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Finance Panel Package a Mix of Mandates, Subsidies, Public Plan Options

By CQ Staff

May 11, 2009 -- Senate Finance Committee leaders released detailed health coverage options late Monday requiring individuals to carry health insurance that in many cases would be purchased with government subsidies and employer contributions and obtained through a "Health Insurance Exchange" site on the Internet directing consumers to each coverage option in their zip code.

The policy options document punts on the controversial question of establishing a government-run public health insurance program as one of the coverage options, perhaps the most divisive issue so far in the health overhaul debate. It lists options ranging from a new health insurance program modeled after Medicare that would require all of the doctors, hospitals, and other providers in that program to participate, to no "public program" at all.

It also would open Medicare to 55- to 64-year-old uninsured Americans who would like to buy into the program and increase eligibility in Medicaid to uninsured parents, children, and pregnant women in households with incomes up to 150 percent of the federal poverty level. One of the alternatives would open Medicaid to all individuals with incomes at or below 115 percent of the federal poverty level.

Other options in the document would sharply limit how much insurance rates could vary and guarantee access to insurance coverage, blocking insurers from denying coverage based on health status.

Committee Chairman Max Baucus, D-Mont., and the panel's top Republican, Charles E. Grassley of Iowa, said in a joint statement that they would present the coverage options at a meeting Thursday to obtain "thoughts and ideas" from other committee members. The options released Monday are the second of three papers panel members will debate before holding a markup in June of comprehensive overhaul legislation. The first paper dealt with proposals to improve patient care and reduce costs, and the third paper will deal with financing.

Financing is also the subject of a committee "roundtable" Tuesday that will hear testimony from public witnesses. A financing options document will be released before a committee meeting on that topic set for May 20.

Under the policy options paper released Monday, insurance companies would have to issue coverage to all individuals and would no longer be allowed to bar individuals with pre-existing conditions from coverage.

Premiums in the individual market and for groups of two to 10 could vary based on age, family composition, and tobacco use and by geography, but otherwise would not vary within a rating area. Rates could vary based on age by a ratio of no more than five to one. The rate limits would take effect in 2013. The rating rules for individuals and groups of two to 10 would apply to other small groups as defined by states, including groups of 11 to 50 people. They also could include the self-employed and/or groups of up to 100 people depending on current state law. Rating rules for the small group market other than individuals and groups of two to 10 would be phased in over a period of 3 to 10 years.

Individuals and groups of two to 10 could buy through the insurance exchange immediately after its creation. The rest of the small group market—11 to 50 employers or as defined by the states—would be able to buy insurance through the exchange once rating rules are fully phased in by the state in question.

People could keep their current coverage and plans will continue to offer the coverage they have today, "but these grandfathered plans will only be available to those people who are enrolled today," according to committee summary of the coverage options.

Four benefit options would be created: lowest, low, medium, and high. All insurers would have to offer coverage in each category. All plans would be required to offer preventive benefits, primary care, emergency services, hospitalization, physician services, prescription drugs, and other benefits. Plans could not include annual or lifetime limits on coverage and would have to provide first-dollar coverage of preventive care.

Tax credits would be provided for individuals under 400 percent of the poverty level to help offset premium costs. Eligible low-income individuals would be able to use the credits to buy coverage through the exchange. Subsidies would shrink in size as income level rises up to the 400 percent level. Small businesses with 10 or fewer full-time workers could get a tax credit equal to 50 percent of coverage costs. Credits would be available to larger businesses but be phased out for firms with more than 25 workers.

In the Medicare-like option for a new public plan, the federal government would set payment rates and there would be no solvency requirements. Another alternative would be a public plan run through regional third-party administrators, that would establish provider networks and negotiate rates. A third alternative would be a state-run public health insurance plan. Another option would be no public plan alternative but "expanding coverage through a reformed and better regulated market."

The committee option on Medicaid suggested that all state Medicaid programs might be required to raise income eligibility for pregnant women, children and parents—for example, up to 150 percent of the federal poverty level, or $33,000 a year for a family of four. There would then be three ways to ensure access to the program.

The first option would be for increased coverage through the current Medicaid structure, under which Medicaid would be expanded to cover everyone with an income at or below 115 percent of the federal poverty level and the federal government would provide short-term full funding for newly eligible beneficiaries. The new standard rates would be phased in over time.

A second option would be to allow those eligible for Medicaid to access the program through the Health Insurance Exchange, as well as expand Medicaid to cover people at or below 115 percent of the federal poverty level and also provide short-term full federal funding for newly eligible beneficiaries until the new standard rates kicked in.

A third approach would expand mandatory coverage for children, pregnant women and parents like the first two options, through Medicaid, but in a different way for childless adults. They would instead be eligible for federal tax credits to buy coverage, either a private plan through the exchange or public coverage through Medicaid. The tax credit would be used like a "voucher" that the recipient would use to buy into the state's Medicaid program and states would be required to accept it.

As for the Children's Health Insurance Program (CHIP), the paper says that once the exchange is up and running, there will be more coverage available for children of low and middle-income workers and the need for the program as it is currently structured will diminish. Under the option in the paper, there would be no federal changes to CHIP until after Sept. 20, 2013, and after that date the CHIP would be offered through the exchange and provide additional benefits for children not eligible for Medicaid.

The paper also lays out the option of making mandatory coverage for prescription drugs apply to the categorically and medically needy, and changing Medicaid law to eliminate smoking cessation drugs and barbiturates from Medicaid's excluded drug list.

Currently the federal government share of Medicaid costs is determined by the federal medical assistance percentage (FMAP), which varies by state and is determined by statute. One option would provide an automatic increase in that percentage during periods of economic downturn after Jan. 1, 2012.

On Medicare, an option is explored that would allow people between the ages of 55 and 64 who don't have employer-sponsored insurance or Medicaid coverage to voluntarily enroll in Medicare, beginning Jan. 1, 2011. The option would end once the exchange was up and running, though those already enrolled could stay in Medicare.

On the question of an individual mandate to carry health insurance, the option would be to say that all individuals have a "personal responsibility requirement" to obtain health insurance coverage. Everyone would be required to buy coverage through the individual market, any grandfathered plan or in the group market. Exemptions would be allowed for religious objections or those in the country illegally.

To ensure compliance, the consequence for not being insured would be an excise tax equal to a percentage of the premium for the lowest-cost option available through the exchange for the area where the individual lives. The tax would be phased-in and would equal 25 percent of the premium for the first year, 50 percent the second year and 75 percent thereafter. Individuals could apply for exemptions from the penalty if the lowest-cost option exceeds 10 percent of income, or an individual is below 100 percent of the federal poverty level, or "hardship." The requirement would begin Jan. 1, 2013 or sooner if possible, the paper says.

As for an employer requirement, the paper sets out as an option a "pay or play" model in which all employers with more than $500,000 in payroll a year would either offer their full-time workers health insurance coverage, or pay an assessment. Those employers with total annual payroll of less than $250,000 would be exempt from offering coverage.

The coverage offered by those larger employers would have to have an actuarial value equal to the lowest coverage option, as well as first-dollar coverage for preventive care, and the employer would be required to contribute at least 50 percent of the premium for the employer-sponsored insurance.

Employers that do not demonstrate they have offered the required level of coverage to their employees would have to pay an assessment, under this option. It would be an excise tax calculated as an amount per employee per month based on the employer's gross receipts for the tax year.

The second option is to not require employers to offer health insurance.

Baucus and Grassley's proposals would put new emphasis on preventive care and wellness programs in Medicare, designed to lower costs by keeping people from getting sick, or by managing chronic conditions like diabetes and obesity before they develop into expensive acute problems. Their proposals would create a "personalized prevention plan" for Medicare enrollees that would include health screening. The proposal would create an individual care program for each beneficiary to keep them healthy, developed in consultation with a "qualified health professional," likely a doctor or nurse.

While the proposals would eliminate many of Medicare's co-payments and other cost-sharing requirements for preventive care, it would do so only for health services with a high rating by a government-appointed task force. Health services that have been determined not to improve or maintain health could be removed from the list of services Medicare pays for, unless a doctor decided that they were necessary.

Preventive programs paid for by Medicaid would get a similar treatment. Preventive procedures considered most effective would not have co-pays, and states could apply for funds that would give Medicaid beneficiaries a refund if they met certain health goals, like weight loss, quitting smoking, or other wellness programs. Companies with wellness programs would get a similar benefit, receiving a tax credit for putting in place effective wellness programs to keep employees healthy, up to $200 per employee in some cases.

Baucus and Grassley's proposal would also expand optional programs for people to get care at home that they would otherwise receive in a Medicaid-funded institution, like a nursing home. States could expand waivers to let more people into the program, and federal matching funding for home-based care would increase by 1 percent.

An immigration fight could develop over one proposal—to let childless, legal immigrants enroll in Medicaid before the five-year waiting period that currently applies. During debate over an expansion of the Children's Health Insurance Program (PL 111-3), some lawmakers opposed to immigration reform took issue with a similar proposal for legal immigrant children and their parents.

Other proposals include standardizing how health programs collect data on race and ethnicity, and updating the computer databases used by Social Security Administrations, which are becoming obsolete.

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