By Jane Norman, CQ HealthBeat Associate Editor

October 1, 2010 -- A new chapter in the implementation of the health care law opened Thursday with California Gov. Arnold Schwarzenegger's signature on a bill creating the state's health insurance exchange, the first in the nation since the federal law was enacted.

The development threw a spotlight on the state exchanges, which don't launch until Jan. 1, 2014 but will require years of planning on the part of states—some of which are moving faster than others. The exchanges will serve as marketplaces offering health insurance to individuals and small businesses through comprehensive benefit packages offered at different cost levels.

Establishment of the exchanges is also a potentially hot-button issue that many state legislatures across the nation likely will be tackling as soon as their 2011 sessions begin, even if it's just to start assembling an exchange framework with details to be filled in after the Department of Health and Human Services issues regulations.

The California Health Benefit Exchange puts the nation's most populous state in the forefront of states moving ahead on setting up the marketplaces through which millions of Americans will get their health insurance. California may serve as a model for other states' policymakers as they decide on the structure for their exchanges, experts say.

"This is going to be a large exchange, probably on the order of two to four million people being able to get their coverage through that exchange," said Jon Kingsdale, the former executive director of the Massachusetts Connector, an exchange set up prior to the national overhaul to provide health insurance to Massachusetts residents.

"California is 10 percent of the population. I think they're going to be blazing the trail for other parts of the country," Kingsdale said in an interview following remarks at a Washington conference on state issues sponsored by America's Health Insurance Plans. Kingsdale worked with the California Health Care Foundation to provide advice through the process of development of the exchange.

The exchanges need to be doing test runs by October 2013, so time is of the essence, he said. Yet some states are just beginning to sort through the issues at hand. "I think they're very daunted, understandably," said Kingsdale. "This kind of combination of public and almost entrepreneurial function is different, for government."

AHIP, which represents the insurance industry, noted in a memo to members Friday that the National Association of Insurance Commissioners has released a draft model act for states to follow if they want. Key issues include how an exchange is governed, certification of qualified health plans, the process for justifying a premium increase and funding to support the operation, the memo said.

Joy Johnson Wilson, health policy director at the National Conference of State Legislatures (NCSL), predicted that more organizations in the next few weeks will be releasing exchange models as well. State lawmakers will start working on the structure of their exchanges next year but the process could last into 2012, she said. Exchanges must be certified by the federal government by January 2013.

"Certainly I think they'll start next year. Whether every state will finish, the answer is probably no," she said.

Wilson also said she believes states will have to have legislation approved to create the exchanges as new state entities, rather than governors establishing them under executive authority.

In California, the exchange will be an independent public entity that will be governed by a five-member board made up of the state's secretary of health and human services, two members appointed by the governor and two members appointed by state legislators—one by the speaker of the Assembly and the other by the Senate Rules Committee.

The Massachusetts HealthConnector is an independent state agency with a 10-member board that offers two programs, one a subsidized program for low to moderate-income people who don't otherwise have insurance and the second an unsubsidized offering of six private health plans. The board includes slots assigned for various interest groups, Kingsdale said.

According to a chart maintained by the NCSL, other states are in various stages when it comes to exchanges. Colorado, for example, has a Health Reform Implementation Board that is hosting meetings open to the public where options for setting up the exchange are being discussed.

Meanwhile, a Republican governor's signature on the bill authorizing the California exchange was welcomed with particular alacrity by Democratic lawmakers and President Obama, who have been defending the law against a Republican push for repeal in advance of the midterm elections. The Sacramento Bee reported that Obama called Schwarzenegger—who until the last minute appeared undecided—to urge him to sign the bill.

The president said in a statement that the California measure was an "important early step toward reforming our private insurance marketplace" so residents will have choices by the time the exchanges kick into high gear in 2014.

Three House members from California who helped write the law, Democrats Henry A. Waxman, Pete Stark and George Miller, also issued statements praising Schwarzenegger for signing the bill.

But it was opposed by business interests in the state including the California Chamber of Commerce, which called it a "job killer." That conclusion was based on a consultant's analysis that the legislation went "far beyond" what's required in federal law by allowing the exchange to establish benefits in excess of the federal required benefits package.

California media reported that Anthem Blue Cross, a major provider in the state, also opposed the legislation. But it was supported by Blue Shield of California. That company's CEO, Bruce Bodaken, appeared at the bill signing ceremony with Schwarzenegger.

"Given the strong opposition to this legislation by some, it may seem surprising that a health plan CEO would stand up to support it," Bodaken said. "But at Blue Shield, we have long believed that establishing a strong exchange is critical to fixing a broken insurance system."

It's getting there that's the hard part and one of the biggest challenges will be to help consumers understand what the exchanges are. Polls have found widespread confusion about the health care law and Kingsdale warned that a successful exchange will require a "tremendous public education and outreach function."

By John Reichard, CQ HealthBeat Editor

September 30, 2010 -- The top HHS official in charge of overseeing the health insurance industry said Thursday that consumers will be able to compare premiums and benefits for 6,200 plans offered by 300 insurers by the end of the week.

Jay Angoff, director of the HHS Office of Consumer Information and Insurance Oversight, announced the changes to the Healthcare.gov site in a speech to a forum sponsored by the America's Health Insurance Plans (AHIP).

"Healthcare.gov will now allow consumers to compare important details about private plans including monthly premium estimates, annual deductibles, maximum out of pocket limits, major categories of services covered, and the consumers share of costs of these services," Angoff said.

He added that "for the first time ever" on any site are two new pieces of information. "One is the percentage of people who pay more than the premium estimate due to their health status. And the other is the percentage of people who are denied coverage."

The site has won widespread praise for the ease it offers shoppers in finding insurance options. But until now it lacked data on the comparative costs and benefits of plans.

The number of plans described on the site falls short of those actually on the market. But Angoff said information from other plans would be added periodically. The next upload will be in November. AHIP boasts a membership of some 1,300 companies that cover some 200 million Americans.

Angoff mixed praise and some criticism of the industry in his remarks to industry executives.

"The reforms that we are putting in place now are not meant to punish insurance companies," he said. "We need your help to make this happen. You have enormous influence." Angoff called "AHIP a steady partner in expanding access and costs."

Angoff's remarks fell more into the "good cop" side of administration's dealings with the industry, which comes under regular attacks from the administration for profiteering and excessive executive salaries.

He praised companies for implementing some provisions of the law ahead of schedule. But he did strike a note of concern when he said "unfortunately there hasn't been the same degree of cooperation for coverage of kids with preexisting conditions."

Behind the rhetoric, there appears to be a productive working relationship between the government and insurers as they begin to implement provisions of the overhaul law.

The two sides of the relationship were on display last week when HHS blasted some insurers for saying they would drop kids-only coverage. "Please be assured that we are as concerned with preventing adverse selection as you are," Angoff said in his remarks. "But we don't think that discontinuing writing new child-only business is the answer."

Angoff was referring to the decision by several major insurers to keep only existing enrollees in child-only plans and not add new ones. The insurers said they faced unmanageable costs under the law because of its requirement that children with pre-existing medical conditions not be denied coverage.

Companies complained that parents could wait until children get sick to enroll them in the plans. But HHS has offered various approaches to keep that from happening, including limiting enrollment periods. It appears that the department is working hard behind the scenes to get the companies to reverse their decisions.

"I'm hopeful that we will be able to arrive at [a solution] and sooner rather than later because I don't think the current situation benefits anyone," Angoff said.

The administration can ill afford the perception that the law is lessening current access to coverage and is showing flexibility as it implements regulations.

A new challenge in that regard materialized Thursday with a report that McDonald's may stop offering its employees "mini-med" plans that offer some coverage at a modest weekly charge. Mini-meds say they face higher administrative costs because of worker turnover, which they say makes it difficult or impossible to meet coming requirements that 85 percent of the premium dollar in the large group market go for health care.

Angoff didn't address the issue in his remarks and an aide shielded him from taking questions after his remarks.

Angoff also faulted insurers in some instances for blaming double digit rate hikes on the overhaul law. "I want to emphasize that these are isolated instances. I'm certainly not here to criticize the whole industry," he said. "But we both know that those isolated instances are not true."

He said that a recent Hewitt Associates study confirms the administration's estimate that consumer protections already implemented under the law only raise premiums 1 to 2 percent. Recent rate filings by insurers also show a one to two percent premium impact, Angoff added.

By John Reichard, CQ HealthBeat Editor

September 27, 2010 -- A former executive with one of the nation's leading-edge health systems is the new head of a center that one might say has the hopes of a nation riding on its shoulders—the Center for Medicare and Medicaid Innovation created by the health care overhaul law.

Named on Monday to head the Center, which is supposed to find ways to bend the rising health care cost curve, is Richard Gilfillan, a physician who ran the Geisinger Health Plan in Pennsylvania from 2005 to 2009. The plan is part of Geisinger Health System, which many health policy analysts see as a nation model for delivering quality, affordable care.

CMS Administrator Donald M. Berwick, a fervent believer that the way to lower costs is to improve quality, said he'll work closely with Gilfillan to "improve and update the nation's health care delivery systems." Berwick himself enjoys a national reputation for designing health care work processes that reduce costly—and deadly complications from surgery.

Gilfillan has experience developing "accountable care organizations," "patient-centered medical homes," and "bundled payment systems" Berwick noted in an e-mail message to CMS employees announcing the appointment.

While those terms might be dull to everyone else, they quicken the pulses of policy analysts.

Accountable care organizations (ACOs) bring together various types of providers under new payment incentives with the aim of fostering teamwork that streamlines care.

"Medical homes" are primary care practices designed to better coordinate the care of the chronically ill.

Under a "bundled payment" system, the insurer makes a single lump sum payment to a group of providers for all services related to a treatment or condition. The aim is to encourage close cooperation among practitioners to hold down costs. The lower the costs the more of the bundled payment they get to keep.

Stuart Guterman, vice president for payment and system reform at the Commonwealth Fund said in an interview that "it may well be that the innovation center is the most important part" of the overhaul law.

Without new ways to pay for health care that contain costs, "it's going to be hard to sustain broader coverage," Guterman said.

Naming a director now will help get the Center up and running Jan. 1, its start date under the law. "One way or another they need to get this center up and running," Guterman emphasized. The law specifies various innovations the Center must test in pilot programs while also giving it leeway to experiment on its own. Guterman says he expects the Center to focus on ACO payment methods in its first year.

Guterman says he hopes the Center will work closely with private insurers as part of its work in order to draw on and influence the health care system more broadly. "It's really important to align Medicare and Medicaid and private payers," he said.

By John Reichard, CQ HealthBeat Editor

September 27, 2010 -- The nation's biggest health insurance lobby said Monday that it will work with federal regulators to fix the problems in the child-only market that have emerged since the health care overhaul law was passed.

The law, in general, requires insurers who offer family policies to cover children with pre-existing medical conditions. Traditionally, some insurers have also offered policies to people who want to cover only their children rather than the entire family. But since the overhaul (PL 111-148, PL 111-152) was enacted, some companies that offer those child-only plans have said they intend to discontinue them. They contend that because of provisions in the law that require insurers to cover children regardless of their medical history, parents will wait to buy policies until their children get sick, thus making the plans unaffordable.

New requirements to ensure access to family coverage by children with pre-existing medical conditions have "worked well," industry spokesman Robert Zirkelbach said in an e-mail. But "in the small but critically important niche market for child-only policies, a powerful incentive has been created for parents to defer purchasing coverage until after their children need it," said Zirkelbach, press secretary for America's Health Insurance Plans (AHIP).

"We will continue to work with regulators to try and find workable solutions to stabilize the market for new child-only coverage,'' Zirkelbach added.

Zirekbach was responding to a letter that Health and Human Services Secretary Kathleen Sebelius sent to AHIP late Sept. 24 to complain that the reports of insurers dropping child-only policies meant its members were not living up to previous assurances on access to care for children with pre-existing medical conditions.

"Regrettably, it appears that some of your members are now turning a blind eye and declining to sell new child-only policies in lieu of offering coverage to children with preexisting conditions." This is inconsistent with a letter AHIP sent the administration in March, Sebelius said.

Previously, HHS announced it would allow insurers to institute limited enrollment periods in order to keep parents from buying child-only plans when their children are sick. The Blue Cross and Blue Shield Association hailed that decision, but apparently it was not enough to keep some insurers from planning to drop out of the market. "We still have concerns we are addressing with the administration" beyond the issue of open enrollments, a Blues spokesman said Monday.

The Sept. 24 letter from Sebelius outlines other steps insurers can take to keep them participating, such as permitting child-only rates to differ from rates for dependent children and charging parents more if they drop coverage and subsequently reapply. Insurers also can charge rates based on health status, but only before 2014. That year, rates based on health status are no longer allowed.

Neither AHIP nor the Blues had any immediate comment on whether they expected any of the plans that announced intention to drop out of the child-only market to reconsider in light of the Sept. 24 letter.

By Dena Bunis, CQ HealthBeat Managing Editor

September 29, 2010 -- Some seniors are likely to get relief from the dreaded prescription drug "doughnut hole" next year as the number of drug plans that say they will cover at least some brand-name drugs will triple—from 35 to 106—according to an analysis released Wednesday by Avalere Health, a private research firm.

"Increased gap coverage offered by plans will greatly improve beneficiaries' access to affordable medications in 2011—and significantly lessen the impact of the donut hole experienced by many seniors, particularly those with multiple chronic illnesses," Avalere Health CEO Dan Mendelson said in a statement. "On average, beneficiaries will have a choice of 11 different plans that offer gap coverage.''

According to Avalere, the 106 prescription drug plans will offer gap coverage for a "few" or "some" brand-name drugs. The Centers for Medicare and Medicaid Services (CMS) defines "few" as covering 0 to 10 percent of drugs and "some" as covering up to 65 percent of formulary drugs.

For those medicines that are not covered by these plans, Medicare beneficiaries caught in the doughnut hole can turn to the new 50 percent discount for brand-name drugs provided for under the health law.

The doughnut hole—which affects an estimated 4 million Medicare beneficiaries each year—is scheduled to be eliminated under the health law by 2020. In the meantime, the coverage gap will be narrowed each year through a series of discounts.

In 2011, the coverage gap will begin after Medicare beneficiaries and their insurance plans have spent $2,840 on medications. After that, seniors will have to pay the next $3,600 before coverage picks up again.

Even for those whose plan gives them coverage for an increased number of drugs, Medicare will continue to use the full retail price to compute people's total medication costs. So that means some seniors will pay less to get through the doughnut hole.

The Avalere study says that the number of plans available to low-income Medicare beneficiaries will increase for the first time since the drug benefit began in 2006. There will not only be more plans available to the 9 million low-income beneficiaries, but more people who want to remain on their current plans will be able to do so.

By Jane Norman, CQ HealthBeat Associate Editor

September 27, 2010 -- A section of the health care law that went into effect Sept. 23 expanded coverage for young adults under their parents' policies, but military families weren't included—and it's not clear how soon they will be able to take advantage of the popular provision.

The health care law (PL 11-148, PL 111-152) doesn't affect Tricare, the health insurance program for members of the military and their dependents, because Tricare was specifically excluded. But members of the military objected, saying they want to be allowed to include their children up to age 26 under their health insurance policies.

Lawmakers then moved to insert a provision for young-adult coverage in the 2011 defense authorization bill (S 3454), but that bill stalled in the Senate earlier this month. Republicans united to block it after Majority Leader Harry Reid rejected their offer to limit initial debate to strictly defense-related amendments. While chances of action prior to the November election appear slim, it could conceivably be passed during a lame-duck session.

Tricare now covers dependent children up to the age of 21, or 23 if they are enrolled at an accredited educational institution and rely on a parent for more than 50 percent of their financial support.

Sen. Mark Udall, D-Colo., who introduced a stand-alone bill to provide young-adult coverage under Tricare, said he is still trying to get something done. Service members around the world worry about the health and financial security of their families back home, and they deserve the same "peace of mind" as the civilian population, he said.

This is one of the many provisions in the defense authorization bill that directly impacts military families, and it's one of the many reasons why we need to pass the legislation this year," Udall said in a statement to CQ HealthBeat. "And if not, I will be looking for another way to pass it, either as part of another piece of legislation or as a stand-alone bill."

Lobbyists say there is a possibility of a bill that would provide interim coverage until the defense authorization bill is approved.

Also still left unresolved is whether coverage could be expanded as well for the adult children of military veterans under the separate Civilian Health and Medical Program of the Veterans Affairs Department. Sen. Daniel Akaka, D-Hawaii, on Sept. 16 introduced stand-alone legislation (S 3801) to do that, saying it's "only fair" to give them the same benefits as civilian families.

Capt. Marshall Hanson, legislative director for the private Reserve Officers Association, said that the Department of Defense has plans for the expanded coverage in the works but can't move ahead without congressional action. "Many beneficiaries are asking about this, because of how the economy is impacting employment and resulting benefits for their children," he said.

Hanson added that it's also uncertain, without action from Congress, whether the government can charge special premiums for those newly covered dependents. Active duty members of the service and retirees under the basic entitlement in general pay low or no annual or monthly fees, unlike private insurance. Active duty service members do not pay anything for medical care.

If the premiums for dependent care are not charged, "this will add to DOD's argument to next year's Congress to increase fees charged to military retirees, and perhaps military families to offset the additional costs," Hanson said.

Barbara Cohoon, deputy director for government relations for the National Military Families Association, said that interest among military families remains high, especially those with children nearing the age 23 cutoff.

"Our families do want this particular coverage and have been asking for it," said Cohoon.