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May 24, 2010

Washington Health Policy Week in Review Archive f0d43db2-3294-44d5-9838-85d5b147b953

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New Law Will Add Millions of Young Adults to Insurance Rolls, Commonwealth Fund Reports

By Jane Norman, CQ HealthBeat Associate Editor

May 21, 2010 -- The new health care law has the potential to cover millions more young adults because of provisions allowing them to stay on their parents' insurance until age 26, expanding Medicaid coverage and offering subsidies under the new insurance exchanges, says a Commonwealth Fund report issued Friday.

As of 2008, there were nearly 14 million uninsured Americans between the ages of 19 and 29, representing three of every 10 people without insurance in the United States, the report says. "But this figure most likely underestimates the problem," it adds. "Unemployment has soared in this age group over the past year, reaching 17.2 percent among 20- to 24-year-olds and certainly increasing the number of young adults without health insurance."

Although young adults tend to be healthier than older people, the consequences of not having insurance can be severe, the report says. A survey the fund conducted in 2009 found that 46 percent of young adults with chronic health conditions who didn't have insurance during at least part of the last year said their condition had worsened because they didn't get care soon enough. About 60 percent of those uninsured said they had problems paying medical bills.

The survey also asked young adults who went to college and had insurance during that time what happened to them when they graduated. Commonwealth found that 28 percent lost their coverage, 30 percent retained it and 39 percent switched to a new source such as an employer. Often those who switched had a gap in coverage, however.

The new law allowing parents to add their children to their policies officially goes into effect on Sept. 23 but some major health insurers including Blue Cross Blue Shield and UnitedHealthcare have announced they will implement it earlier. Federal workers, however, must wait until the beginning of the subscription year for the Federal Employees Health Benefit Program on Jan. 1.

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Hospital Alliance Kicks Off Big Test of Health Delivery Redesign

By John Reichard, CQ HealthBeat Editor

May 21, 2010 -- "Accountable care organizations" are at the heart of a section of the health care overhaul law that isn't discussed much but is its most important part, asserts Senate Finance Committee Chairman Max Baucus. The section? Language to reorganize health care delivery to bend down the health care spending curve.

And a big part of the "ACO" movement, the Montana Democrat noted this week, is Premier, a consortium of some 2,300 hospitals nationwide that jointly purchases health care supplies and also has been a pacesetter in testing Medicare payment approaches that reward higher quality care.

Premier made a big splash this week by announcing that it is launching at least 19 ACOs, entities that team up doctors, hospitals and other kinds of providers in new payment arrangements with insurers designed to reward treatment that keeps patients healthy and out of the hospital.

Premier said the ACOs will be responsible for taking care of a total of 1.2 million patients, who it said will receive safer, higher-quality, and lower-cost care.

The key to the ACO approach is a "shared savings" model that allows hospitals and other providers to share in the savings insurers get when providers do a better job of keeping patients healthy rather than being rewarded for performing a higher volume of care.

In effect, hospitals in ACOs are working to deny themselves revenue by keeping patients from being admitted. So "the only way this is going to work is if we can work out some kind of shared savings model," says Amanda Forster, a Premier spokeswoman.

The 19 health systems involved operate in 15 states. They include some 70 hospitals and have partnerships with 5,000 physicians, Premier says. They are working with various types of payers, including nonprofit and for-profit insurers and employers and unions. "We're kind of past talk and into the 'do' mode," says Forster.

The systems may be among the first applicants for ACO contracts signed by Medicare under the overhaul law (PL 111-148, PL 111-152). The law requires the Centers for Medicare and Medicaid Services to establish a voluntary program that can begin contracting with ACOs by 2012. Forster notes that the program is permanent, not a demonstration program.

While only a limited number of health systems are at the point of being able to form ACOs, Premier says it is trying to bring others along with what it calls a "readiness collaborative." It is designed for "health systems that must first develop the organization, skills, team and operational capabilities to become ACOs," Premier said in a news release Thursday.

"Clearly, the promise of ACOs is many years from being fulfilled on a wide scale given legal and operational challenges that must still be met to produce efficient cooperation. But "given the urgent need for quality and results-based healthcare on a national scale, we must start executing now," says Michael Bryant, CEO of Methodist Health Services Corporation.

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IRS Releases 'Guidance' Document on Health Coverage Tax Credit

By John Reichard, CQ HealthBeat Editor

May 17, 2010 -- Subsidies provided by some 20 states to help small businesses pay for health care won't reduce the size of the tax credit available under the health care overhaul law to certain small businesses to cover their workers, federal officials said in a press briefing Monday morning.

Michael Mundaca, the assistant secretary for tax policy at the U.S. Treasury Department, added that under his agency's interpretation of the overhaul law, the credit also applies to dental and vision coverage.

Officials estimated that some 4 million small businesses can qualify for the credit, which pays 35 percent of premium costs incurred in 2010 for those eligible. To take advantage of the credit, businesses would claim it on the tax returns they file in 2011. But it might provide some relief before then to the extent that it reduces the quarterly estimated tax payments businesses pay during 2010, said Mundaca.

Mundaca said the federal government does not have an estimate of how many businesses will take up the tax credit. He said that not all of the 4 million provide health care now. To the extent they do not, the credit could lead some eligible businesses to begin offering coverage, he added.

The credit is available to businesses with fewer than 25 full-time employees whose average salaries are below $50,000 per year. The business must pay at least 50 percent of coverage costs.

But employers count up the total number of employee hours worked to determine eligibility. That approach allows the credit to be used for part-time workers. Thus two half-time workers would count as one full-time worker, for example.

"Because the tax credit's matching rate is highest for employers with 10 or fewer full-time equivalent employees (FTEs), the number of hours worked is an important factor in calculating the credit," a Treasury fact sheet on the guidance notes. "The new guidance allows employers to choose among three different methods of determining hours to minimize their bookkeeping duties while receiving the maximum tax credit for which they are eligible," the fact sheet adds.

"Employers can look at actual hours of service, or can use simple rules of convenience to estimate hours based on total days or weeks of service," it adds.

"The credit phases out gradually for firms with average wages between $25,000 and $50,000 and for firms with the equivalent of between 10 and 25 full-time workers," the fact sheet notes.

The guidance also is relaxing a requirement that employers provide the same level of assistance to employees with their health coverage costs. For the time being, businesses will still be able to qualify for the credit even if that assistance is not the same for all employees.

The Congressional Budget Office says the credit will save small businesses $40 billion by 2019, the fact sheet added. The credit is available in 2010, 2011, 2012, and 2013. In 2014 and 2015 it rises to 50 percent of coverage costs if employers buy coverage through exchanges. It is no longer available after 2015.

Mark Pauly, a professor of health care management at the Wharton School at the University of Pennsylvania, said many small businesses don't see the value of offering health insurance to low-wage workers and need a major inducement to do so. A tax credit may not be enough. "If I had to bet, I don't think the takeup will be particularly high," he said.

The National Independent Federation of Business (NFIB), which last week joined a lawsuit filed by a number of states challenging the constitutionality of individual mandate provisions in the overhaul law, has little good to say about the tax credit.

"Often cited as the cure-all for small businesses, the small business tax credit will do little to nothing to make purchasing insurance more affordable for small firms," NFIB says on its web site. "A tax credit that is poorly structured is not going to provide sustainable and long-term relief from high health care costs."

It adds that "very few small businesses will actually qualify," citing CBO figures to assert that "just 12 percent of the small business population would benefit in any way." And determining the actual amount of the credit "puts small business owners through a series of complicated" tests, it said.

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AARP Reports Biggest 12-Month Spike in Brand-Name Drug Prices Since 2002

By John Reichard, CQ HealthBeat Editor

May 17, 2010 -- Manufacturer prices for brand-name drugs widely used by Medicare enrollees rose 9.7 percent in the 12 months that ended in March, the seniors lobby AARP reported Monday.

The increase "was the largest twelve-month spike since AARP began tracking drug prices in 2002," the lobby said in a news release.

Prices for expensive specialty drugs used in the Medicare program rose almost as much—by 9.2 percent—according to AARP. Prices for those drugs, which treat conditions such as multiple sclerosis and cancer, range between $1,000 and more than $20,000 per month, AARP said.

The latest findings, showing nearly a double-digit pricing increase, are not markedly different from AARP data that was previously reported. Rep. Henry A. Waxman, D-Calif., said at a hearing last fall that AARP tracking showed a price increase of 9 percent between October 2008 and September 2009.

AARP noted that general inflation was nearly flat in its latest 12-month tracking period and that generic drug prices widely used by people in Medicare fell 9.7 percent.

But the AARP data "does not take into account discounts and rebates generally negotiated between drug manufacturers and payers," said Ken Johnson, senior vice president at Pharmaceutical Research and Manufacturers of America, which represents brand-name drugmakers. Johnson added that the federal government's Consumer Price Index, "which includes a blend of brand and generic drugs that reflects what consumers actually buy, reveals that since 2000, prescription drug prices have risen in line with medical inflation."

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House Action on Tax and Benefit Extensions Set for Next Week

By Richard Rubin, CQ Staff

May 20, 2010 -- A compromise package of tax cuts and benefit extensions unveiled on Thursday will not reach the House floor until next week, complicating a push by Democratic leaders to clear the measure before the Memorial Day recess.

Chairmen of the House and Senate tax-writing committees released a summary of the sweeping legislation (HR 4213) Thursday morning, but no bill text or detailed budget score.
House Democrats discussed the package at a hastily called caucus Thursday afternoon. Speaker Nancy Pelosi, D-Calif., said floor action would be put off until next week to give all House members a chance to review the final version online 72 hours before a vote. "I think we will have the votes," she said.

"The delay is really more about transparency, having it posted on the Web, so people can see what's in it," Pelosi added.

It remains unclear whether Senate Democrats will be able to muster the 60 votes they will need to advance the package.

Both chambers are scheduled to depart for the weeklong Memorial Day recess at the end of next week. If the House does not vote until May 25 or May 26, the Senate would be hard pressed to complete action by week's end. But there is intense pressure for Congress to act; some major benefits and programs that the bill seeks to extend will lapse at the end of this month.

"We're optimistic here, and I believe this is such a strong bill that it should and will receive the necessary votes in the Senate," said House Ways and Means Chairman Sander M. Levin, D-Mich.

The bill is the product of months of negotiations that transformed a $31 billion package of tax-cut extensions passed by the House in December into a measure that could approach $200 billion and include everything from assistance for disaster-stricken farmers to extra pay for some veterans and a $1 billion contribution for the National Housing Trust Fund. It also now includes money for the Wool Trust Fund sought by Sen. Charles E. Schumer, D-N.Y.; a cotton-industry provision favored by Sen. Arlen Specter, D-Pa., and Rep. Bob Etheridge, D-N.C.; and a reallocation of receipts from geothermal energy projects on federal land sought by Senate Majority Leader Harry Reid, D-Nev.

The core of the bill would extend through this year dozens of tax breaks that expired at the end of 2009, along with expanded unemployment benefits and eligibility for COBRA health insurance subsidies for jobless workers.

Among the tax breaks the bill would extend through 2010 are the research and development tax credit, the state sales tax deduction and incentives for biodiesel production. The bill also would extend some tax provisions from the 2009 economic stimulus law (PL 111-5), namely the Build America Bonds program that provides financing assistance to state and local governments for infrastructure projects.

It would extend special Medicaid assistance to states through June 30, 2011, at a cost of $24 billion over 10 years, and extend an emergency fund for low-income families.
The bill would prevent scheduled cuts to doctors' reimbursement rates under Medicare through 2013 while allowing for possible increases for primary and preventive care. The extension is shorter than the five-year physician payment adjustment that many House Democrats had sought, and it was pared back over the past few days to make Senate passage easier.

Senate Finance Chairman Max Baucus, D-Mont., said in a statement, "This bill is the jump start our economy needs to help create new job opportunities for American workers and get our economy moving again."

The legislation could still encounter trouble over the amount and content of its revenue-raising offsets, particularly among moderate House Democrats and Senate Republicans. Democrats will need support from at least one GOP senator to surmount a filibuster.

Only about $50 billion of the measure is expected to be offset, and that is paired with the tax breaks. The safety-net spending is treated as emergency spending, and the physician-payment change is exempt from the pay-as-you-go law (PL 111-139). A summary released early Thursday did not include final cost estimates for several major provisions, including the so-called doc fix, making a calculation of the total cost impossible for now.

Offsets for Tax Extenders
Some of the proposed offsets are controversial, particularly a change in the tax treatment of the "carried interest" earned by real estate investors, venture capitalists and private equity fund managers that the Senate has opposed in the past.

Instead of being considered as capital gains, 75 percent of carried interest would henceforth be treated as ordinary income for tax purposes. The remainder would be taxed as capital gains. The bill would provide transition relief until 2013 but that may be enough to satisfy wary Senate Democrats who were seeking an exception for venture capital firms. The summary of the bill does not include a revenue estimate.

Mark Heesen, president of the National Venture Capital Association, said in a statement, "While this provision is movement away from a pure change to ordinary income, evidencing a House recognition that this type of long term investment is critical to U.S. economic growth, it by no means creates enough of a differential to continue to encourage long term investment in America's start up companies."

In addition to the modified tax treatment of carried interest, proposed offsets include changes designed to limit corporations' ability to use foreign tax credits. The changes, which would yield $14.5 billion in new revenue, are complex and include provisions that have not passed either chamber.

"This bill is going to be rammed through the House and the Senate in the next week, and there is no opportunity for the affected taxpayers to be heard by their respective representatives on the issues," said Catherine Schultz, vice president of tax policy at the National Foreign Trade Council. "It is death by a thousand cuts for many taxpayers and will lead many worldwide American companies to pay higher taxes and to therefore be less competitive."

Another $9.6 billion offset would place new limits on the ability of small professional service companies structured as S corporations to avoid employment taxes that they would pay if their earnings were received as wages instead of profits.

As part of the congressional response to the oil spill in the Gulf of Mexico, the measure would increase or eliminate the $1 billion liability cap in the Oil Spill Liability Trust Fund and raise the 8-cent-per-barrel tax that oil companies pay into the fund. A summary released by lawmakers early Thursday was not clear on the details or the amount of money that would be raised by those changes.

"I'm going to look very closely at what they've done on this oil pollution piece and see how high they want to raise it," said Sen. Mary L. Landrieu, D-La. "But some of the provisions in that bill are going to be very helpful for the recovery of the Gulf Coast states."

The bill also would raise money by making pension-funding changes designed to give companies more flexibility in meeting their obligations.

Other Provisions
The bill includes a $1 billion summer jobs program and a change to the highway funding formula that House Transportation and Infrastructure Committee Chairman James L. Oberstar, D-Minn., has been seeking.

The legislation would provide almost $4.6 billion to fund settlements with black farmers and American Indians of long-running class action lawsuits. The $1.15 billion settlement in a case originally titled Pigford v. Glickman ends a decades-old discrimination lawsuit brought by black farmers against the Department of Agriculture. The bill also would provide $3.4 billion to fund a settlement of Cobell v. Salazar, a case spanning three administrations that involved the government's management and accounting for more than 300,000 American Indians' trust accounts.

Dave Camp, R-Mich., ranking Republican on the House Ways and Means Committee, denounced the compromise extenders bill.

"The massive and unprecedented deficit spending in the stimulus bill didn't create jobs and neither will this bill," he said in a statement. "This is just more spending on the same failed policies and no net tax relief. This isn't a tax-extender bill; it is a deficit-extender bill."

Edward Epstein, Joseph J. Schatz and Coral Davenport contributed to this story.

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Dartmouth Launches New Center to Further Science of Health Care

By John Reichard, CQ HealthBeat Editor

May 17, 2010 -- Dartmouth College, for many years at the cutting edge of research showing flaws in the nation's health care delivery system, announced a new initiative Monday to advance research on health care.

An anonymous $35 million gift will be used to launch the "Center for Health Care Delivery Science," Dartmouth President Jim Yong Kim announced.

Kim noted that millions of Americans will be gaining coverage under the new overhaul law. The emerging field of health care delivery science "is about ensuring that the care they receive is the best it can be," he said in a news release.

Dartmouth research has uncovered "glaring variations in how medical resources are used" across the country, with the greater use of resources no guarantee of higher quality, he said.

"We need a new field of science to study how to deliver health care with higher quality and lower costs," Kim explained in a Washington Post editorial Monday co-authored with James N. Weinstein, president of the Dartmouth-Hitchcock Clinic.

They wrote that "it is time to focus on the next step: improving quality while bending the unsustainable cost curve significantly."

They added, "Experts in management, systems thinking and engineering, sociology, anthropology, environmental science, economics, medicine, health policy and other fields must join together to apply a laser focus to fixing the delivery system."

The announcement comes at a time when the costs of coverage expansion are fueling concerns about adding to deficit spending. Elements of the new program to curb rising spending while improving quality include expanded research on health care delivery, and an international network of "innovation centers" to develop and disseminate best treatment practices.

The center also will include an "advocacy" component to urge state and federal policy changes to promote new models of care.

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