MARCH 10, 2006 -- President Bush reiterated his support Friday for legislation to make it easier for small businesses to band together and purchase health insurance at a lower price.

At a speech before the National Newspaper Association, Bush said he hoped the legislation would be approved in the Senate this year. The House already passed its version of the legislation (HR 525)—which would exempt association health plans from state laws that mandate insurance coverage for specific treatments and procedures—last July.

The idea "makes a lot of sense," Bush said. "I believe small businesses ought to be able to pool risk across jurisdictional boundaries so they can get the same benefits from larger risk pools that big companies get."

Business groups have said that it is currently too difficult to form such groups because complying with myriad state laws is too cumbersome.

The Senate Health, Education, Labor and Pensions Committee began a markup Wednesday of small business health plan legislation by Chairman Michael B. Enzi, R-Wyo., and plans to complete it March 15.

Enzi's bill (S 1955) would allow small businesses to join together and offer coverage that does not comply with state mandates if they give another choice that mirrors the benefits included in the state government employee health plans in one of the five most populous states—California, Texas, New York, Florida, and Illinois.

His bill also extends that flexibility to plans not specifically targeted to small business groups.

The breadth of his proposal drew strong opposition from Democrats, who had prepared 68 amendments to his legislation.

But Enzi and Bush both remained hopeful that it could pass this year.

"I think we got a pretty good chance this year, I hope so," Bush said. I know we got it out of the House; we got to get it out of the Senate."

The ranking Democrat on the Senate HELP committee, Edward M. Kennedy of Massachusetts, however, renewed his criticism following the president's speech.

"In the guise of helping small businesses afford health insurance for their workers, the Republican plan is a blank check for the insurance industry and a bad deal for patients, resulting in higher premiums and lower benefits," he said.

MARCH 7, 2006 -- Senate Finance Chairman Charles E. Grassley said Tuesday that the Senate budget resolution to be marked up this week would not include the $37 billion in cuts to Medicare and Medicaid that President Bush sought in his proposed budget.

"None, at least as far as the Senate's concerned," Grassley, R-Iowa, said Tuesday in response to a question about Medicare and Medicaid savings.

But Grassley kept open the possibility that such cuts could survive via the House budget resolution. "Something would have to come out of conference," Grassley said.

Grassley's comments come as moderate Republicans have questioned moving forward with a significant package of budget cuts without bipartisan support in an election year. Senate Budget Chairman Judd Gregg, R-N.H., said Monday that cuts to entitlement programs this year were "unlikely" given election year politics.

Sen. Pete V. Domenici, R-N.M., chairman of the Energy and Natural Resources Committee, said Tuesday the budget resolution in the Senate would include a single instruction that would allow drilling in Alaska's Arctic National Wildlife Refuge.

Bush's budget proposal called for a net $65 billion in savings to entitlement programs over five years.

Meanwhile, President Bush's call for beefed up line-item rescission authority picked up the support of Senate Appropriations Chairman Thad Cochran, R-Miss., Tuesday. Cochran, who met Tuesday morning with Office of Management and Budget Director Joshua B. Bolten to discuss the proposal, endorsed the idea.

"I think the president sees it as a way to put more discipline in the process and I support that," Cochran said.

Cochran said the question should not be whether it affects the power of appropriators. "The question is: Is it a useful tool to control spending? And I think it will be," Cochran said.

Past efforts to grant similar express rescission authority generally have been resisted by appropriators, but Bush's plan has the support of House and Senate GOP leaders as well as some Democrats.

Under Bush's proposal, which he is terming a line-item "veto," Congress would have 10 days to vote on a package of rescissions proposed by the president to spending or tax bills. If Congress did not pass the package, the rescissions would not occur.

Editor's Note: The $37 billion in cuts to Medicare and Medicaid were not part of the Senate committee's final budgetary resolution. In addition, a budgetary point of order against new mandatory spending proposals was approved by the committee. The proposal would be triggered when government revenue other than Medicare taxes and fees subsidize more than 45 percent of the program's cost, a situation that could occur within five years.

MARCH 8, 2006 -- Senate Finance Committee Chairman Charles E. Grassley said Wednesday he doesn't expect his panel this year to mark up White House proposals to expand tax breaks for health savings accounts (HSAs), citing the lack of a filibuster-proof majority to support them.

In an interview after a hearing on health care tax policy, Grassley said he thinks new HSA tax breaks would have to be part of the budget reconciliation process in order to get through the Senate.

"We're not going to have tax reconciliation in the budget," Grassley said. "If you don't have tax reconciliation in the budget, I don't know how you move things like this."

Legislation that is part of the budget reconciliation process requires only a simple majority to obtain congressional passage.

The broad focus of the hearing itself—"a checkup on the nation's health care tax policy," in Grassley's words—appeared to be a tipoff that Grassley is not yet ready to move on new tax subsidies for HSAs. He also said that "before we add more tax subsidies, we first should look to see if we can make the incentives we have today work better."

Grassley also noted the importance of working with Democrats on tax-based solutions to the problem of rising health costs and growing uninsured population. And the panel's top Democrat, Sen. Max Baucus of Montana, isn't keen on HSAs, Grassley noted. Baucus says the accounts could pull healthy people away from other types of insurance, making it unaffordable for those who are older and suffer from chronic diseases.

"I think HSAs are so new that it's reasonable that Sen. Baucus has the concerns he might have and he may be right," Grassely said after the hearing. "I hope he's not right because I think they're a good answer. But it's going to take a while to show who's right."

The Bigger Picture
Grassley said at the hearing that an examination of the nation's tax policy relating to health care is long overdue, however, and that the committee aims to tackle the issue broadly and to infuse it with fresh thinking.

To that end, the committee invited former Treasury Secretary Paul O'Neill to testify, and the policy maverick did not disappoint.

One of the focuses of the hearing was whether excluding employer-paid medical benefits from income and payroll taxes is a worthwhile tax incentive. That subsidy amounts to a $178 billion subsidy to employers to offer health care coverage, Grassley noted.

O'Neill declared that there should be no deductions or credits in the tax system. "Our tax system should be used to raise revenue—period."

Critics of the tax exclusion say it has led to excessive health benefits for many employees that separates them from any stake in the true costs of health care. O'Neill said the current system would be more efficient if each individual was required to purchase a health insurance policy against catastrophic health costs, with "a simplified, fundamentally reformed" tax system helping low-income Americans pay for that coverage.

O'Neill added that such full access to health care would be affordable if the health care system sought to deliver perfect, error-free care. Establishing a goal of perfection is highly motivating to employees, he said. Virtually error-free performance is attainable, he added, based on the safety record Alcoa compiled when O'Neill was CEO of that company and it set a goal of absolute safety attained through analyzing and correcting systems of work that produced accidents.

Alcoa, an aluminum manufacturing company, is now the safest workplace in the world, O'Neill asserted. U.S. health care could see savings of 30 percent to 50 percent with that approach, O'Neill maintained. He suggested the United States start by immediately funding "a study of five outstanding American hospitals that systematically details how all of their operations are performing when measured against perfection." Doing so would identify problems in work processes that produce errors that could then be corrected, he said, and serve as a model for other U.S. providers.

Goals other than delivering perfect care—such as reducing lengths of hospital stays, a "dominant" theme of health care delivery—"are not rooted in biology and healing, the very point of the health care system. Accordingly, focusing on them threatens to destroy value rather than create it, by creating incentives for behaviors unassociated or disassociated from healing," O'Neill said.

Urban Institute fellow Leonard Burman said that tackling rising costs by ending the employer tax exclusion altogether and giving individuals a direct stake in health care costs would still leave health insurance unaffordable for many. Burman has suggested limiting tax breaks for employer-sponsored insurance, a move intended to discourage excessive benefits by subjecting them to taxation.

Grassley said he does not think the employer exclusion is good health care policy and that individuals need to have a more direct stake in the cost of health care. But there's a "terrible political hurdle" to be cleared in overcoming it, he said. When former Senate Finance Chairman Robert Packwood, R-Ore., (1969-96) tried to cap the exclusion years ago, "I never saw such an avalanche of labor and corporations trying to stall that," Grassley said.

"There's a little more understanding [now] that there is a negative side to employer-sponsored third-party pay," but "it's still a very difficult issue," Grassley said. "One way though to kind of work around the political complication ... is to go the HSA route." But not this year, apparently.

MARCH 10, 2006 -- Senate Finance Committee Chairman Charles E. Grassley is urging the American Hospital Association to help him develop legislation that would improve nonprofit care for low-income Americans.

The letter comes amid a broad-based inquiry by Grassley and the House Ways and Means Committee into what tax-exempt organizations should be required to do to retain that status.

Noting that the lobby recently offered his staff several legislative options to that end, Grassley praised AHA's decision to "show leadership," but urged it to "take a more active and serious role in this discussion."

In a March 8 letter, Grassley listed three legislative options offered by AHA:

• Discounts: The option "requires hospitals to provide discounts to all uninsured individuals of limited means and then make that discount publicly available," Grassley wrote. He asked AHA how the discounts should be calculated, how to define those of "limited means," and whether "those in financial straits because of a catastrophic illness should be included."
• 'Community benefit' disclosure: This option would require hospitals to adopt a common definition of the "community benefit" they provide, and to tell the public "the amount" of that benefit they provide. Among other things, Grassley wants to know how AHA would calculate the community benefits a hospital provides.
• Governance: A third option includes provisions for "strengthening transparency, governance, and accountability of charitable organizations," Grassley said. He asked AHA to provide more detail on these provisions.

MARCH 9, 2006 -- The head of the nation's largest health insurance lobby said Thursday that data on enrollees in a new type of health coverage do not bear out predictions that it will be dominated by young and healthy people, which critics said would make traditional coverage unaffordable for older and sicker Americans.

In a phone call with reporters, Karen Ignagni, president of America's Health Insurance Plans, said roughly half the 3.2 million people who have enrolled in the new coverage were at least 40 years old.

Ignagni was referring to enrollment in high-deductible health plans that the lobby links to sales of health savings accounts (HSAs). HSAs are touted by the Bush administration as a way to control health costs by giving individuals a greater stake in health care spending decisions.

"Flat expectations that this would be for the young immortals is not borne out by the data," Ignagni said. She said she was referring to people in their twenties who do not expect to incur health costs.

The AHIP survey found that 50 percent of those enrolled in HSA-compatible plans obtained in the individual market were 40 or older, 45 percent of those in such plans obtained through small employers were in that age bracket; and 44 percent of enrollees in policies obtained through large employers were that old.

HSAs are financial accounts funded by individuals or employers. They are used to pay out-of-pocket health care expenses. To qualify for the accounts, an individual must enroll in a high-deductible health plan.

Ignagni said AHIP didn't track actual HSA sales because those data are proprietary and difficult to obtain.

Edwin Park, an analyst with the liberal policy analysis group Center on Budget and Policy Priorities, disputed the findings.

"In fact, a recent survey conducted by the Employee Benefits Research Institute and the Commonwealth Fund as well as studies by the Government Accountability Office indicate that healthier, high-income people may be disproportionately using HSAs as compared to those enrolled in other coverage."

The new data also show that the plans are a noticeable newcomer in the health insurance market. The plans made up 23 percent of all new health insurance policies sold in the individual market, 11 percent of those in the small-employer market, and 7 percent of those in the large employer market.

AHIP said HSAs appear to be a vehicle that has brought health coverage for the first time to at least some small employers. The study found that 33 percent of policies purchased by small employers were bought by companies that had not previously provided health coverage. The study did not examine how many small employers, if any, might have dropped coverage because of HSAs.

More than 90 percent of the health plans in the survey were preferred provider organizations, which Ignagni said provided comprehensive benefits. The finding refutes predictions by critics that plans sold with HSAs would offer inadequate benefits, she said.

Ignagni said enrollment in the plans has risen sharply since HSAs first reached the market. Enrollment has grown from 438,000 in September 2004 to about 1 million in March 2005 and 3.2 million in January 2006.

"I have a hunch we are talking about a very significant majority" of high-deductible plan enrollees who have HSAs, she said.

The AHIP analysis also did not track two other factors—health status of enrollees and their income levels—that may be more significant factors in determining whether HSAs make health care less accessible.

Data about the health status of HSA enrollees would indicate whether they are unusually healthy and data on income would indicate their ability to cover large deductibles.

MARCH 7, 2006 -- What changes lie ahead for the Medicare drug benefit? Judging from comments Tuesday by HHS officials to the private plans that deliver the benefit, the answer is better customer service, a simpler program, and fewer plans.

"The market has very clearly driven the prices down" for Medicare prescription drug plans, HHS Secretary Michael O. Leavitt declared in remarks to a meeting of Medicare private plan executives sponsored by America's Health Insurance Plans (AHIP). "We believe that the market will also simplify this program."

With Democrats hoping to unseat congressional Republicans using complaints that the benefit is too confusing, the administration is fighting back with the argument that market forces will more effectively put the benefit on a smoother track than bureaucrats could.

Medicare administrator Mark McClellan told the gathering that people signing up for the drug benefit overwhelmingly have selected plans other than the standard plan designed by Congress when it passed the Medicare overhaul law (PL 108-173).

Benefits designed by private plans competing for market share, including those with low or no deductibles or that fill in the "doughnut hole" gap in coverage in the standard plan, have been picked by 90 percent of individual beneficiaries signing up for the drug benefit, McClellan said.

McClellan hinted that less popular plans would be dropping out. Responding to a questioner in the audience who asked if there would be fewer Part D standalone drug plans next year, he said "some plans are definitely proving to be more popular than others" for reasons of cost and quality. "We are seeing some consolidation," he added. "I suspect we are going to see some more of that, particularly from plans that haven't generated a large level of enrollment."

Medicare officials may not be leaving it entirely up to market forces to reduce plan offerings, however. A draft "call letter" from the Centers for Medicare and Medicaid Services inviting plans to offer plan bids for 2007 proposed to reduce to two the number of optional drug plans a Part D plan sponsor could offer.

One questioner at the meeting noted pointedly that her company offers three options, each of which has enrollment of more than 10,000 Medicare beneficiaries. McClellan was non-committal about whether more than two options would be permitted, however.

Leavitt, who dubbed the first version of the drug benefit "Medicare Part D 1.0," told the executives that "Part D 2.0" will reflect "the need for simplification and standardization." He said, "I'm looking forward, for example, to the day when we will not need to have separate applications . . . for every plan." How much more than that "simplification" and "standardization" will mean is unclear, however.

Customer Service
Leavitt and McClellan emphasized that plans have improved their operations since the first days of the benefit, which saw numerous complaints that low-income beneficiaries could not get prescriptions filled for vital medications.

Leavitt noted, for example, that all but 9 of the 44 states who temporarily resumed Medicaid coverage to ensure continued access to prescription drugs have now turned it off.

But the officials sprinkled some dissatisfaction among the big dollops of praise they bestowed on plans for their work in implementing the unprecedented expansion of Medicare coverage.

Leavitt said he's still worried about the number of beneficiaries who are being turned away because they do not have a plan number. "And plans need to do a better job of responding to inquiries by beneficiaries and pharmacists," he suggested. "I am also concerned that there are too many people who are getting answering machines during business hours asking them to call back at a different time," he said.

Leavitt and McClellan said Medicare is stepping up its monitoring of plan call center operations and of how swiftly plans enroll beneficiaries who apply. Medicare not only is constructing performance measures of those functions that will be considered in whether to contract with plans, it also will publicly release data comparing how well plans provide customer service, McClellan said.

Leavitt also seemed to say plans should pay pharmacies faster, particularly drugstores in rural areas that may be more vulnerable if payment is slower. Pharmacies are having to learn how to function under a "new business model," he said—one in which margins are lower and volume is greater.

"Customer service is clearly getting better but we may have a ways to go yet," Leavitt summarized.

Medicare Advantage
AHIP's members include not only those who offer standalone Part D plans but also those who participate in the managed care side of Medicare called Medicare Advantage. Plan participation will be "very strong" in that program next year, McClellan said.

Payment rates will be "stable," but the market also see changes—in the form of offerings similar to health savings accounts, he said. Under the Medicare law, Medicare can't offer tax-advantaged health savings accounts of the kind now offered in the private market. But Medicare does have authority to offer medical savings accounts (MSAs), which like HSAs consist of accounts controlled by individuals paired with high-deductible health plans.

McClellan suggested that there's room for Medicare to change features of MSAs that made them unattractive for insurers to offer in Medicare. For example, MSA-related health plans had much higher deductibles than HSAs do.

McClellan strongly encouraged companies that want to offer the new plans to contact Medicare as soon as possible. But another speaker at the conference, House Democrat Henry Waxman of California, appealed on moral grounds to AHIP to steer clear of HSAs. Waxman suggested that as insurers, AHIP members are well aware that HSAs would "fracture" the risk pool that allows older and sicker Americans access to more affordable health coverage.

"You are part of the health care system, and if you care about it, you need to oppose these tax policies," he said. "You have incredible connections with this administration," Waxman noted. "What are you going to do with it?"

Waxman also had a different take on how the Medicare drug benefit is going to play out in coming months. "We're . . . seeing the beginning of what could be very great frustrations" on the part of seniors with plans that hike drug prices and cut coverage of medications enrollees want, he said.