to get Congress to pass legislation raising the debt ceiling and would, in effect, allow the nation to default rather than be pressured into such changes.

Obama said on New Year's Eve that "I'm willing to reduce our government's Medicare bills by finding new ways to reduce the cost of health care in this country." But "that kind of reform has to go hand in hand with doing some more work to reform our tax code," he added.

In effect, Obama is saying that he'll demand more tax revenue in exchange for Medicare and other health care cuts. That suggests that major changes in entitlement spending aren't in the works any time soon and would await a large scale agreement in the summer or fall.

But the Medicare cuts that would kick in on March 1 under sequestration provisions could be one health care cut that starts sooner than then. And, in fact, many providers have already built those cuts into their budgets, industry sources say, though hospitals are sure to squawk as the sequester draws closer.

But for now, anyway, Democrats on Capitol Hill also seemed poised to defy GOP demands for health care cuts in order to raise the debt ceiling. A senior Democrat aide said "the Republicans have to step up to the plate here." Obama did cut Medicare as part of the health care overhaul, the aide pointed out.

"We'd like to see what Medicare cuts they'd like to do. We know that there have to some additional spending cuts but there also have to be some revenue increases" in light of coming demographic changes stemming from an exploding elderly population.

"We have made promises to the elderly and disabled in the form of Social Security, Medicare and Medicaid. The two parties have to work together to see how those promises can be kept." On top of the health law cuts, Obama has proposed another $350 billion in Medicare cuts. "We've been there. It's time for Republicans to show us their specific cuts."

Republicans also must say how they would offset the cost of permanently fixing Medicare's Sustainable Growth Rate formula for paying physicians, the aide added.

Later this year, a large-scale agreement could include such changes as restrictions on coverage by Medigap plans and combining the Medicare Part A and Part B deductibles into a single deductible. Both Republicans and Democrats have indicated an interest in such changes. And bigger Medicare cuts in line with Obama's fiscal 2013 budget proposal and his coming fiscal 2014 budget proposal, along with a proposal by the Center for American Progress, could also figure into a larger agreement, assuming Republicans and Democrats can agree on tax code changes.

"If I had to bet, I think that Republicans will stand very hard on the debt limit, and it will be a ugly cliff-like thing", says former Centers for Medicare and Medicaid Services Administrator Tom Scully. In the end though an agreement will be reached that delays the debt limit expiration for another six months or so "in exchange for a global agreement on a bigger budget deal that includes tax reform and that includes Medicare reform and some other things," Scully predicts.

By Jane Norman, CQ HealthBeat Associate Editor

January 2, 2013 -- A new high-level commission created to develop a national plan for long-term services for the elderly and disabled will have six months to come up with recommendations on one of the most complex and difficult issues in health care.

The fiscal cliff bill (HR 8), approved by the Senate and House and sent to President Barack Obama last week, has nine pages devoted to establishment of the Commission on Long-Term Care, a 15-member temporary body modeled on other independent health care panels, such as the Medicare Payment Advisory Commission (MedPAC).

While the commission is meant to be bipartisan, Democrats will dominate by a 9-6 margin because Obama will name three members in addition to three each named by the majority and minority leaders of each chamber. The measure requires rapid action, too. The members are to be named within 30 days of the fiscal cliff bill being signed into law.

Commission members are supposed to represents consumers, older adults, people with cognitive or functional limitations, family caregivers, health care workers, private long-term care insurance providers, state insurance departments and state Medicaid agencies.

At the end of their work, commission members will make their recommendations through a majority vote and submit them in 10 days or less to the president, House and Senate. The statute requires that the commission's recommendations be introduced in the House and Senate the first legislative day after the panel submits them to Congress, which means that some kind of comprehensive measure could come before Congress by next fall. But there is no requirement that lawmakers actually vote on the proposals, one weakness critics have already pinpointed.

But the commission does have the power to hold hearings, request studies by the Government Accountability Office and ask for cost estimates from the Congressional Budget Office. The panel is supposed to go out of business 30 days after the panel members vote on the recommendations.

The commission is the brainchild of Democratic Sen. John D. Rockefeller IV of West Virginia, who's been working on the language on it for more than a year.

Rockefeller also has been a strong supporter of a controversial program in the 2010 health care law (PL 111-148, PL 111-152), the Community Living Assistance Services and Supports Act, or CLASS. The fiscal cliff bill repeals that program, which the Department of Health and Human Services had shelved in October 2011 because of doubts it would be financially feasible. CLASS was intended to provide a $50-a-day cash benefit for long-term support and services, funded by voluntary contributions by workers who signed up.

Advocates and some Democrats had continued to argue the CLASS program should be kept but it was strongly opposed by Republicans who feared that the administration might attempt to resurrect it unless it was eliminated. Rockefeller had wanted the new commission to take action before CLASS was killed or revised.

"While I am heartened that this bipartisan commission was included in the final fiscal cliff deal, I am deeply disappointed that it was included at the expense of the CLASS Act," Rockefeller said in a statement.

Rockefeller also said that it was "frustrating" that Republicans insisted on repeal. "The lack of a comprehensive long-term care system in this country has been a problem for decades," he said. "The CLASS Act wasn't perfect, but it was a solid start at a meaningful solution that could have been improved upon."

Last week, advocates also were dismayed that the final stake had been driven through CLASS but they were relieved that the new commission would continue the discussion of what to do about long-term care. Repeal was disappointing, said Connie Garner, executive director of Advance CLASS, a coalition of groups that backed the program. "The good news, and it is good news, is the conversation hasn't ended," she said.

Garner also said advocates appreciated Rockefeller's work in ensuring the commission language was inserted in the measure, and she said she is not worried the time frame is too short. "It's not like this issue hasn't been looked at over the years," she said.

The groups in the coalition also have decided to remain together and monitor the work of the commission to make sure it's doing its job, she said.

Some observers familiar with the issue were not optimistic. Howard Gleckman, an author and resident fellow at the Urban Institute who writes extensively about long-term care, said in a post on his "Caring for Our Parents" blog that "there may be less than meets the eye" when it comes to the commission because its plan seems "destined to gather dust on a bookshelf somewhere."

Gleckman said the tight time frame is a concern, too, as is the lack of a requirement for any congressional vote.

According to the bill text, the commission is to come up with a plan for the establishment, implementation and financing of a high-quality system that ensures the availability of long-term services and supports for older people, people with limitations or disabilities, and people who want to plan for their future long-term-care needs.

The recommendations are supposed to address how such a system would interact with Medicare and with Medicaid, the program which often is now the source of care for people who spend down their assets. The commission also is to look at whether there are enough health care workers to provide long-term care and what might be done to develop a larger and better workforce.

The commission is also charged with taking into account projected demographic and changes in the U.S. population and new technologies to improve the availability of services and supports for long-term care. It's supposed to consult with MedPAC, the Medicaid and CHIP Payment and Access Commission, the National Council on Disability, and consumer groups.

Rockefeller said he will be watching what develops. "Going forward, I hope that this commission will lead to the kind of honest conversation we need to have about long-term care," he said. "I look forward to the swift appointment of bipartisan commission members and to tangible results."

By Rebecca Adams, CQ HealthBeat Associate Editor

January 2, 2013 -- Trade groups representing employers say they are pleased that the Treasury Department's proposed rule governing health law employer penalties includes some flexibility for businesses, although they say many store owners would like more time than the law allows to revise their IT and payroll systems.

The proposed rule, recently published in the Federal Register, gives some breathing room to companies whose health plans renew after Jan. 1, 2014, which is when the health care law (PL 111-148, PL 111-152) fully takes effect. The law imposes penalties for employers with 50 or more employees who work an average of 30 hours per week if the company does not offer affordable coverage that meets the law's requirements and an employee receives subsidized coverage in the exchange. The proposed rule makes it clear that employers whose plans do not renew on Jan. 1 will have until the plan does renew before they could face penalties. For instance, if a plan renews on July 1, then employers would be subject to penalties starting on that date.

The Retail Industry Leaders Association recently said that they and an alliance that they spearhead known as the Employers for Flexibility in Health Care Coalition had worked closely with Treasury regulators writing the rules. The coalition, which formed in 2011, includes the U.S. Chamber of Commerce and a wide range of companies.

"We appreciate the flexibility that Treasury proposed in these regulations," Christine Pollack, RILA vice president for government affairs, said in an interview. "Obviously it's taken a lot of discussion back and forth, especially for industries that are unique in that they have different hours and different busy periods. We're pleased that the proposed rules provide employers with flexibility so it's not a one size fits all approach but there remains unanswered questions."

Pollack said that employers are feeling squeezed by the tight health care implementation timetable and nervous about information that they don't yet have. She said that the group is still waiting to see how the Obama administration will ultimately decide to define some key terms, such as the "minimum value" of a health plan, in final regulations. The law requires plans to include a minimum level of benefits that will cover at least 60 percent of the costs of coverage. But it has not released final rules that give employers certainty about how that would be calculated.

The 144-page proposal was released in the Federal Register on Wednesday but the administration released them late Friday.

• Proposed rule (pdf)

By Dena Bunis, CQ HealthBeat Managing Editor

January 3, 2013 -- Advocates for health insurance cooperatives recently slammed the fiscal cliff deal's inclusion of severe cuts to the loan program that would help fledgling programs get off the ground.

The fiscal cliff measure, which President Barack Obama signed into law late last week, eliminates loan funding for any new co-ops, says the National Alliance of State Health CO-OPs, the trade association for cooperatives. The co-op program was included in the 2010 health care overhaul.

According to a statement from the group, the cliff deal "also creates a contingency program to support the development of existing co-ops, equal to 10 percent of the funds remaining for co-op loans. The 24 health insurance co-ops that have already signed loan agreements totaling nearly $2 billion will not be affected by the legislation and will continue to move forward in developing high-quality and low-cost health insurance plans in their respective states."

But by almost wiping out the $1.4 billion that remains in the health care law's fund for these new customer-owned health plans and not funding any new cooperatives, it makes it unlikely that the provision in a federal unveiled last month that calls for a co-op to be established in every state will be fulfilled.

Skeptics have questioned whether these nonprofit entities could be financially viable, and especially wonder they would be able to have the capital to compete against the major commercial insurance companies. But supporters insist they are needed as a check to those big companies in the new health exchanges mandated by the overhaul.

"Since long before the fiscal cliff agreement, the big health insurance companies have fought the new co-ops because they represent a real opportunity to lower health insurance premiums and allow consumers to belong to a member-governed heath insurer," co-op alliance President John Morrison said in a statement. "This fiscal cliff agreement gives the health insurance giants their wish, torpedoing co-ops in the 26 states where they are not yet approved. The cut to the co-op program was not about federal spending since its impact, as CBO confirms, will be minimal to the federal budget; it was about the health insurance giants attempting to eliminate competition at the expense of millions of Americans who will pay higher premiums due to a lack of competition."

The advocates also said the spending reduction math in this case does not add up.

According to Morrison, the Congressional Budget Office estimates that the cuts to the co-op program would reduce spending outlays by only $200 million, while removing $2.3 billion of budget authority.

This isn't the first time this loan fund has been tapped for spending reductions. Initially the health care law (PL 111-148, PL 111-152) allocated $6 billion to help jump-start these plans. But in 2011 Congress cut the fund to $3.4 billion.

By Rebecca Adams, CQ HealthBeat Associate Editor

January 4, 2013 -- A high-powered panel of a dozen former policymakers and health care experts plan to produce a report by October detailing how states can cut the increase in health care spending so that it mirrors overall economic growth.

The commission will be headed by University of Virginia professor Ray Scheppach, the former long-serving executive director of the National Governors Association. Its co-chairmen are former Health and Human Services Secretary Michael O. Leavitt and former Colorado Democratic Gov. Bill Ritter Jr. The commission includes health industry executives, including Geisinger Health System President and CEO Glenn Steele, Kaiser Permanente Chairman and CEO George Halvorson, Blue Cross Blue Shield of Massachusetts President and CEO Andrew Dreyfus and UnitedHealth Group Executive Vice President Simon Stevens. Also on the panel are former policymakers and policy experts, such as Colorado Department of Health Care Policy and Finance former executive director Joan Henneberry and Medicare trustee Robert D. Reischauer.

"We are going to look comprehensively for practical cost control strategies that states could utilize," said Halvorson in a statement. "It will be important to have a continuum of options that have appeal across the political spectrum."

The group plans to hold a conference call on Jan. 8 and its first full-day meeting on Feb. 13 in Washington, D.C. Kaiser Permanente, and the Robert Wood Johnson Foundation are funding the project.

"We have learned in Massachusetts that expanding coverage is not enough," Dreyfus said in a statement. "You also need disciplined, statewide efforts to control costs and promote affordability in order to sustain the gains in coverage."

The group noted that many national policies have arisen from state efforts and that after the implementation of the health care law (PL 111-148, PL 111-152), state officials will participate in covering about one out of every three Americans through Medicaid or state insurance exchanges.

On its website, the group said it plans to tackle questions including:

• How does a state create transparency on health care prices and quality to allow consumers to make more cost effective decisions?
• What incentives can be built into the state insurance exchanges that will encourage consumers to choose the most cost-effective care?
• How does a state expand the scope of practice for physician assistants, advanced practice nurses and other nonphysician providers?
• What health care data needs to be collected to monitor progress toward the goal of making health care spending sustainable over time?
• Commission Information